-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FHy60X+9WPoTFbAx+ZOyD2WpGvecvFa3FrYC3bvREJXBxvmG/zxJgP4x5ZP4pc2U DTbpz7il5FqRLjjw13ghJw== 0000074778-97-000004.txt : 19970325 0000074778-97-000004.hdr.sgml : 19970325 ACCESSION NUMBER: 0000074778-97-000004 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORANGE & ROCKLAND UTILITIES INC CENTRAL INDEX KEY: 0000074778 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 131727729 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-04315 FILM NUMBER: 97561532 BUSINESS ADDRESS: STREET 1: ONE BLUE HILL PLZ CITY: PEARL RIVER STATE: NY ZIP: 10965 BUSINESS PHONE: 9143526000 MAIL ADDRESS: STREET 1: ONE BLUE HILL PLAZA CITY: PEARL RIVER STATE: NY ZIP: 10965 FORMER COMPANY: FORMER CONFORMED NAME: ROCKLAND LIGHT & POWER CO DATE OF NAME CHANGE: 19681202 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4315 ORANGE AND ROCKLAND UTILITIES, INC. (Exact name of registrant as specified in its charter) New York 13-1727729 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Blue Hill Plaza, Pearl River, New York 10965 (Address of principal executive offices) (Zip code) (914) 352-6000 (Registrant's telephone number, including area code) Common Stock, $5 Par Value - New York Stock Exchange, Inc. (Securities registered pursuant to Section 12(b) of the Act) Preference Stock, No Par Value (Securities registered pursuant to Section 12(g) of the Act) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X (Continued) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Continued from first page) ORANGE AND ROCKLAND UTILITIES, INC. (Exact name of registrant as specified in its charter) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No At February 28, 1997, the approximate aggregate market value of the voting stock held by non-affiliates of the registrant was $488,966,492*. At February 28, 1997, the registrant had 13,654,123 shares of Common Stock ($5 par value) outstanding. Documents incorporated by reference: Annual Report to Shareholders for the year ended December 31, 1996 incorporated in Part I, Part II and Part IV to the extent described therein. The Company's definitive Proxy Statement in connection with the 1997 Annual Meeting of Common Shareholders incorporated in Part III to the extent described therein. * For purposes of this calculation, it is assumed that only directors and officers of the registrant are affiliates of the registrant. TABLE OF CONTENTS PART I. Page ITEM 1. Business General Development of Business 1 Financial Information about Industry Segments 1 Narrative Description of Business: 2 Principal Business 2 Electric Operations 2 Gas Operations 8 Diversified Activities 10 Construction Program and Financing 13 Regulatory Matters 15 Utility Industry Risk Factors and Competition 19 Marketing 21 Environmental Matters 21 Research and Development 25 Franchises 25 Employee Relations 26 ITEM 2. Properties 26 ITEM 3. Legal Proceedings 29 ITEM 4. Submission of Matters to a Vote of Security Holders 38 Executive Officers of the Registrant 39 PART II. ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters 41 ITEM 6. Selected Financial Data 41 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 42 ITEM 8. Financial Statements and Supplementary Data 42 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 42 PART III. ITEM 10. Directors and Executive Officers of the Registrant 42 ITEM 11. Executive Compensation 42 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 42 ITEM 13. Certain Relationships and Related Transactions 42 PART IV. ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 43 Signatures 51 Report of Independent Public Accountants on Financial Statement Schedules 53 Consent of Independent Public Accountants 53 PART I ITEM 1. Business General Development of Business: Orange and Rockland Utilities, Inc. (the "Company") is a New York corporation, with its principal office at One Blue Hill Plaza, Pearl River, New York 10965 (telephone number 914-352-6000), which was formed originally under the name Rockland Light and Power Company on May 21, 1926 through the consolidation of a company having the latter name (organized in 1899), Catskill Power Corporation and Orange County Public Service Company, Inc. Its present name was adopted on February 28, 1958, when The Orange and Rockland Electric Company was consolidated with Rockland Light and Power Company. The Company has two wholly-owned utility subsidiaries, Rockland Electric Company ("RECO"), a New Jersey corporation, and Pike County Light & Power Company ("Pike"), a Pennsylvania corporation. The Company has three wholly-owned non-utility subsidiaries, Clove Development Corporation ("Clove"), a New York corporation, O&R Development, Inc. ("ORD"), a Delaware corporation and O&R Energy Development, Inc. ("ORED"), a Delaware corporation. ORED sold all of its oil and gas interests effective December 31, 1995 and has ceased operations. RECO has a wholly-owned non-utility subsidiary, Saddle River Holdings Corp. ("SRH"), a Delaware corporation. SRH has four wholly-owned non-utility subsidiaries, NORSTAR Holdings, Inc. ("NHI") (formerly O&R Energy, Inc.), Atlantic Morris Broadcasting, Inc. ("AMB"), Palisades Energy Services, Inc. ("Palisades") and Compass Resources, Inc. ("Compass"), all Delaware corporations. AMB sold all of its broadcasting properties during 1995 and has ceased operations. NHI has two wholly-owned non-utility subsidiaries, Millbrook Holdings, Inc. ("Millbrook") and NORSTAR Management, Inc. ("NMI"), both Delaware corporations. NMI is the sole general partner of a Delaware limited partnership, NORSTAR Energy Limited Partnership ("NORSTAR Partnership"). NORSTAR Partnership is the majority owner of NORSTAR Energy Pipeline Company, L.L.C. ("NORSTAR LLC"), a Delaware limited liability company. The businesses of the non-utility subsidiaries are described under the subheading "Diversified Activities" in this Item 1. Financial Information about Industry Segments: Consolidated financial information regarding the Company's principal business segments, Electric Operations, Gas Operations and Diversified Activities is contained in Note 13 of the Notes to Consolidated Financial Statements - "Segments of Business" on page 30 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Narrative Description of Business: Principal Business The Company and its utility subsidiaries supply electricity and gas to a territory covering approximately 1,350 square miles. The eastern boundary of the Company's service territory extends along the west bank of the Hudson River from a point in New Jersey six miles north of the George Washington Bridge northerly for approximately 37 miles to a point in New York a short distance north of the United States Military Academy at West Point. From the Hudson River, the Company's territory in New York State extends westward to the Delaware River, embracing all of Rockland County, most of Orange County and a part of Sullivan County. In New Jersey, RECO supplies electricity to the northern parts of Bergen and Passaic Counties and small areas in the northeastern and northwestern parts of Sussex County. Pike supplies electricity and gas to the northeastern corner of Pike County, Pennsylvania. As of December 31, 1996, the Company and its utility subsidiaries furnished electric service to approximately 266,000 customers in 96 communities with an estimated population of 676,000 and gas service to approximately 113,000 customers in 57 communities with an estimated population of 478,000. There have been no significant changes in either the population of the Company's service territory or in the number of customers served in the current year. At December 31, 1995, electric service was provided to approximately 263,000 customers in 96 communities with an estimated population of 671,000 and gas service was provided to approximately 112,000 customers in 57 communities with an estimated population of 474,000. At December 31, 1996 and 1995, 95% of the Company's residential gas customers used gas as their major heating fuel. While the territory served is predominantly residential, the Company and its utility subsidiaries also serve a number of commercial and industrial customers in diversified lines of business activities from which significant electric and gas revenues are derived. No single customer accounts for more than 10% of either gas or electric sales. The business of the Company and its utility subsidiaries is seasonal to the extent that sales of electricity are higher during the summer, mainly due to air conditioning requirements, and sales of gas are greater in the winter months, primarily as a result of heating requirements. Electric Operations Generating Capacity and Purchased Power. As described more fully in Item 2 of this Form 10-K Annual Report under the subheading "Electric Generating Facilities", the capacity of the Company's plants provides the Company with a net generating capacity of 981 megawatts ("Mw") in the summer and 993 Mw in the winter. Additionally, the Company purchases capacity, as more fully described below, to satisfy its reserve requirements, as well as any demand in excess of its installed capacity. The electric energy which RECO and Pike distribute to their customers is supplied by the Company. The maximum historical one-hour demand for the Company and its utility subsidiaries occurred on July 15, 1995 and was 1,068 Mw. In addition to the energy produced at its generating facilities, the Company, through various transmission interconnections, purchases both capacity and energy when needed to meet load and reserve requirements and also when such power is available at a price lower than the cost of production. The Company maintains transmission interconnections with Central Hudson Gas and Electric Corporation ("Central Hudson"), Public Service Electric and Gas Company ("PSE&G") and Consolidated Edison Company of New York, Inc. ("Con Ed"). Through these interconnections, and as a member of the New York Power Pool ("NYPP"), the Company can exchange power directly with the above utilities and, through the facilities of other members of the NYPP, the Company can exchange power with all members of the NYPP and with utilities in pools in neighboring states. In addition, members of the NYPP are able to coordinate inter-utility transfers of bulk power in order to achieve economy and efficiency, cooperate in long range planning of generation and transmission facilities and coordinate inter- utility operating and emergency procedures to assure reliable, adequate and economic electric service throughout the state. Through the NYPP control center, the Company is able to purchase power in order to optimize its generation-interchange mix, using the lowest cost energy available to the Company in the interconnected system. By agreement with the NYPP, the Company must maintain capacity reserves including firm capacity purchases of not less than 18% of its peak load. During 1996, the Company had agreements in place for both capacity and energy purchases. Capacity purchases included an agreement with PSE&G which provided 100 Mw of winter capacity and 125 Mw of summer capacity, an agreement with the New York Power Authority ("NYPA") for 25 Mw of year-round capacity from the Blenheim-Gilboa pumped storage facility (the "Gilboa Facility") and an agreement with North American Energy Conservation, Inc. ("NAEC") which provided for 100 Mw of capacity in the winter capability period and 150 Mw during the summer capability period. With regard to energy, the Company purchased approximately 54% of its energy requirements during 1996. These purchases, which were made primarily through short-term purchase agreements and interchange agreements, were primarily economy transactions made in the interest of lowering costs to the Company's customers. This is demonstrated by the fact that the Company's installed generating capability for the 1996 summer capability period could have provided over 99% of the Company's energy requirements at the time of the Company's peak demand. The use of purchased power under these circumstances reflects the Company's policy of supplementing its electric generation with purchased power not only when needed to meet load requirements but also when such power is available at a cost lower than the cost of production. Information regarding future power supply, particularly the status of capacity purchase contracts with Independent Power Producers and Qualifying Facilities, is contained under the caption "Future Energy Supply and Demand" in this Item 1. Reference is also made to the information contained under the caption "Utility Industry Risk Factors and Competition" in this Item 1. Fuel Supply. The Company's 981 Mw summer generating capacity is available from the following fuel sources: Coal, Oil Oil Gas Plant & Gas & Gas Hydro Turbine Total (Megawatts) Lovett Plant Unit 3 63.0 63.0 Units 4 & 5 399.6 399.6 Hydro Plants Swinging Bridge Mongaup, Rio and Grahamsville 43.8 43.8 Gas Turbine Plants Hillburn and Shoemaker 74.0 74.0 Bowline Point Plant Units 1 & 2 400.6 400.6 463.6 399.6 43.8 74.0 981.0 *For a description of the Company's generating plants, see Electric Generating Facilities" in Item 2 of this Form 10-K Annual Report. The Company's principal generating plants use natural gas, coal, or oil as their primary fuels. This tri-fuel strategy enables the Company to control, to some extent, the risks associated with one of the most volatile components of electric production costs based on fuel price and fuel availability. In addition, the Company's fuel strategy has enabled it to reduce its dependence on oil through the use of coal as the primary fuel for the Lovett Plant's two largest generating units and incorporates economy power purchase from other systems when such purchases are less expensive than generation. There are, however, certain factors which affect fuel price and availability which are beyond the control of the Company. These factors include the domestic and international fuel supply situation, environmental regulations, conservation measures and the availability of alternative fuels. Electricity available for sale is a mix of Company generation by various fuel types, supplemented by purchased power when such power is available at a price lower than the price of generation or is needed to meet load requirements. Details for the years 1992 through 1996 are as follows: 1992 1993 1994 1995 1996 Gas 21% 16% 23% 23% 8% Coal 33 33 36 27 33 Oil 10 5 6 7 1 Hydro 3 4 3 3 4 Purchased Power 33 42 32 40 54 Total 100% 100% 100% 100% 100% Gas - Natural gas is used as fuel for electric generation at the Company's Lovett and Bowline Point Plants and at the Hillburn and Shoemaker Gas Turbine Plants when it is available and economic. Substantially all of the gas used in electric generation is acquired through spot market purchases. During 1996, the Company used significantly lower volumes of natural gas for boiler fuel at both its Lovett Plant and the Bowline Point Plant than in previous years due to the higher market price of gas in relation to other fuels. The Company expects to continue to use natural gas in the Lovett Plant and the Bowline Point Plant during 1997, whenever such gas is more economical than alternative fuels. In 1996, the Company used 2.3 billion cubic feet ("Bcf") and 2.0 Bcf of gas, respectively, at the Lovett Plant and the Bowline Point Plant. Coal - The low sulfur coal (1.0 lbs - SO2 per million British Thermal Unit ("MMBTU")) used in Lovett Plant Units 4 and 5 is supplied to the Company primarily through a long term contract with Massey Coal Sales Company, Inc. The Company maintains the ability to purchase alternative fuel in place of coal whenever it is in its best interest to do so. The coal burned in the Lovett Plant is low in ash (typically 8%) and high in BTU content (26 MMBTU's per ton). During 1996 coal was the predominant fuel burned at the Lovett Plant, and the Company expects it to be the predominant fuel burned during 1997. Information regarding the Company's coal supply contract is contained in Note 12 of the Notes to Consolidated Financial Statements under the caption "Coal Supply Contracts" on page 27 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Oil - The Company has the ability to burn oil at all of the generating units at the Lovett Plant and the Bowline Point Plant. The Company purchased no oil for its Lovett Plant in 1996 and does not anticipate purchasing any significant quantity of fuel oil for the Plant in 1997. Con Ed supplies #6 fuel oil (0.37% maximum sulfur content by weight) to the Bowline Point Plant under a contract between it and the Company. Pursuant to that contract, Con Ed has also agreed to provide a backup oil supply for the Company's Lovett Plant under certain conditions. Hydro - Water for the operation of the Company's Mongaup River Hydro Plants is controlled by the Company through the ownership of the necessary land in fee or through easements. In the case of the Company's Grahamsville Hydro Plant, water is obtained under contract with the City of New York Board of Water Supply. This contract, which expires in 2005, entitles the Company to 8.1 Bcf of free water each year. In 1996, the total amount of water used was 15.5 Bcf. Of this total, 7.4 Bcf was billed at varying rates based on an average cost of all fuels used in power generation. Purchased Power - The Company's practice regarding purchased power is to supplement the Company's electric generation by purchasing both capacity and energy when needed to meet load and reserve requirements and also when such power is available at a price lower than the cost of production. Details regarding purchased power are contained under the captions "Generating Capacity and Purchased Power" and "Future Energy Supply and Demand" in this Item 1. Additional information regarding fuel and purchased power costs, including a description of the fuel adjustment clauses contained in the Company's tariff schedules, is contained in the 1996 Annual Report to Shareholders in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Electric Energy Costs" on page 11 and in Note 1 of the Notes to Consolidated Financial Statements under the caption "Fuel Costs" on page 21, which information is incorporated by reference in this Form 10-K Annual Report. Future Energy Supply and Demand. The Company continues to be committed to meeting customer energy needs by providing reliable energy service at the lowest prudent cost and in an environmentally sound manner. The transition to a competitive business environment may affect the traditional vertically integrated utility structure and will necessitate changes in the way the Company provides for the power needs of its customers. As a result, this section should be read in conjunction with the disclosures regarding competition in the electric utility industry, which can be found in this Form 10-K Annual Report in Item 1 under the caption "Utility Industry Risk Factors and Competition" and in Item 3, Legal Proceedings, under the caption "Regulatory Matters - Competition." Through its Integrated Resource Plan the Company has responded to the changes that have occurred in the utility industry and has incorporated a significant number of conservation and demand reduction alternatives as well as purchased power into its energy strategy. The Company's Demand Side Management ("DSM") program involves efforts to control electric peak demand and energy usage, and addresses the need to improve plant utilization by making customer demand more complementary, over time, to the available capacity. DSM programs are available to all market segments. Through December 31, 1996, DSM efforts have reduced the annual need for increased energy of 240,000 Mwh through programs administered by the Company and by RECO as well as through contracts with outside energy service companies pursuant to the competitive bidding program. The costs of DSM programs are recoverable on a current basis in both the New York and New Jersey service territories. Additional information regarding the recovery of DSM costs, is contained under the captions "Electric Sales and Revenues" and "Other Utility Operating Expenses and Taxes" in the "Review of the Company's Results of Operations and Financial Condition" on pages 11 and 12, respectively, of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. The Company's Supply Side Management program involves the acquisition of future increments of capacity and energy as needed to meet anticipated load and reserve requirements and, in particular, to reduce the cost of electricity to the Company's customers. With regard to future purchases of capacity, contracts are in place with the NYPA, NAEC and PSE&G. The NYPA agreement for firm purchases from the Gilboa Facility, which provides for 25 Mw of year-round capacity, will be in effect through April 2015. The agreement with NAEC will provide capacity ranging between 100 Mw and 150 Mw through October 1998, with an option to extend the contract through October 2001. In addition, a firm purchased power agreement with PSE&G will provide between 100 Mw and 200 Mw of capacity during the contract term which extends through October 2000. At the option of the Company, additional capacity purchases are available throughout the term of the PSE&G contract which, together with the firm contract capacity, would bring the total capacity available under the PSE&G contract to between 300 Mw and 400 Mw. Information regarding future payments under capacity purchase contracts is contained in Note 12 of the Notes to Consolidated Financial Statements under the caption "Power Purchase Agreements" on page 27 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Regarding future purchases of energy, the Company's contract with NAEC provides for a minimum of 1.3 million megawatt hours of firm economy purchases during the winter capability periods beginning with the 1995/1996 period and ending with the 1997/1998 winter period. In addition, the Company will continue to take an aggressive posture in securing economic increments of purchased power, particularly through interchange transactions, short-term firm contracts and spot purchases. During 1994 and 1995, the Company negotiated termination agreements with three independent power producers scheduled to provide capacity and energy to the Company in the late 1990's. The costs associated with the termination of these contracts have been approved for recovery by the New York State Public Service Commission ("NYPSC") and the New Jersey Board of Public Utilities ("NJBPU"). Information regarding these costs is contained in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Other Utility Operating Expenses and Taxes" and in Note 1 of Notes to Consolidated Financial Statements under the caption "IPP Settlement Agreements" on pages 12 and 22 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Gas Operations The Company distributes purchased natural gas, supplemented at times of peak load by gas produced in its propane air gas plants. As of December 31, 1996, the gas distribution system included 1,732 miles of mains. The highest historical maximum daily gas sendout of 206,038 thousand cubic feet ("Mcf") occurred on January 19, 1994. Supply, Transportation and Storage. The Company has firm, long- term gas supply contracts with seven gas producers. Together these contracts account for all of the Company's base load gas requirements and include a contract with a Canadian producer which accounts for approximately 28% of firm contracted supply and expires in the year 2002. Contracts for the remaining 72% of the Company's firm gas supply have been executed with six domestic producers. Two of these contracts are scheduled to expire in 1997, and it is anticipated that replacement gas supplies will be negotiated. The remainder have expiration dates ranging between 1998 and 2010. All of the gas supply contracts contain options for renewal and certain of the agreements contain "re-opener" provisions which allow the Company to modify price and operating terms under certain conditions. This flexibility will ensure the reliability of the Company's gas supply while allowing the Company to enhance its supply portfolio as market opportunities arise. In addition to its long-term contracted supply sources, the Company purchases spot gas from producers primarily for use in electric generation. During 1996, the Company made spot purchases of approximately 6.3 million Mcf of gas or 19% of the total gas supply. To supplement purchased gas, the Company manufactures gas at its propane air gas plants located in Middletown, Orangeburg and Suffern, New York which have a combined capacity of 30,600 Mcf per day of natural gas equivalent. This capacity, together with gas purchases under contracts between the Company and its suppliers, is expected to provide adequate peak day supplies to serve existing customers. Any additional increments of new supply which may be required will be negotiated. In addition to the gas supply contracts, the Company has provided for the transportation of gas through firm, long-term transportation agreements with four major pipeline companies: Tennessee Gas Pipeline Company ("Tennessee"), Columbia Gas Transmission Corporation ("Columbia"), Algonquin Gas Transmission Company ("Algonquin") and Texas Eastern Transmission Corporation ("Texas Eastern"). The transportation agreement with one of these pipelines will expire during November 2000. The other three firm transportation contracts have expiration dates from 2004 through 2012. The Company also has entered into interruptible transportation agreements with the same pipeline companies. All transportation contracts contain options for renewal. With regard to gas storage, the Company also has long-term gas storage contract arrangements with Tennessee, Columbia and Texas Eastern. The earliest expiration date of any of these storage contracts is 2000 and all storage contracts contain options for renewal. In addition, the Company has reserved capacity in an innovative gas storage project operated by Avoca Natural Gas Storage. The storage facility, which will be available in late 1998, uses leached-out caverns in underground salt beds to create a storage reservoir and is designed for fast withdrawal and refill capacity which will enhance the Company's ability to meet incremental peak day gas requirements. As noted earlier, the Company's maximum daily sendout of gas occurred during January 1994 and amounted to 206,038 Mcf. This compares to the maximum daily gas delivery capability of 225,839 Mcf which is available from the following sources: direct purchases - 118,471 Mcf; storage withdrawals - 76,768 Mcf; and Company manufactured gas - 30,600 Mcf. Additional information regarding gas supply and gas storage contracts is contained in Note 12 of the Notes to Consolidated Financial Statements under the caption "Gas Supply and Storage Contracts" on page 26 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Transportation for Others. The Company provides gas transportation services for end users in its service territory who elect to obtain their own direct gas supplies. During 1996, approximately 3.0 Bcf of gas were transported for such end users. Pipeline Capacity and Off-System Sales. As a result of the provisions of Federal Energy Regulatory Commission ("FERC") Orders 636 and 63, and in conjunction with the NYPSC Order in Case 92-G-0050, the Company has marketed excess pipeline transmission capacity and has retained certain profit levels attributable to both the marketed capacity and to off-system gas sales. Information regarding these items is contained in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Gas Sales and Revenues" on page 12 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Take-or-Pay Surcharge Costs and FERC Order No. 636 Transition Costs. As a result of a 1987 FERC order, as well as other legal and regulatory actions since that time, the Company has deferred certain gas supplier take-or-pay costs. A settlement with the NYPSC in Case 88-G-062 granted the Company full recovery of its take-or-pay liability over an amortization period which extends to March 1999. In addition, certain costs incurred by gas pipeline companies in complying with FERC Order No. 636 have been approved, by the FERC, for allocation to distribution companies, including the Company. It is currently estimated that the Company's obligation related to Order No. 636 transition costs will amount to $34.6 million, of which $25.1 million has been paid through December 31, 1996. Information regarding take-or-pay charges and FERC Order No. 636 transition costs, including the recoverability of these costs under the Company's rate structure, is contained under the caption "Gas Energy Costs" in the "Review of the Company's Results of Operations and Financial Condition", in Note 1 of the Notes to the Consolidated Financial Statements under the caption "Rate Regulation" and in Note 12 of the Notes to Consolidated Financial Statements under the caption "Gas Supply and Storage Contracts" on pages 12, 21 and 26, respectively, of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Reference is also made to Item 3, "Legal Proceedings", of this Form 10-K Annual Report. Information regarding the status of competition in the gas distribution industry, particularly NYPSC Orders approving gas utility restructuring plans, is contained in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Rate Activities" on page 14 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Reference is also made to information contained under the caption "Utility Industry Risk Factors and Competition" in this Item 1. Diversified Activities Both the Company and RECO have certain non-utility subsidiaries which engage in the following diversified, non-regulated business activities: gas marketing, energy services, investment in business ventures and land development. The Company's Consolidated Financial Statements, which are incorporated in this Form 10-K Annual Report by reference to the Company's 1996 Annual Report to Shareholders, include the results of operations of all diversified activities. In addition, the diversified activities are considered to be a reportable business segment, due to the fact that the gross operating revenues of the non-regulated business activities, which are primarily attributable to the gas marketing activities, account for more than 10 percent of the Company's total consolidated gross revenues. The nature of the gas marketing business is such, however, that the net earnings realized from this activity, and from all non-regulated activities combined, are not material. In addition, neither the assets of the non-regulated businesses nor the continued operation of the non-regulated business lines are material to the operations of the Company. For these reasons, the disclosure related to the Company's diversified activities, as prescribed by Regulation S-K, has, with few exceptions, been omitted from other sections of this Form 10-K Annual Report. Capital contributions to the non-utility subsidiaries by the Company and RECO are borne by the shareholders. Any profits, losses, or tax savings from investments in non-utility subsidiaries accrue to the shareholders and are not included in the cost of service for ratemaking purposes. A description of the non-utility subsidiaries of the Company and RECO follows. Saddle River Holdings Corp. SRH, a wholly-owned subsidiary of RECO, was established for the purpose of investing in non-utility business ventures and, through an indirect subsidiary, NMI, is currently engaged in natural gas marketing. NMI is the general partner of NORSTAR Partnership and the limited partner is Shell NORSTAR Inc., a wholly-owned subsidiary of Shell Gas Trading Company, a Delaware corporation. The NORSTAR Partnership currently provides natural gas to industrial, commercial and institutional end users, gas distribution companies, gas marketing companies and electric generating facilities in 14 states and Canada. In addition, during 1996, the NORSTAR Partnership sold its gas pipeline operations. As a result of the continued under-performance of the NORSTAR Partnership, during 1996 the focus of the NORSTAR Partnership's business activities began to be redirected from a large volume/low margin customer base to a low volume/higher margin customer base. This reorganization is aimed at increasing customers, sales and margins and will be fully implemented during 1997. Additional information regarding NORSTAR Partnership is contained in the "Review of the Company's Results of Operations and Financial Condition" under the captions "Financial Performance" and "Diversified Activities" on pages 10 and 13 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. A subsidiary of NHI, Millbrook, pursuant to a long-term leasehold agreement, holds for sale or lease approximately twelve acres of non-utility real estate in Morris County, New Jersey. In December 1995 the Company adopted a plan to sell the Millbrook real estate and wrote-down its investment. Broadcasting activities were conducted through AMB, a subsidiary of SRH which owned six radio stations. At December 31, 1995 the sales of all broadcasting properties had been completed. Additional information regarding the sale is contained in Note 1 of the Notes to Consolidated Financial Statements under the caption "Sale of Broadcast Properties" on page 22 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. During 1996, two additional companies were formed as subsidiaries of SRH. Compass Resources, Inc., a Delaware corporation was formed to invest in energy technology ventures and in new energy processes. Palisades Energy Services, Inc., also a Delaware corporation, was formed to market energy products and services. Both companies will begin operations in early 1997. Clove Development Corporation. Clove, a wholly-owned subsidiary of the Company, holds approximately 5,200 acres of real estate, located primarily in the Mongaup Valley region of Sullivan County, New York. Historically, Clove's revenues have been derived primarily from the sale of timber and sand, property rentals and periodic sales of land. Certain portions of Clove's property lend themselves to recreational development. Two small subdivisions have been developed and substantially sold off. A third development, Lakeside Forest at Swinging Bridge, is actively being marketed, with nine lots having been sold through 1996. O&R Development, Inc.. ORD, a wholly-owned subsidiary of the Company, was established to promote industrial and corporate development within the Company's service territory by providing improved sites and buildings. ORD's activities are aimed at attracting new business and industry to the Company's service territory, which would spread fixed costs for electricity and gas over a wider customer base. ORD owns Interchange Commerce Center ("ICC Project"), a 300 acre tract of land in Orange County, New York. The ICC Project has governmental approvals for the development of 2.7 million square feet of light industrial, office, warehouse and retail space. Approximately 2,000 linear feet of street and utilities have been installed, and two buildings, owned by ORD, totaling over 200,000 square feet have been completed and fully leased. O&R Energy Development, Inc. ORED, a wholly-owned subsidiary of the Company, was engaged in oil and gas production through ownership interests in producing wells in Texas, Mississippi, Ohio and Pennsylvania. During 1995, ORED's net investment in producing properties was written down and all of ORED's oil and gas interests were sold effective December 1, 1995. ORED ceased operations during 1996. Additional information regarding the non-utility subsidiaries of the Company and of RECO is contained in the Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report, as follows: in the "Review of the Company's Results of Operations and Financial Condition" beginning on page 10 under the captions "Financial Performance" and "Diversified Activities"; and in the Notes to Consolidated Financial Statements beginning on page 21 in Note 1 under the captions "Principles of Consolidation" and "Sale of Broadcast Properties", in Note 9, "Fair Value of Financial Instruments" under the caption "Gas Futures Contracts" and in Note 13, "Segments of Business". Construction Program and Financing Construction Program. The construction expenditures, excluding allowance for funds used during construction, of the Company and its utility subsidiaries for 1997 are presently estimated at approximately $57.7 million, which consist primarily of routine projects for capital replacements or system betterments and do not include any additions to generating capacity. The Company's construction program is under continuous review and the estimated construction expenditures are, therefore, subject to periodic revision to reflect, among other things, changes in energy demands, economic conditions, environmental regulations, changes in the timing of construction activities, the level of internally generated funds and other modifications to the construction program. Information regarding the Company's construction program is contained under the caption "Liquidity and Capital Resources" in the "Review of the Company's Results of Operations and Financial Condition" and under the caption "Construction Program" in Note 12 of the Notes to Consolidated Financial Statements on pages 13 and 26, respectively, of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Financing. The Company has historically used short-term borrowings in the form of commercial paper to finance construction expenditures when such expenditures exceeded internally generated funds and to finance short-term working capital requirements. Short-term borrowings undertaken for construction expenditures are periodically repaid with internally generated funds and the proceeds of long-term debt and equity offerings. At December 31, 1996, the Company and its utility subsidiaries had unsecured bank lines of credit totaling $100.0 million. Commercial paper borrowings, which are supported by such credit lines, amounted to $82.4 million at year end. Additional information regarding the Company's short-term debt position is contained in Note 8 of the Notes to Consolidated Financial Statements - "Cash and Short-Term Debt" on page 24 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. On February 4, 1997, RECO issued $20 million of First Mortgage 7 1/8% Bonds, Series J, due February 1, 2007 ("Series J Bonds"). The proceeds from the issuance of the Series J Bonds, together with other RECO funds, will be used to refund, in March 1997, RECO's $20 million First Mortgage 9.59% Bonds, Series H. The Company currently has no plans for the issuance of additional debt or equity securities and it is expected that capital requirements, with the exception of $78 million of long-term debt which will mature during 1997 and is expected to be refinanced, will be met primarily with funds from operations, supplemented with short-term debt as required. In addition, the Company will continue to examine the potential for reducing the cost of debt through the evaluation of debt refinancings. The non-utility subsidiaries of the Company and RECO also maintain certain lines of credit and undertake long and short- term borrowings or make investments from time to time. NORSTAR Partnership maintains a $20 million line of credit with one commercial bank under which there was $2.0 million in letters of credit and $1.0 million in notes outstanding at December 31, 1996. Non-utility temporary cash investments amounted to $1.3 million at December 31, 1996. For a description of the non-utility subsidiaries of the Company and of RECO, see "Diversified Activities" in Item 1 of this Form 10-K Annual Report. Additional information regarding liquidity is contained under the caption "Liquidity and Capital Resources" in the "Review of the Company's Results of Operations and Financial Condition" and in Note 7 of the Notes to Consolidated Financial Statements - "Long- Term Debt" on pages 13 and 23, respectively, of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Information regarding certain financial statistics of the Company is contained under the caption "Financial Statistics" on page 32 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Credit Ratings. The current ratings of the Company's principal securities and its commercial paper are as follows: Moody's Standard Duff and Phelps Investor's & Poor's Credit Service, Inc. Corp. Rating Company First Mortgage Bonds A3 A- A Pollution Control Bonds Baa1 A- A- Unsecured Debt Baa1 A- A- Preferred Stock baa1 BBB+ BBB+ Commercial Paper P-2 A-2 D-1- The Company's credit ratings are subject to periodic revision or withdrawal by the particular rating agency, and each rating should be evaluated independently of any other rating. The ratings assigned to the Company's securities by the rating agencies are not a recommendation to buy, sell or hold the Company's securities, but rather are assessments of the respective credit-worthiness of the Company's various securities by the rating agencies. The Company's bonds have an upper medium grade credit rating, its preferred stock has a lower medium grade credit rating and its commercial paper has an upper medium grade credit rating. Regulatory Matters A description of the general character of rate regulation and its effect on the financial statements of the Company and its utility subsidiaries, including a disclosure of the Company's regulatory assets, is contained in Note 1 of Notes to Consolidated Financial Statements under the caption "Rate Regulation" on page 21 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. State Regulation. The Company and its utility subsidiaries are subject to the jurisdiction of state commissions in their respective states of incorporation. The state commissions have the authority to regulate, among other things, rates, services, the issuance of securities and accounting and depreciation procedures. The Company is subject to the jurisdiction of the NYPSC, which covers approximately 77% of consolidated utility energy sales. RECO is subject to the jurisdiction of the NJBPU, which covers approximately 21% of consolidated utility energy sales. Pike is subject to the jurisdiction of the Pennsylvania Public Utility Commission ("PAPUC"), which covers approximately 1% of consolidated utility energy sales. Sales for resale, which are subject to regulation by the FERC, accounted for 1% of consolidated utility energy sales. Federal Regulation. The Company, pursuant to an order of the Securities and Exchange Commission, has been exempted from all of the provisions of the Public Utility Holding Company Act of 1935, except Section 9(a)(2) thereof relating to the acquisition of securities of other public utility companies. The Company and its utility subsidiaries are subject to the jurisdiction of the FERC as "public utilities". This regulation primarily relates to sales and exchanges of electricity for resale, certain transportation, sales and exchanges of natural gas under the Natural Gas Act, Company sales to its utility subsidiaries and certain other matters including accounting, recordkeeping and reporting. Other Regulation. The Company and its utility subsidiaries are also subject to regulation by various other Federal, state, county and local agencies under numerous regulations dealing with, among other things, environmental matters, energy conservation, long-range planning, fuel use, plant siting and gas pricing. Current Rate Activities. Information regarding the current rate filings of the Company and its utility subsidiaries, including the impact which the recent events affecting the Company had on the rate proceedings of the Company and its utility subsidiaries, is contained under the caption "Rate Activities" in the "Review of the Company's Results of Operations and Financial Condition" on page 14 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Information regarding NYPSC proceedings dealing with certain "take-or-pay" gas contract costs and FERC Orders 636 and 63 is contained in the 1996 Annual Report to Shareholders in the "Review of the Company's Results of Operations and Financial Condition" under the captions "Gas Sales and Revenues" and "Gas Energy Costs" beginning on page 12 and in Note 12 of the Notes to Consolidated Financial Statements under the caption "Gas Supply and Storage Contracts" on page 26, which information is incorporated by reference in this Form 10-K Annual Report. Competitive Proceedings. Regulatory agencies at the Federal level as well as the three states in which the Company has retail electric franchises are currently evaluating changes in regulatory and rate-making practices designed to promote increased competition consistent with safety, reliability and affordability standards. Depending on future developments in this area, the Company's market share and profit margins could become subject to competitive pressures in addition to regulatory constraints. A discussion of the current Federal and state competitive initiatives is contained in Item 3, Legal Proceedings of this Form 10-K Annual Report under the captions "Restructuring Litigation" and "Regulatory Matters - Competition". Reference is also made to the caption "Utility Industry Risk Factors and Competition" in this Item 1. Rate Cases. During the five year period ending December 31, 1996, the Company and its utility subsidiaries have sought rate changes to cover the impact of changing costs. The amounts of rate changes approved by the NYPSC, NJBPU and PAPUC are set forth in the following table. Historical Base Rate Cases 1992 - 1996 Annual Amount Overall Rate Return on Class of Effective ($000's) of Return Equity Service Date Requested Granted Granted (%) Granted (%) Electric - N.J. 01/24/92 12,863 5,100 10.17 12.0 Electric - N.Y. 05/01/92 (a) 5,548 - (a) - (a) Gas - N.Y. 12/15/92 7,962 3,776 10.04(b) 11.65(b) Electric - N.J. 01/01/93 (c) 1,685 - - Electric - N.Y. 05/01/93 (d) 691 - - Electric - P.A 06/11/93 498 270 - (e) - (e) Gas - P.A. 06/25/93 36 12 - (e) - (e) Electric - N.Y. 07/01/94 (f) -0- - (g) - (g) Gas - N.Y. 11/04/94 (h) (h) - (h) - (h) Electric - N.Y. 05/01/95 (i) -0- - - Electric - N.Y. 08/01/95 (6,112) (6,112) - (j) 11.3%(j) Electric - N.Y. 05/03/96 (k) (7,750) 8.79 10.4 (a)The first post rate year filing made in accordance with the NYPSC Order in the Company's 1989 electric base rate case provided for the recovery in base rates of inflation on non- fuel operation and maintenance expenses, rate base additions and cost of capital. The base rate increase amounted to $5,548,000. In addition, the Company was permitted to recover a one-time surcharge of $1,869,000 which represents a net undercollection resulting from the reconciliation of revenue and expenses and earned incentives for the year 1991 as provided for in the 1989 Order. (b)Under a multi-year gas rate agreement (1993-1996), the Company was provided with an opportunity to earn a return on common equity of 12.15% through the achievement of incentives related to its main replacement program, gas efficiency programs and gas marketing programs. (c)Rate increase as ordered by the NJBPU to reflect the effect of revised legislation regarding gross receipts and franchise taxes. Rate recovery with interest is permitted over a ten- year period. (d)The second post rate year filing made in accordance with the NYPSC Order in the Company's 1989 electric base rate case provided for the recovery of inflation on non-fuel operation and maintenance expenses, rate base additions and cost of capital. The base rate increase amounted to $691,000. In addition, the Company was permitted to replace the $1,869,000 one-time surcharge with a one-time surcharge of $10,617,000 which represents a net undercollection resulting from the reconciliation of revenue and expenses and earned incentives for the year 1992 as provided for in the 1989 Order. (e)No redetermination of the rate of return on common equity was made under a stipulated agreement. The implied return on common equity is 12.00%, and the implied overall rate of return is 9.98%. (f)The third post rate year filing made in accordance with the NYPSC Order in the Company's 1989 electric base rate case allowed the Company to replace the $10,617,000 one-time surcharge with a one-time surcharge of $7,721,000 which represents a net undercollection resulting from the reconciliation of revenue and expenses and earned incentives for the year 1993 as provided for in the 1989 Order. (g)By means of its Order dated June 10, 1994, the NYPSC, among other things, continued the Revenue Decoupling Mechanism ("RDM") and reduced the return on equity threshold for measuring excess earnings from 12.0% to 10.6%. The Company was required to defer earnings in excess of 10.6%. (h)On November 4, 1994, the NYPSC issued an order terminating the multi-year gas rate agreement. The order denied the Company the opportunity for rate adjustments in the third and fourth years (1995 and 1996) of the agreement. On February 7, 1995, the Accounting and Finance Division of the NYPSC issued an interpretation of the November 4, 1994 termination order which stated that the gas incentive mechanism related to the attainment of certain goals is no longer available. The Company did not contest this interpretation. (i)On February 17, 1995, the Company submitted a compliance filing regarding the operation of the RDM. The filing included a proposal to eliminate the $7,721,000 effective May 1, 1995 reflecting the completion of the recovery of an RDM undercollection applicable to the year 1993. In addition, the filing requested that a net overcollection of $689,000 for the year 1994 be retained by the Company as a future rate moderator, subject to NYPSC verification. On April 19, 1995, the NYPSC approved the proposals, and the one-time surcharge was eliminated effective May 1, 1995. (j)On May 25, 1995, the Company filed a petition to reduce base electric rates by $6.1 million (1.8%) effective April 1, 1996. In accordance with a settlement agreement the Company agreed to reduce its base rates by $6.1 million annually effective August 1, 1995. The settlement replaces the 10.6% earnings limitation imposed by order issued June 10, 1994 with equal sharing between shareholders and customers of electric earnings in excess of 11.3%. (k)Pursuant to the settlement of the May 25, 1995 electric base rate case, the Company, effective May 3, 1996, reduced base electric rates by an additional $7,750,000. The return on equity granted was 10.4%, with a 50%/50% sharing mechanism applicable to any earnings above 10.9%. Utility Industry Risk Factors and Competition The electric and gas utility industry is exposed to many of the general business and financial risks which affect all industries on a local, national or international level. It is also exposed to business and financial risks that are particular to the provision of utility services and to operating a business in a regulated environment. In particular, the industry is exposed to risks relating to, among other things, increasing competition in the wholesale power markets and a move to competition in the retail sector; uncertainties regarding the transition mechanisms, both operating and financial, as the industry moves to deregulation, including the potential for stranded, or non- recoverable costs; increases in fuel costs and uncertainties as to fuel supplies; numerous environmental restrictions, including potential liabilities for environmental matters; regulatory constraints, including the timing and adequacy of rate relief; increases in the cost of, and delays in, construction in an industry which is fixed-asset intensive; the attraction of capital in an industry which is capital intensive; the effects of energy conservation and weather related sales fluctuations, both of which have the potential of causing revenue erosion; and the requirement to provide for growth in demand for energy services. In addition, there are competitive factors present in the electric and gas industry which affect utility companies in varying degrees. Among these are the use by interruptible or dual-fuel customers of lower priced alternative fuels; the establishment of municipal distribution agencies; the ability of gas producers to sell gas directly to end users, usually through an independent gas marketer; the presence of cogenerating systems, small power producers and independent power producers; and the increasing interest in, and research on, the development of energy sources other than those now in use. In addition, regulatory agencies in the three states in which the Company has retail electric franchises are currently evaluating changes in regulatory and ratemaking practices designed to promote increased competition. Depending on future development in this area, the Company's market share and profit margins are expected to become subject to competitive pressures in addition to regulatory constraints. As the industry moves to increased competition and potential deregulation, the Company has taken an active role in the competitive opportunities proceedings in the states in which it operates and has worked extensively with industry groups and the NYPP in designing the future framework for the utility industry. Information regarding the competitive initiatives undertaken by the FERC, the NYPSC, the NJBPU and the PAPUC as well as the Company's strategy for meeting the challenges of increased competition is contained in Item 3, Legal Proceedings, of this Form 10-K Annual Report under the captions "Restructuring Litigation" and "Regulatory Matters - Competition". The Company is committed to managing the risks which are present in the changing utility environment. Included in this strategy are the maintenance of low construction and operating budgets and avoiding external financing. The Company's tri-fuel strategy provides flexibility regarding fuel availability and pricing and the continuance of fuel clause adjustment mechanisms in the rate structures of the Company and its utility subsidiaries assures fuel cost recovery on a current basis. With regard to future power supply, the Company will continue to utilize competitive bidding procedures to mitigate the risks associated with the Company's purchase of both electric capacity and energy, particularly with regard to prudency determinations and cost recovery, and to insure sufficient power supply to meet the growth in demand. Recent actions taken by the Company to mitigate the risk of non-competitive future energy prices include the write-off of two of the Company's older generating units and the successful negotiation of termination agreements with three independent power producers with whom the Company had power supply contracts. In addition, rate procedures which are in effect for the Company's New York gas operations have the effect of mitigating certain risks related to the effect of weather on the Company's gas sales. Information concerning the DSM program and the gas weather normalization adjustment is contained under the caption "Gas Sales and Revenues" in the "Review of the Company's Results of Operations and Financial Condition" on page 12 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Reference is also made to the caption "Future Energy Supply and Demand" in this Item 1. A description of the Company's PowerPickT program is also contained in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Rate Activities" on page 14 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report as well as in Item 3, Legal Proceedings, of this Form 10-K Annual Report under the captions "Restructuring Litigation" and "Regulatory Matters - Competition". The problems associated with nuclear energy have not affected the Company as it has no operating nuclear plants nor any under construction, and has no plans for future participation in nuclear projects. For further information on the recovery by the Company of its investment in the canceled Sterling Nuclear Project, see Note 3 of the Notes to Consolidated Financial Statements - "Sterling Nuclear Project" on page 23 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Marketing One of the Company's primary strategies in its response to the increasingly competitive environment in the utility industry is its focus on marketing activities. The Company's marketing strategies include organizational changes to better align functional capabilities with customer needs, the identification and offering to customers of new products and services, and, in particular, during 1996 the implementation of the PowerPickT retail pilot program. This program, which is designed to provide participants from all classes of customers with a choice to select an energy supplier other than the Company, is described in the 1996 Annual Report to Shareholders in the "Review of the Company's Results of Operations and Financial Condition" under the captions "Electric Sales and Revenue" on page 11 and "Rate Activities" on page 14, which information is incorporated by reference in this Form 10-K Annual Report. Another primary focus of the marketing strategy is to work more closely with commercial and industrial customers in order to identify the business issues which impact these customer classes. This focus will continue to drive new products, services and strategies which will be aimed at retaining and expanding this customer base. DSM activities will remain a major focus of the new marketing strategies in the continuing effort to achieve energy efficiency while helping customers to reduce their energy costs. Emphasis will continue to move from the customer rebate aspect of the DSM programs to energy cost savings which may be realized through these programs. In addition, introducing new and emerging technologies has been given new emphasis in the Company's marketing strategy. Environmental Matters The Company is subject to regulation by Federal, state, county and, to some extent, local authorities with respect to the environmental effects of its operations, including regulations relating to air and water quality, aesthetics, levels of noise, hazardous wastes, toxic substances, protection of vegetation and wildlife and limitations on land use. In connection with such regulation, various permits are required with respect to the Company's facilities. Generally, the principal environmental areas and requirements to which the Company is subject are as follows: Water Quality. The Company is required to comply with Federal and State water quality statutes and regulations, including the Federal Clean Water Act ("Clean Water Act"). The Clean Water Act requires that Company generating stations be in compliance with state issued State Pollutant Discharge Elimination System Permits ("SPDES permits"), which prescribe applicable conditions to protect water quality. Effective July 1, 1994, the State of New York Department of Environmental Conservation (the "NYSDEC") issued a new SPDES permit for the Company's Lovett Coal Ash Management Facility. The NYSDEC also has issued a SPDES permit, effective October 1, 1991 for the Company's Lovett generating station. The Lovett SPDES permit expired on October 1, 1996. Since a renewal application was filed within the statutory deadline, the expired permit remains in effect until a new permit is issued by the NYSDEC. The Bowline Point generating station currently operates under a SPDES permit which expired on October 1, 1992. This permit remains in effect since a permit renewal application was filed on April 3, 1992, which was within the statutory deadline for renewal application. The Company is now proceeding with the State Environmental Quality Review Act ("SEQRA") process as part of the permit renewal procedure. The SEQRA process, and the resulting delay in issuance of a new permit to the Company, has had no practical impact on the operation of the Bowline Point generating station. The Company entered into a settlement with the United States Environmental Protection Agency ("EPA") and others that relieved the Company for at least 10 years from a regulatory agency requirement that, in effect, would have required that cooling towers be installed at the Bowline Point generating station. In return, the Company agreed to certain plant modifications, operating restrictions and other measures. This settlement expired in May 1991. On May 15, 1991, the Company and others entered into an Interim Agreement with the NYSDEC to continue specific operating conditions and other measures for a period from May 15, 1991 to September 30, 1992. Several intervenors to the original settlement filed a civil action challenging the Interim Agreement's legality. On March 23, 1992, the parties to the Interim Agreement and intervenors signed a Consent Order terminating litigation and agreeing to certain operating limitations and biological monitoring requirements. Subsequently, the parties agreed to extend the terms of the Consent Order until February 1, 1997. The parties are currently negotiating another extension of the Consent Order. The parties are continuing to abide by the terms of the Consent Order during this negotiation process. Air Quality. Under the Federal Clean Air Act ("Clean Air Act"), the EPA has promulgated national primary and secondary air quality standards for certain pollutants, including sulfur oxides, particulate matter and nitrogen oxides. The NYSDEC has adopted, and the EPA has approved, the New York State Implementation Plan ("SIP") for the attainment, maintenance and enforcement of these standards. In order to comply with the SIP, the Company burns #6 fuel oil at its Lovett and Bowline Point generating stations with a 0.37% maximum sulfur content by weight. Pursuant to the SIP, the Company is governed by the following limitations when it is burning coal at Lovett Units 4 and 5: if one unit is burning, the Company may emit sulfur dioxide at a rate not to exceed 1.5 lb./MMBTU, and if two units are burning, the Company may emit sulfur dioxide at a rate not to exceed 1.0 lb./MMBTU per unit. The SIP provides a mechanism for air emissions fee billing pursuant to Title V of the Clean Air Act. The owners of Title V sources in New York State, which sources include the Company's Lovett and Bowline Point Plants, and the Shoemaker and Hillburn Gas Turbines are required to pay an emission fee based upon actual air emissions reported to NYSDEC at a rate of approximately $27 per ton of air emissions. In 1996, the Company paid approximately $400,000 in such emission fees, approximately $80,000 of which was recovered from Con Ed pursuant to the Bowline Point Plant operating agreement. In 1997, this emission fee will be based on 1996 air emissions at a rate established by the NYSDEC not to exceed $50 per ton. The Clean Air Act Amendments of 1990 could restrict the Company's ability to meet increased electric energy demand after the year 2000 or could substantially increase the cost to meet such demand. The Company has spent approximately $28.7 million to comply with the Reasonably Available Control Technology ("RACT") Phase I emissions limitations for nitrogen oxide established by the NYSDEC to achieve ozone attainment. New York and eleven other member states of the Ozone Transport Commission have entered into a Memorandum of Understanding which calls for the states to adopt more stringent nitrogen oxide emissions limits for Phases II and III reductions. Phases II and III are to take effect in 1999 and 2003, respectively. The Company will continue to assess the impact of the Clean Air Act Amendments of 1990 on its power generating operations as additional regulations implementing these Amendments are promulgated. Toxic Substances and Hazardous Wastes. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("Superfund"), provides that both the owners and operators of facilities where releases of hazardous substances into the environment have occurred or are imminent, and the generators and transporters of hazardous substances disposed of at the facilities, are, regardless of fault, jointly and severally liable for all response, removal and remedial action costs and also for damages to natural resources. As part of its operations, the Company generates materials which are deemed to be hazardous substances under Superfund. These materials include asbestos and dielectric fluids containing polychlorinated biphenyls ("PCBs"), both of which are disposed of at licensed, off-site locations not owned by the Company. Other hazardous substances may be generated in the course of the Company's operations or may be present at Company-owned locations. The Company has, from time to time, received process or notice of claims under Superfund or similar state statutes relating to sites at which it is alleged that hazardous substances generated by the Company (and, in most instances, by a large number of other potentially responsible parties) were disposed of. Similar claims may be asserted from time to time hereafter, involving additional sites. Typically, many months, and sometimes years, are required to fully determine the probable magnitude of the cleanup costs for a site, the extent, if any, of the Company's responsibility, the number and responsibility of other parties involved, the financial ability of the other parties to pay their proportionate share of any costs, and the probable ultimate liability exposure, if any, of the Company. This process is still under way at most of the sites of which the Company has notice, and the costs at some of these sites may be substantial. The Company does not believe that certain proceedings will have a material effect on the Company, while as to others, the Company is unable at this time to estimate what, if any, costs it will incur. Information concerning certain Superfund claims involving the Company is included in Item 3, "Legal Proceedings" of this Form 10-K Annual Report. Environmental Expenditures. The Company's environmental expenditures amounted to approximately $13.5 million in 1996. Compliance with Federal, state and local laws and regulations which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment is not anticipated to have a material effect on the financial condition of the Company. The Company's projected environmental expenditures are under continuous review and are revised periodically to reflect changes in environmental regulations, inflation, technology and other factors which are beyond the control of the Company. Although the Company is unable to predict the ultimate impact of environmental regulations on existing or proposed facilities or on the operations of the Company, the Company believes that its expenditures for compliance with environmental regulations will be given appropriate rate treatment by the respective regulatory commissions. Information concerning environmental issues and their potential effect on the Company's operations is included in Note 12 of the Notes to Consolidated Financial Statements under the captions "Other Legal Proceedings" and "Environmental" beginning on page 28 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report, as well as in Item 3 "Legal Proceedings" of this Form 10-K Annual Report. Research and Development The Company supports research and development agencies involved in utility research, provides funds for joint utility research projects and conducts its own internal program. Research and development expenditures amounted to approximately $2.6 million in 1996, $2.9 million in 1995 and $3.8 million in 1994. The Company provides support to national agencies such as the Electric Power Research Institute and the Gas Research Institute. At the state level, the Company supports the Empire State Electric Energy Research Corporation, the New York State Energy Research and Development Authority and the New York Gas Group Research, Development and Demonstration Committee. Generally, the Company's internal research and development program concentrates on projects which uphold the corporate goal of providing customers with new technologies that will optimize the use of energy, thereby increasing the value of energy to the customer. The Company is committed to providing its customers with safe, reliable electric energy at a competitive price and in an environmentally acceptable manner. The program includes projects which seek improvement of transmission and distribution systems, mitigation of environmental impacts of electric power generation, and enhancement of the value of electric energy for customers. Current projects include an evaluation of the performance characteristics of underground distribution cable, an evaluation of the efficient use of electrotechnologies, alternative methods to reduce fish impingement at power plants, small business electrotechnologies studies, and power quality monitoring and reporting. Franchises The Company and its utility subsidiaries, RECO and Pike, each have municipal consents or franchises, together with their corporate or charter powers, which give each of them the right to carry on their respective operations in the territories served. The municipal consents or franchises held by the Company and its utility subsidiaries are not exclusive. In certain municipalities, the areas served by the Company, RECO and Pike are limited either by the terms of the consents or franchises or by order of the NYPSC, the NJBPU, or the PAPUC, respectively. Under the present provisions of the State laws of New York, New Jersey and Pennsylvania, no other private corporation can commence public utility operations in any part of the territories now served by the Company, RECO or Pike, respectively, without obtaining a certificate of public convenience and necessity from the applicable State utility commission. A certificate of public convenience and necessity would not be required with respect to a municipality furnishing electric or gas service within its borders under the present provisions of the State laws of New York, New Jersey or Pennsylvania. Municipal corporations, upon compliance with the State laws of New York, New Jersey or Pennsylvania, as applicable, are authorized to acquire the public utility service of any public utility company by purchase or by condemnation. The Company does not reasonably expect any municipal corporation to acquire the public utility service of the Company or its utility subsidiaries through either purchase or condemnation. The municipal consents or franchises of the Company and its utility subsidiaries are not uniform and contain, in certain instances, provisions relating to, among other things, the time of commencing operations, the furnishing of service to the particular municipality, the approval by the municipal authorities of the location and construction of distribution facilities, indemnification of the municipality against liabilities and damages in consequence of construction, and administrative matters. Such provisions are not considered by the Company to be unduly burdensome. Employee Relations At December 31, 1996, the Company had 1,501 employees of whom 15 were the full-time equivalent of part-time employees. The Company considers its relationship with its employees to be satisfactory. The current contract with Local 503 of the International Brotherhood of Electrical Workers ("IBEW") representing 848 production, maintenance, commercial and service employees of the Company became effective June 1, 1994 and expires June 1, 1997. This contract does not include supervisory employees. The Company's utility subsidiaries, RECO and Pike, have no employees other than officers. All services are performed for the utility subsidiaries by employees of the Company pursuant to Joint Operating Agreements approved by the NJBPU and the PAPUC, through which the Company is reimbursed for these services. Several employees of the Company provide managerial and clerical services for the non-utility subsidiaries of the Company and of RECO, the cost of which are either paid directly by the subsidiaries or are reimbursed to the Company through periodic billings. In addition, the non-utility subsidiaries, at December 31, 1996, had 114 full-time and 10 part-time employees, none of whom were participants in the Company's various employee benefit plans or were covered by the Company's contract with the IBEW. ITEM 2. Properties The Company's property consists primarily of electric generation, transmission and distribution facilities and gas distribution facilities. This property is required for the continued operation of the Company's major business segments. In addition, the Company maintains certain miscellaneous utility and non- utility property. The Company's facilities are in satisfactory condition, are suitable for the particular purpose for which they were acquired, and are adequate for the Company's present operations. Electric Generating Facilities. The Company's generating plants, all of which are located in New York State, are as follows: Maximum Summer Percent Net Mwh Net Mw of Total Generated Plant Name Units Energy Source Capacity Capacity in 1996 Swinging Bridge, Mongaup & Rio 8 Hydroelectric 25.8 2.6% 92,390 Grahamsville 1 Hydroelectric 18.0 1.8 98,923 Hillburn 1 Jet Fuel/Gas 37.0 3.8 1,540 Shoemaker 1 Jet Fuel/Gas 37.0 3.8 5,404 Lovett 3 Coal/Oil/Gas 462.6 47.2 1,919,400 Bowline Point 2 Oil/Gas 400.6(1) 40.8 260,301 981.0 100.0% 2,377,958 (1) Company's share of maximum summer net megawatt capability. Electric Transmission and Distribution Facilities. The Company owns, in whole or in part, and operates overhead and underground transmission and distribution facilities which include 617 circuit miles of transmission lines, 78 substations, 84,509 in- service line transformers, 4,967 pole miles of overhead distribution lines and 2,271 miles of underground distribution lines. With the exception of the Grahamsville Substation, the electric transmission and distribution facilities of the Company and its utility subsidiaries are located within the Company's New York, New Jersey and Pennsylvania service territory, which is described under the caption "Principal Business" in Item 1 of this Form 10-K. The Bowline Substation and the related transmission facilities are jointly owned by the Company and Con Ed and are operated by the Company. The Ramapo Substation and certain related transmission facilities consist of property which is either owned by the Company, owned by Con Ed or jointly owned by the Company and Con Ed and which is operated and maintained by the Company except for the 500/345 Kv section of the Ramapo substation and a 500 Kv transmission line which is operated and maintained by Con Ed. In addition, certain minor portions of substation equipment are jointly owned by the Company and major customers of the Company. Gas Facilities. The Company owns and operates three propane air gas plants at Middletown, Orangeburg and Suffern, New York and its gas distribution system, which is located within its gas franchise territory in New York and Pennsylvania, includes 1,732 miles of mains. Miscellaneous Properties. The Company owns office buildings and operating facilities in Middletown, Spring Valley, Blooming Grove and West Nyack, New York, and other structures at different locations within the Company's service territory which are used as offices, service buildings, store houses and garages. The Company leases its corporate headquarters in Pearl River, New York, as well as office space at other locations. In addition, the Company has lease agreements covering certain of its data processing equipment, office equipment and vehicle fleet. Character of Ownership. The Company's electric and gas plants and its major electric substations are located on land owned by the Company in fee, except for the Grahamsville Plant and the Bowline Point Plant. The greater portion of the Grahamsville Plant is located on land leased from the City of New York and the Bowline Point Plant is located on land in which the Company has a one-third undivided interest, with the remainder being owned by Con Ed. Water power and flowage rights for the operation of its Mongaup River Hydro Plants are controlled by the Company either through ownership of the necessary land in fee or through easements which are, in practically all cases, perpetual. In the case of the Grahamsville Plant, however, water is obtained under contract with the City of New York. Electric transmission facilities of the Company and its utility subsidiaries (including substations) are, with minor exceptions, located on land owned in fee or occupied pursuant to perpetual easements. Electric distribution lines and gas mains are located in, on or under public highways or private lands pursuant to lease, easement, permit, municipal consent, agreement or license, express or implied through use by the Company or its utility subsidiaries without objection by the owners. In the case of distribution lines, the Company owns approximately 60% of the poles upon which its wires are installed and has a joint right of use in the remaining poles on which its wires are installed, which poles are owned, in most cases, by telephone companies. The Company's electric and gas plants are owned by the Company except for the gas turbines at Hillburn and Shoemaker which are leased and the Bowline Point Plant which is jointly owned with Con Ed and operated by the Company. Additional information regarding the investment in the Bowline Point Plant by the Company and Con Ed is included in Note 1 of the Notes to Consolidated Financial Statements under the caption "Jointly Owned Utility Plant" on page 22 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Substantially all of the utility plant and other physical property owned by the Company and its utility subsidiaries is subject to the liens of the respective indentures securing the first mortgage bonds of the Company and its utility subsidiaries. Investments in securities of the utility subsidiaries costing $11.8 million which have been eliminated from the Consolidated Balance Sheet are pledged under the Company's First Mortgage Indenture, as amended and supplemented. ITEM 3. Legal Proceedings Restructuring Litigation: The Company, the six other New York State investor-owned electric utilities, and the Energy Association of New York State filed a petition in New York State Supreme Court on September 18, 1996 challenging the NYPSC's May 20, 1996 Order in the Competitive Opportunities Proceeding (Case 94-E-0952) under Article 78 of the New York Civil Practice Law and Rules. Details concerning the Competitive Opportunities Proceeding are contained under the subheading "Regulatory Matters" in Item 3 of this Form 10-K Annual Report. In their Article 78 petition, the petitioners alleged that the Order is vague, ambiguous and procedurally defective, that the May 20, 1996 Order fails to assure the utilities a reasonable opportunity to recover strandable costs, and the NYPSC lacks the authority to order retail wheeling or divestiture. On November 26, 1996, the Supreme Court issued a ruling denying the Article 78 petition. In its ruling, the Court determined that because the Commission has not yet directed retail wheeling, generation deregulation and asset divestiture, there is no justiciable controversy regarding these issues. Despite this finding, the Court proceeded to opine that the Commission is not precluded by state or federal law from ordering retail wheeling or generation divestiture. The Court also determined that the utilities are not entitled, as a matter of law, to recover from customers the full amount of the utilities' strandable costs. On December 24, 1996, the Energy Association and the New York utilities appealed to the Appellate Division of the Supreme Court for the Third Judicial Department from the Supreme Court's November 26, 1996 decision. The Company is unable to predict the final result of this litigation. Environmental and Other Litigation: On September 25, 1991, the Company was named as one of several hundred third-party defendants in United States v. Kramer, et al. and State of New Jersey Department of Environmental Protection v. Almo Anti-Pollution Services, et al. ("Kramer"), which cases have been consolidated in the United States District Court for the District of New Jersey, Camden Vicinage. The allegations in this action concern the Helen Kramer Landfill site in Mantua, New Jersey, which operated from 1963 to 1981. This action was brought under Superfund laws. Additional information concerning Superfund laws is contained under the subheading "Environmental Matters" in Item 1 of this Form 10-K Annual Report. Although it is presently unclear if any hazardous waste generated by the Company was transported to the Helen Kramer Landfill site, a final report by an independent waste consultant firm indicates that no such waste was delivered to the site. On October 2, 1996, the Company entered into a de minimis settlement agreement with certain third-party plaintiffs which upon court approval, inter alia, provides for (i) dismissal of the claims asserted against the Company and a bar to future claims against the Company related to the site, (ii) indemnification of the Company for any future claims or expenses related to the site, each with certain standard limited exceptions, and (iii) payment of $15,000 into a fund which will be used to pay for clean-up costs related to the site. On March 29, 1989, the New Jersey Department of Environmental Protection ("NJDEP") issued a directive under the New Jersey Spill and Control Act to various potentially responsible parties ("PRPs"), including the Company, with respect to a site formerly owned and operated by Borne Chemical Company in Elizabeth, Union County, New Jersey, ordering certain interim actions directed at both site security and the off-site removal of certain hazardous substances. Certain PRPs, including the Company, signed an administrative consent order with the NJDEP requiring them to remove and dispose of the hazardous substances located above ground at the Borne site, which removal and disposal was completed on June 22, 1992. In October 1995, the PRPs entered an additional administrative consent order with the NJDEP which obligated the PRPs, including the Company, to perform a remedial investigation to determine what, if any, subsurface remediation at the Borne site is required. The remedial investigation is proceeding. The Company does not believe that this matter will have a material effect on the financial condition of the Company. On May 29, 1991 a group of ten electric utilities (the "Metal Bank Group") entered into an Administrative Consent Order with the United States Environmental Protection Agency ("EPA") to perform a remedial investigation and feasibility study ("RIFS") at the Cottman Avenue/Metal Bank Superfund site in Philadelphia, Pennsylvania. PCBs have been discharged at the Cottman Avenue site from an underground storage tank and the handling of transformers and other electrical equipment at the site. On May 25, 1994, the Company entered into a tolling agreement pursuant to which the Metal Bank Group reserved its right to file suit against the Company while the Metal Bank Group and the Company entered into discussions to determine the extent of the Company's involvement with the Cottman Avenue site. These discussions continue. The RIFS was completed and submitted to the EPA for determination of what remedial measures will be required at the Cottman Avenue site. The Metal Bank Group has assigned the Company with a 2.87% share although, to date, because the Company is not a member of the Group, the Company has been unable to confirm this allocation. In addition, the Company received in November 1996 and has responded to a letter from the EPA requesting information and documentation concerning the Company's connection to the site. The EPA has issued a proposed remediation plan which, if approved, will cost approximately $17 million. The Company is unable at this time to estimate its share, if any, of past or future costs at this site. On August 2, 1994 the Company entered into a Consent Order with the New York State Department of Environmental Conservation ("DEC") in which the Company agreed to conduct a remedial investigation of certain property it owns in West Nyack, New York. Polychlorinated biphenyls ("PCBs") have been discovered at the West Nyack site. Petroleum contamination related to a leaking underground storage tank has been found as well. The Company has completed this remedial investigation. In November 1996, the Company submitted to the DEC a Feasibility Study Report which evaluates various remedial actions to eliminate the contamination discovered at the West Nyack site. After the DEC approves the Feasibility Study and solicits public comment, the DEC will select a final remedial alternative for the West Nyack site. The Company does not believe that this matter will have a material effect on the financial condition of the Company. The Company has identified six former Manufactured Gas Plant ("MGP") sites which were owned or operated by the Company or its predecessors. The Company may be named as a potentially responsible party for these sites under relevant environmental laws, which may require the Company to clean up these sites. To date, no claims have been asserted against the Company. The Company and the DEC have executed a Consent Order, dated as of January 8, 1996, which provides for preliminary site assessments of these six MGP sites. In November 1996, the Company submitted to the DEC, for its review and approval, a draft work plan for the preliminary site assessment of three of the MGP sites. The Company is unable at this time to estimate what, if any, costs it will incur at these sites. On January 17, 1997, the Company received a Third-Party Summons and "Additional Third-Party Complaint" in a litigation pending in the United States District Court for the Southern District of New York entitled Town of Wallkill and State of New York v. Tesa Tape, Inc., et al. The Additional Third-Party Complaint purports to allege claims against the Company and other third-party defendants for response costs under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), and for contribution and/or indemnity under CERCLA, the New York Contribution Among Tort-Feasors Act and common law principles of contribution and indemnity. The Additional Third- Party Complaint alleges that the Company transported wastes containing hazardous substances and/or generated, disposed of, and/or arranged for disposal or transport of wastes containing hazardous substances during the relevant time period (identified as 1965 through in or about 1974 in a pleading attached to the Additional Third-Party Complaint) at a landfill site located in the Town of Wallkill, Orange County, New York. On January 21, 1997, the Company received an Amended Summons and Amended Complaint of Plaintiff-Intervenor State of New York in the same action ("State Complaint"). The State Complaint names the Company as a direct defendant, and purports to allege claims under CERCLA and the common law of the State of New York governing public nuisance, restitution, subrogation and implied indemnities. The State Complaint alleges upon information and belief that the Company disposed of and/or arranged for the disposal or transport for disposal of hazardous substances at the Wallkill landfill site. On February 18, 1997, the Company filed Answers to the State Complaint and to the Additional Third-Party Complaint, denying liability, alleging affirmative defenses and asserting counterclaims against the Town of Wallkill and the Additional Third-Party Plaintiffs. A Revised Case Management Order provides, inter alia, that all parties in the case are deemed to have filed claims against each other (and denied same) for cost recovery and contribution under federal and state law. The Company has insufficient information at this time to predict the outcome of this proceeding. On November 19, 1996, the Company was served with a Summons and Complaint ("Summons and Complaint") in a litigation entitled Crossroads Cogeneration Corporation v. Orange and Rockland Utilities, Inc., filed in the United States District Court for the District of New Jersey. The litigation relates to a power sales agreement between the Company and Crossroads Cogeneration Corporation ("Crossroads"), which requires the Company to purchase electric capacity and associated energy from a cogeneration facility in Mahwah, New Jersey. The Complaint alleges damage claims for breach of contract, breach of the implied covenant of good faith and fair dealing and violations of the Federal Antitrust laws and seeks a declaration of Crossroads' rights under the Agreement. On February 7, 1997 the Company filed a motion to dismiss the action. The Company will defend the action vigorously. The Company cannot predict the outcome of this proceeding. The Company has been named as a defendant or third-party defendant in a number of proceedings involving alleged personal injuries, primarily to construction workers, as a result of exposure to asbestos at facilities owned and operated by the Company. Discovery with regard to these cases will determine, among other things, if the plaintiffs in each of these cases worked at Company facilities. The Company anticipates that similar asbestos-related claims may be asserted against the Company from time to time in the future. However, at this time the Company does not believe that the asbestos-related lawsuits currently outstanding, nor those which may be brought in the future, will, individually or in the aggregate, have a material effect on the financial condition of the Company. Superfund and certain similar state statutes authorize various governmental authorities to issue orders compelling responsible parties to take cleanup action at sites determined to present an imminent and substantial danger to the public and to the environment because of an actual or threatened release of hazardous substances. As discussed above, the Company is a party to a number of administrative and litigation proceedings involving potential impact to the environment. Such proceedings arise out of, without limitation, the operation and maintenance of facilities for the generation, transmission and distribution of electricity and natural gas. Information regarding the Company's involvement in these various proceedings is included in Note 12 of the Notes to Consolidated Financial Statements under the caption "Environmental" on page 32 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in Item 1 of this Form 10-K Annual Report, as well as under the subheading, "Environmental Matters" of this Form 10-K Annual Report. As noted above, the Company does not believe that certain proceedings will have a material effect on the Company, while as to others, the Company is unable at this time to estimate what, if any, costs it will incur. Investigation Related Litigation: On February 7, 1994, the Company commenced an action entitled Orange and Rockland Utilities, Inc. v. James F. Smith ("Smith"), in New York State Supreme Court against its former Chief Executive Officer and Chairman of the Board of Directors, who was terminated for cause by the Company's independent Directors in October 1993. The action asserted claims against Mr. Smith for breach of his fiduciary duties of loyalty and care, waste, conversion, fraud, and unjust enrichment based on misuse of Company assets and personnel and misappropriation of Company funds for his own benefit or for other improper purposes, and failure to maintain proper management controls or to properly supervise corporate affairs and subordinate employees. Mr. Smith filed a counterclaim for benefits in excess of $3 million and filed a motion demanding arbitration under his employment agreement with the Company. On June 17, 1994, the Court issued an Order granting Mr. Smith's motion to compel arbitration. Under a second Order dated August 10, 1994, the parties filed demands for arbitration of the claims asserted by the Company and by Mr. Smith with the American Arbitration Association. The arbitration panel released a written decision on January 29, 1997. The arbitrators found that the Company had "successfully proved that over the years [Mr. Smith] dishonestly and deceptively reported certain expense account items, listing on expense account documentation names of prominent persons who were not present, or inventing fictitious business purpose rationales for social encounters, or pretending to attend business conventions as a ruse for obtaining company-paid vacations for his family." The arbitrators charged Mr. Smith with costs and expenses totaling $2,786,643 for "maintaining the expense account fictions . . ." and "for some of the costs of unraveling [Mr. Smith's] deceptions." That money was awarded to the Company. However, the arbitrators also ruled that Mr. Smith's conduct did not constitute "material economic damage" to the Company. As a result, the panel awarded Mr. Smith $8,309,855, which included his legal and arbitration fees. The offsetting costs between his award and what was awarded to the Company resulted in a net award to Mr. Smith of $5,523,212. That award was a subject of the February 28, 1997 settlement reached between the parties, which is described below. On March 22, 1994, an indictment was returned by a Rockland County grand jury charging Mr. Smith with eight felony counts of grand larceny and two misdemeanor counts of petit larceny. In June 1994, a superseding indictment charged Mr. Smith with 15 felony counts of grand larceny, seven counts of falsifying business records, and two misdemeanor counts of petit larceny. On August 15, 1995, Mr. Smith was acquitted of the charges in a non-jury trial. On September 19, 1995, the Company was served with an Amended Summons and First Amended Complaint ("Complaint") in James F. Smith v. Kenneth Gribetz, et al. ("Gribetz"), an action filed in the United States District Court for the Southern District of New York by Mr. Smith. (An earlier complaint had been filed which did not name the Company). Named as defendants in the Complaint were former Rockland County District Attorney Kenneth Gribetz, the Office of the Rockland County District Attorney, the Company, "John and Jane Does" (identified in the Complaint as certain directors of the Company and/or members of the Special Committee of the Board of Directors and referred to in the Complaint as the "Defendant Directors"), Edwin Stier and Stier, Anderson & Malone. In the Complaint, Mr. Smith alleged the following three causes of action: (i) the violation by Mr. Gribetz and the District Attorney's office of Mr. Smith's federal constitutional rights to fair trial and due process of law; (ii) malicious prosecution by the Company, Defendant Directors and Mr. Stier in that these defendants allegedly caused the arrest and criminal prosecution of Mr. Smith; and (iii) abuse of process by the Company, Defendant Directors and Mr. Stier in that these defendants were allegedly responsible for the arrest, indictment and prosecution of Mr. Smith. Mr. Smith sought damages in excess of $25 million, special damages and punitive damages, attorney fees and other costs on each count. On December 22, 1995, the Company, Edwin Stier, and Stier, Anderson & Malone filed a Motion for Summary Judgment ("Motion") seeking to terminate this action. On February 28, 1997, the Company and Mr. Smith reached a settlement of all disputes between the parties. Pursuant to the settlement, the Company paid to Mr. Smith $4,990,000 and the parties agreed to dismiss with prejudice all claims and counterclaims in Smith and in the Arbitration. In addition, Mr. Smith agreed to dismiss Gribetz with prejudice as against the Company, the "John and Jane Doe" defendants, Edwin Stier and Stier, Anderson & Malone (but not as to Mr. Gribetz or the Office of the Rockland County District Attorney). With respect to the settlement payment to Mr. Smith, any amounts not previously provided for will be recorded in the first quarter of 1997. The Company does not expect the additional provisions to have a significant impact on the overall results of operations in 1997. Regulatory Matters: Competition: Regulatory agencies at the federal level as well as the three states in which the Company has retail electric franchises are currently evaluating changes in regulatory and rate-making practices designed to promote increased competition consistent with safety, reliability and affordability standards. Depending on future developments in this area, the Company's market share and profit margins could become subject to competitive pressures in addition to regulatory constraints. A discussion of the current federal and state competitive initiatives follows. Federal Initiative: On April 24, 1996, the FERC issued its final order ("FERC Order 888") requiring electric utilities to file non-discriminatory open access transmission tariffs that would be available to wholesale sellers and buyers of electric energy. The order also provided for the recovery of related legitimate and verifiable strandable costs subject to FERC's jurisdiction. The Company filed the required open access transmission tariff on July 9, 1996 offering transmission service and certain ancillary services to wholesale customers on a basis comparable to that which it provides itself. By order issued December 18, 1996, the FERC accepted the Company's open access transmission tariff. The Company participates in the wholesale electric market primarily as a buyer of energy and, as a result, Order 888 is not expected to materially impact the Company's financial condition or results of operations. On January 31, 1997, O&R, in conjunction with the other members of the New York Power Pool ("NYPP"), filed tariffs with the FERC seeking permission to restructure the NYPP into an independent system operator. New York Competitive Opportunities Proceeding: On May 20, 1996, the NYPSC issued an order setting forth its vision and goals for the future of the electric industry in New York. The order endorsed a fundamental restructuring of the industry based on competition in the generation and energy services sectors of the industry. Introduction of retail access for all electric customers is envisioned to begin in early 1998. In addition, the order calls for lowering rates to consumers, increasing customer choice, continued reliability of service, continuation of programs that are in the public interest and continuing customer protections and the obligation to serve. While the Company supports the NYPSC's goal of establishing a competitive electricity market in New York State, the Company believes that the May 20, 1996 Order was deficient in certain areas. On September 18, 1996, the Company, the six other New York investor-owned electric utilities and the Energy Association of New York State filed a suit in New York State Supreme Court challenging the May 20, 1996 Order. This litigation is discussed further in the Legal Proceedings section of Note 12 of Notes to Consolidated Financial Statements on page 28 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report, and under the subheading "Restructuring Litigation" in Item 3 of this Form 10-K Annual Report. On October 1, 1996, the Company, in response to the May 20, 1996 Order, filed a rate and restructuring plan (the "Plan") with the NYPSC. The Company's filing presented a comprehensive plan for the functional separation of generation, a schedule for retail access, base rate freeze and stranded cost recovery. On October 9, 1996, the NYPSC issued an order establishing procedures and a schedule for considering the rate restructuring plans filed on October 1, 1996 in the Competitive Opportunities Proceeding. The NYPSC has established a separate proceeding for each of the five utilities (including the Company) which filed these plans. By various notices, the last of which was issued on March 6, 1997, the NYPSC has extended the negotiation period established in the October 9, 1996 Order. The latest extension is to March 25, 1997. The Company, the NYPSC Staff and other interested parties have been engaged in settlement negotiations on contested issues. These contested issues include, but are not limited to, the level and sources of electric price reductions, how these electric price reductions will be distributed among customer groups, the schedule for the transition to retail access, the appropriate corporate structure for the Company and what level of strandable costs should the Company have an opportunity to recover over what time period. If a settlement agreement is negotiated in a proceeding, it will be submitted to the Commission for approval. If a settlement agreement is not reached in the proceeding, the parties will submit testimony on contested issues and will have an additional 60-day period to submit any necessary briefs or other submissions to an administrative law judge. At the end of the 60-day period, the record in a proceeding will be closed and the matter will be submitted to the Commission for decision. Given the uncertainties regarding the Competitive Opportunities Proceeding, the Company is unable to predict the outcome of this regulatory proceeding and the ultimate effect on the Company's financial position or results of operations. New Jersey - Energy Master Plan: On January 16, 1997, the NJBPU issued Proposed Findings and Recommendations for restructuring the electric power industry in New Jersey and introducing competition into the generation sector of the utility business (the "Preliminary Report"). The preliminary findings and recommendations contained in the Preliminary Report have been issued for public comment. The final report is scheduled to be issued in March 1997. The Preliminary Report calls for each of the state's utilities to file proposals for NJBPU review and approval by July 15, 1997 to implement retail competition, functionally separate generation from the utility's other operations, unbundle its current rate structure to accommodate customer choice, and propose a stranded cost recovery plan. The Preliminary Report proposes that retail choice be phased-in encompassing a cross-section of all customer classes over a two and one-half year period beginning in October 1998 and concluding April 2001. In addition, the Preliminary Report calls for regulatory assets and non-utility generator purchased power contracts to continue to be fully recoverable in rates. With respect to above market generation costs, the NJBPU has endorsed the creation of a Market Transition Charge ("MTC") as a non-bypassable component of the delivery price of electricity which would be assessed for a period of four to eight years in order to provide utilities with the opportunity for recovery of stranded costs associated with generation capacity commitments made prior to the advent of competition. The amount of the MTC authorized and the length of time assessed is to be determined by the NJBPU on a case by case basis following a review of the July 15, 1997 filings made by each utility and will be contingent upon a number of conditions, including achievement of near-term rate reduction goals and cost mitigation measures instituted. The filings may be accepted or significantly modified by the NJBPU before becoming effective. It is not possible to predict the outcome of the NJBPU proceeding regarding the filings or its impact on the Company's consolidated financial position or results of operations at this time. Pennsylvania - Competition Legislation: On December 3, 1996, the "Electricity Generation Customer Choice and Competition Act" ("Act") was signed into law by the Governor of the State of Pennsylvania. The Act provides for a transition of the Pennsylvania electric industry from a vertically integrated structure to a functionally separated model that permits direct access by customers to a competitive electric generation market while retaining the existing regulation and customer protections for the transmission and distribution systems. The transition plan of the Act calls for a three-year phase-in of retail access beginning January 1, 1998 and concluding January 1, 2001. The Act also provides for the opportunity for recovery of prudent and verifiable costs resulting from the restructuring through the implementation of a Competitive Transition Charge ("CTC") for a period of up to nine years and the imposition of rate caps designed to prevent a customer's total electric costs from increasing during the transition period above current levels. In addition, the Act permits the refinancing of certain approved transition costs through the issuance of bonds secured by revenue streams guaranteed by the Pennsylvania Public Utility Commission ("PPUC"). The savings associated with this financing mechanism will be used to reduce strandable costs. The Act requires all Pennsylvania utilities to file restructuring plans with the PPUC no later than September 30, 1997. The PPUC is required to issue an order accepting, rejecting or modifying the plan within nine months of the filing. Pike County Light & Power Company ("Pike"), a wholly owned utility subsidiary of the Company, is reviewing the Act and will submit its restructuring plan to the PPUC no later than September 30, 1997. The Company's plan could be accepted or significantly modified before it becomes effective. It is not possible to predict the outcome of the PPUC proceeding required by the Act or its impact on the Company's consolidated financial position or results of operations at this time. Other Regulatory Matters: Information regarding the NYPSC proceeding relating to the NYPSC investigation of prior financial improprieties and the related rate case proceeding (Case 95-E-0491) and the NYPSC approval of a settlement whereby $8.5 million would be refunded to New York ratepayers is contained under the caption "Legal Proceedings" on page 27 of the 1996 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Information regarding the NJBPU audit of RECO and amounts previously refunded or proposed to be refunded by RECO to New Jersey ratepayers is contained in the 1996 Annual Report to Shareholders in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Rate Activities" on page 15, and in Note 12 to the Notes to Consolidated Financial Statements under the caption "Legal Proceedings" on page 28. Information regarding the Company's involvement in, and the effect on the Company of, pipeline take-or-pay proceedings before the FERC is contained under the caption "Gas Energy Costs" in the "Review of the Company's Results of Operations and Financial Condition" and in Note 12 of the Notes to Consolidated Financial Statements - "Gas Supply and Storage Contracts" on pages 12 and 26 through 27, respectively, of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Reference is also made to the information contained under the caption "Take-or-Pay Surcharge Costs and FERC Order No. 636 Transition Costs" of "Gas Operations" in Item 1 of this Form 10-K Annual Report. The Company's gas operations were not materially affected by take- or-pay charges in 1996. However, as required by the NYPSC in Case No. 88-G-062, the Company has deferred a portion of these costs. As of December 31, 1996, $2.1 million of deferred take-or- pay charges and accrued interest remain on the books of the Company. The Company and the NYPSC have reached an agreement allowing the Company to recover these costs by March, 1999. On April 8, 1992, the FERC issued Order No. 636 requiring interstate natural gas pipelines to unbundle their sales and transportation services and to offer each of these services on a stand alone basis. As of March 31, 1997, it is estimated that the Company's obligation related to Order No. 636 transition costs will amount to $34.6 million. Information regarding the Company's involvement in, and effect on the Company of, Order No. 636 and its related proceedings is contained under the caption "Gas Energy Costs" in the "Review of the Company's Results of Operations and Financial Condition" and in Note 12 of the Notes to Consolidated Financial Statements under the caption "Gas Supply and Storage Contracts" on pages 12 and 26 through 27, respectively, of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Reference is also made to the information contained under the caption "Take-or-Pay Surcharge Costs and FERC Order 636 Transition Costs" of "Gas Operations" in Item 1 of this Form 10-K Annual Report. ITEM 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT All of the officers of the Company are appointed on an annual basis at the first Board of Directors' meeting following the annual meeting. The following list includes two Company employees who, due to the policy making functions they perform for the Company, are considered executive officers under SEC criteria, but who are not officers of the Company and who are not appointed on an annual basis. Officers, Age, and Title Business Experience Past Five Years D. Louis Peoples, 56 Vice Chairman of the Board and Chief Vice Chairman of the Executive Officer since July 1994. Board of Directors and Executive Vice President, and a member Chief Executive Officer of the Board of Directors, Madison Gas and Electric Company, Madison, Wisconsin from 1992 to 1993. Senior Vice President, RCG/Hagler, Bailly Inc., San Francisco, California from 1991 to 1992. Larry S. Brodsky, 48 President and Chief Operating Officer President and Chief since January 1996. Senior Vice Operating Officer President from 1994 to 1995 and Vice President from 1987 to 1994, Illinois Power Company, Decatur, Illinois. R. Lee Haney, 57 Senior Vice President and Chief Senior Vice President and Financial Officer since April 1996. Chief Financial Officer Vice President and Chief Financial Officer from September 1994 to April 1996. Senior Vice President - Marketing and Customer Service from January 1993 until September 1994, and Senior Vice President and Chief Financial Officer from 1990 until January 1993, San Diego Gas & Electric Company, San Diego, California. G. D. Caliendo, 56 Senior Vice President, General Counsel Senior Vice President, and Secretary since April 1996. Vice General Counsel President, General Counsel and and Secretary Secretary from March 1995 to April 1996. Senior Vice President, General Counsel and Secretary of Pennsylvania Power and Light Company, Allentown, Pennsylvania from 1989 to 1994. Robert J. Biederman, Jr., 44 Vice President since April 1990. Vice President, Operations Officers, Age, and Title Business Experience Past Five Years Nancy M. Jakobs, 56 Vice President, Human Resources since Vice President, April 1995. Partner, Jakobs and Human Resources Associates International, New City, New York from 1991 to 1995. Robert J. McBennett, 54 Treasurer since 1984. Treasurer and Treasurer Controller from May 1995 to May 1996. Edward M. McKenna, 47 Controller since May 1996. Director, Controller Internal Audit from January 1995 to May 1996. Director, Internal Audit, American Brands from 1994 to January 1995. Senior Manager, Finance/ Operational Audits, American Brands from 1991 to 1994. George V. Bubolo, Jr., 52 Division Vice President - Engineering Division Vice President, and System Operations since March 1996. Engineering and System Director, Engineering and System Operations Operations from November 1994 until March 1996. Director, Electric Operations from 1983 until November 1994. Vincent R. Tummarello, 46 Division Vice President - Electric Division Vice President, Production since November 1994. Electric Production Director, Electric Production from April 1985 until November 1994. PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock, par value $5.00 per share ("Common Stock"), is listed on the New York Stock Exchange under the ticker symbol ORU. The Common Stock is listed in published stock tables as "OranRk". At December 31, 1996, there were 21,322 holders of record of the Company's Common Stock. During 1996 dividend payments were made to holders of the Company's Common Stock on February 1, May 1, August 1 and November 1. Quarterly market price and dividend information on the Company's Common Stock is as follows: Quarter High Low Dividend 1996 1 $37 1/8 $34 7/8 $.645 2 36 3/4 33 3/8 .645 3 37 34 3/4 .645 4 36 1/4 34 1/4 .645 1995 1 33 3/8 31 1/4 .64 2 34 3/8 30 7/8 .64 3 35 5/8 31 1/8 .645 4 37 3/8 34 3/8 .645 Information regarding the restriction of retained earnings for dividend payments is contained in Note 4 of the Notes to Consolidated Financial Statements - "Retained Earnings" on page 23 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. ITEM 6. Selected Financial Data The information required by this Item is contained under the captions "Financial Statistics - Common Stock Data", and "Financial Statistics - Selected Financial Data" on page 32 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this Item is contained under the caption "Review of the Company's Results of Operations and Financial Condition" on pages 10 through 16 of the 1996 Annual Report to shareholders, which material is incorporated by reference in this Form 10-K Annual Report. ITEM 8. Financial Statements and Supplementary Data The financial statements and supplementary financial information required by this Item are contained on pages 17 through 30 of the 1996 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Such information is listed in Item l4(a)(1) "Financial Statements" of this Form 10-K Annual Report. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III The information required by Item 10 - Directors and Executive Officers of the Registrant is contained on page 39 of this Form 10-K Annual Report and in the Company's definitive Proxy Statement in connection with the 1997 Annual Meeting of Common Shareholders (the "Proxy Statement"), which material is incorporated by reference in this Form 10-K Annual Report. The information required by Item 11 - Executive Compensation, Item 12 - - Security Ownership of Certain Beneficial Owners and Management and Item 13 - Certain Relationships and Related Transactions is contained in Section 1, "Election of Directors," of the Proxy Statement which material is incorporated by reference in this Form 10-K Annual Report. With the exception of this information, the Proxy Statement is not deemed filed as part of this Form 10-K Annual Report. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements The following consolidated financial statements of the Company and its subsidiaries appearing on pages 17 through 30 of the 1996 Annual Report to Shareholders are incorporated by reference in this Form 10-K Annual Report. With the exception of these consolidated financial statements and the information incorporated in Items 1, 2, 3, 5, 6, 7 and 8, herein, the 1996 Annual Report to shareholders is not deemed filed as part of this Form 10-K Annual Report. Page* Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1996, 1995 and 1994. 17 Consolidated Balance Sheets as of December 31, 1996 and 1995. 18 Consolidated Cash Flow Statements for the years ended December 31, 1996, 1995 and 1994. 20 Notes to Consolidated Financial Statements. 21 Report of Independent Public Accountants. 30 *Page number reference is to the 1996 Annual Report to Shareholders (a)(2) Financial Statement Schedules Page** Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1996, 1995 and 1994 (Schedule II). 54 **Page number reference is to this Form 10-K Annual Report All other schedules are omitted because they are not applicable. (a)(3) Exhibits * 3.2 By-Laws, as amended through June 29, 1995. (Exhibit 3.2 to Form 10-Q for the period ended June 30, 1995, File No. 1-4315). * 3.4 Restated Certificate of Incorporation dated May 7, 1996. (Exhibit 3.4 to Form 10-Q for the period ended March 31, 1996, File No. 1-4315). * 4.1 Composite First Mortgage of the Company as Supplemented and Modified by Twenty-six Supplemental Indentures. (Exhibit 4.1 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.2 Twenty-seventh Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1980. (Exhibit 4.2 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.3 Mortgage Trust Indenture of Rockland Electric Company, dated as of July 1, 1954. (Exhibit 2.16 to Registration Statement No. 2-14159). * 4.11 Mortgage Trust Indenture of Pike County Light & Power Company, dated as of July 15, 1971. (Exhibit 4.31 to Registration Statement No. 2-45632). * 4.12 Twenty-eighth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1982. (Exhibit 4.12 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.17 Twenty-ninth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1984. (Exhibit 4.17 to Form 10-K for the fiscal year ended December 31, 1989, File No. 1-4315). * 4.20 Thirtieth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1986. (Exhibit 4.20 to Form 10-K for the fiscal year ended December 31, 1991, File No. 1-4315). * 4.21 Thirty-first Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1988. (Exhibit 4.21 to Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4315). * 4.22 Thirty-second Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1990. (Exhibit 4.22 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.25 Indenture between the Company and The Bank of New York as Trustee regarding unsecured debt, dated March 1, 1990. (Exhibit 4.25 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.26 First Supplemental Indenture between the Company and The Bank of New York as Trustee regarding unsecured debt, dated March 7, 1990. (Exhibit 4.26 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1- 4315). * 4.27 Second Supplemental Indenture between the Company and the Bank of New York as Trustee regarding unsecured debt, dated October 15, 1992. (Exhibit 4.27 to Form 10- K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.28 Thirty-third Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1992. (Exhibit 4.28 to Form 10-K for the fiscal year ended December 3, 1992, File No. 1-4315). * 4.29 Third Supplemental Indenture between the Company and The Bank of New York as Trustee regarding unsecured debt, dated as of March 1, 1993. (Exhibit 4.29 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.30 Ninth Supplemental Indenture of Rockland Electric Company, dated as of March 1, 1993. (Exhibit 4.30 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.31 Thirty-fourth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1994. (Exhibit 4.31 to Form 10-K for the fiscal year ended December 31, 1994, File No. 1-4315). *10.1 General Agreement: Bowline Point Generating Plant, dated as of October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156). 10.1A Amendment to the General Agreement: Bowline Point Generating Plant, dated May 31, 1996. *10.2 Financing Agreements, dated as of February 1, 1971. (Exhibit 5(a) to Registration Statement No. 2-42156). *10.7 New York Power Pool Agreement, dated July 16, 1985. (Exhibit 10.7 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). *10.8 Agreement governing the supply of residual fuel oil by Con Edison to Bowline Point Generating Station dated August 31, 1983. (Exhibit 10.8 to Form 10-K for fiscal year ended December 31, 1991, File No. 1-4315). *10.10 PJM Facilities Agreement, dated May 1, 1970, as amended December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). +*10.11 Officers' Supplemental Retirement Plan, as amended April 1, 1993. (Exhibit 10.11 to Form 10-K for the fiscal year ended December 31, 1993, File 1-4315). +*10.12 Incentive Compensation Plan, amended January 3, 1991. (Exhibit 10.12 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). *10.13 Severance Pay Plan, as amended January 3, 1991. (Exhibit 10.13 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). *10.14 Management Long-Term Disability Plan as amended January 1, 1996. (Exhibit 10.14 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). *10.17 Coal Purchase and Sale Agreement among Orange and Rockland Utilities, Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc., dated March 9, 1984, as amended through July 1, 1991. (Exhibit 10.17 to Form 10-K for the fiscal year ended December 31, 1991, File No. 1-4315). *10.17A Seventh Amendment to the Coal Purchase and Sales Agreement among Orange and Rockland Utilities, Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc., dated July 1, 1994. (Exhibit 10.17 to From 10-K for the fiscal year ended December 31, 1994, File No. 1-4315). 10.17B Eighth Amendment to the Coal Purchase and Sales Agreement among Orange and Rockland Utilities, Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc., dated July 1, 1996. +*10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer Continuation Program, as amended March 2, 1995. (Exhibit 10.20 to Form 10-K for the fiscal year ended December 31, 1994, File 1-4315). +*10.22 Form of Severance Agreement applicable to R. J. McBennett and R. J. Biederman effective January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). +*10.26 Letter agreement dated September 29, 1994 between Orange and Rockland Utilities, Inc. and R. Lee Haney regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.26 to Form 10-Q for the period ended September 30, 1994, File No. 1-4315). +*10.27 Letter agreement dated September 29, 1994 between Orange and Rockland Utilities, Inc. and D. Louis Peoples regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.27 to Form 10-Q for the period ended September 30, 1994, File No. 1-4315). +*10.29 Deferred Compensation Plan for Non Employee Directors as amended and restated effective August 15, 1996. (Exhibit 10.29 to Form 10-Q for the period ended September 30, 1996, File No. 1-4315). +*10.30 Letter Agreement dated April 6, 1995 between Orange and Rockland Utilities, Inc. and G. D. Caliendo regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.30 to Form 10-Q for the period ended June 30, 1995, File No. 1-4315). +*10.31 Letter Agreement dated September 21, 1995 between Orange and Rockland Utilities, Inc. and Nancy M. Jakobs regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.31 to Form 10-Q for the period ended September 30, 1995, File No. 1-4315). +*10.35 Severance Agreement dated October 18, 1995 between Orange and Rockland Utilities, Inc. and Nancy M. Jakobs. (Exhibit 10.35 to Form 10-Q for the period ended September 30, 1995, File No. 1-4315). +*10.36 Agreement dated January 22, 1996 between Orange and Rockland Utilities, Inc. and D. L. Peoples regarding change in control arrangements. (Exhibit 10.36 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.37 Agreement dated January 21, 1996 between Orange and Rockland Utilities, Inc. and G. D. Caliendo regarding change in control arrangements. (Exhibit 10.37 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.38 Agreement dated January 22, 1996 between Orange and Rockland Utilities, Inc. and R. L. Haney regarding change in control arrangements. (Exhibit 10.38 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.39 Agreement dated January 22, 1996 between Orange and Rockland Utilities, Inc. and L. S. Brodsky regarding change in control arrangements. (Exhibit 10.39 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.40 Performance Share Unit Plan effective January 1, 1995, described on pages 10-11 of the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 7, 1997 for its 1997 Annual Meeting of shareholders, which description is hereby incorporated by reference (File No. 1-4315). +*10.41 Annual Team Incentive Plan effective January 1, 1995, described on pages 9-10 of the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 7, 1997 for its 1997 Annual Meeting of shareholders, which description is hereby incorporated by reference (File No. 1-4315). +*10.42 Letter Agreement dated February 16, 1995 between Orange and Rockland Utilities, Inc. and G. D. Caliendo regarding employment. (Exhibit 10.42 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1- 4315). +*10.43 Letter Agreement dated July 14, 1994 between Orange and Rockland Utilities, Inc. and D. L. Peoples regarding employment. (Exhibit 10.43 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.44 Letter Agreement dated November 14, 1995 between Orange and Rockland Utilities, Inc. and L. S. Brodsky regarding employment. (Exhibit 10.44 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1- 4315). +*10.45 Letter Agreement dated March 21, 1995 between Orange and Rockland Utilities, Inc. and Nancy M. Jakobs regarding employment. (Exhibit 10.45 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1- 4315). +*10.46 Letter Agreement dated September 2, 1994 between Orange and Rockland Utilities, Inc. and R. L. Haney regarding employment. (Exhibit 10.46 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). 13 The Company's 1996 Annual Report to Shareholders to the extent identified in this Form 10-K Annual Report for the fiscal year ended December 31, 1996. 21 Subsidiaries of the Company. 24 Powers of Attorney. 27 Financial Data Schedule. *99.1 Joint Cooperation Agreement between the Office of the Rockland County District Attorney and Orange and Rockland Utilities, Inc., dated November 3, 1993 (Exhibit 99.1 to Form 10-Q for the quarter ended September 30, 1993, File No. 1-4315). *99.5 Agreement Between Orange and Rockland Utilities, Inc. and Kroll Associates, Inc. dated as of November 1, 1994. (Exhibit 99.5 to Form 10-Q for the period ended September 30, 1994, File No. 1-4315). + Denotes executive compensation plans and arrangements. * Incorporated by reference to the indicated filings. The securities issued relevant to each of the following agreements were not registered with the Securities and Exchange Commission and the total amount of securities authorized under each agreement does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Therefore, as provided in Item 601 of Regulation S-K, the following agreements are not filed as exhibits. The Company agrees, however, to furnish to the Commission a copy of each agreement upon request: - First Supplemental Indenture, dated August 15, 1990, to the Indenture of Mortgage and Deed of Trust of Pike County Light & Power Company. - Indenture of Trust between NYSERDA and the Bank of New York, as Trustee, relating to the Pollution Control Revenue Bonds (Orange and Rockland Utilities, Inc. Project) dated as of August 15, 1994. - Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of August 15, 1994. - Indenture of Trust between NYSERDA and the Bank of New York, as Trustee, relating to the Pollution Control Refunding Revenue Bonds dated as of July 1, 1995. - Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of July 1, 1995. - Tenth Supplemental Indenture of Rockland Electric Company, dated as of February 1, 1997. (b) Reports on Form 8-K The Company has not filed any reports on Form 8-K current report covering an event during the fourth quarter of 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORANGE AND ROCKLAND UTILITIES,INC. (Registrant) By D. LOUIS PEOPLES (D. Louis Peoples Vice Chairman of the Board of Directors and Chief Executive Officer) Date: March 19, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Title Capacity in Which Signing D. LOUIS PEOPLES* Chief Executive (D. Louis Peoples, Officer, Director Vice Chairman of the Board of Directors and Chief Executive Officer) R. LEE HANEY* Chief Financial Officer (R. Lee Haney, Sr. Vice President and Chief Financial Officer) EDWARD M. McKENNA* Principal Accounting Officer (Edward M. McKenna, Controller) H. KENT VANDERHOEF* Chairman of the (H. Kent Vanderhoef) Board of Directors RALPH M. BARUCH* Director (Ralph M. Baruch) J. FLETCHER CREAMER* Director (J. Fletcher Creamer) Signature and Title Capacity in Which Signing MICHAEL J. DEL GIUDICE* Director (Michael J. Del Giudice) JON F. HANSON* Director (Jon F. Hanson) KENNETH D. McPHERSON* Director (Kenneth D. McPherson) ROBERT E. MULCAHY* Director (Robert E. Mulcahy) JAMES F. O'GRADY, JR.* Director (James F. O'Grady, Jr.) FREDERIC V. SALERNO* Director (Frederic V. Salerno) LINDA C. TALIAFERRO* Director (Linda C. Taliaferro) *By G. D. CALIENDO (G. D. Caliendo, Attorney-in-fact) Date: March 19, 1997 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Orange and Rockland Utilities, Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 6, 1997. Our audit was made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. Supplemental Schedule II, Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1996 and 1995 (see index of financial statements) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York February 6, 1997 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File Nos. 33-25358, 33-25359 and 33-22129) and on Form S-3 (File No. 33-63872). ARTHUR ANDERSEN LLP New York, New York March 19, 1997 SCHEDULE II ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years Ended December 31, 1996, 1995 and 1994 (Thousands of Dollars) Additions (1) (2) Balance Balance at Charged to Charged at beginning costs and to other end of Description of period expenses accounts Deductions period December 31, 1996 Allowance for Uncollect- ible accounts: Customer Accounts $2,307 $2,508 $616 $3,040 $2,391 Other Accounts 169 268 197 376 258 Gas Marketing Accts. 133 953 2 482 606 $2,609 $3,729 $815 (A) $3,898 (B)$3,255 Reserve for Claims and Damages $3,848 $1,773 $472 $2,250 (C)$3,843 Gas Turbine Maint. Reserve $ (202) $ 453 $ - $ 339 (C)$ (88) December 31, 1995 Allowance for Uncollect- ible accounts: Customer Accounts $2,200 $2,374 $565 $2,832 $2,307 Other Accounts 209 825 35 900 169 Gas Marketing Accts. 327 60 - 254 133 $2,736 $3,259 $600 (A) $3,986 (B)$2,609 Reserve for Claims and Damages $4,713 $ 720 $ 52 $1,637 (C)$3,848 Gas Turbine Maint. Reserve $ (258) $ 622 $ - $ 566 (C)$ (202) SCHEDULE II ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years Ended December 31, 1996, 1995 and 1994 (Thousands of Dollars) Additions (1) (2) Balance Balance at Charged to Charged at beginning costs and to other end of Description of period expenses accounts Deductions period December 31, 1994 Allowance for Uncollect- ible accounts: Customer Accounts $2,026 $2,493 $391 $2,710 $2,200 Other Accounts 102 544 8 445 209 Gas Marketing Accts. 471 287 2 433 327 $2,599 $3,324 $401 (A) $3,588 (B) $2,736 Reserve for Claims and Damages $3,830 $2,474 $140 $1,731 (C) $4,713 Gas Turbine Maint. Reserve $(1,375) $1,367 $ - $ 250 (C) $ (258) (A)Includes collection of accounts previously written off of $815 in 1996, $600 in 1995, and $401 in 1994. (B)Accounts considered uncollectible and charged off of $3,898 in 1996, $3,986 in 1995 and $3,588 in 1994. (C)Payments of damage claims of $2,250 in 1996, $1,637 in 1995 and $1,731 in 1994 and maintenance expenses of $339 in 1996, $566 in 1995 and $250 in 1994. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For Year Ended December 31, 1996 Commission File Number 1-4315 ORANGE AND ROCKLAND UTILITIES, INC. (Exact name of registrant as specified in its charter) EXHIBITS Orange and Rockland Utilities, Inc. Index of Exhibits 1996 Form 10-K * 3.2 By-Laws, as amended through June 29, 1995. (Exhibit 3.2 to Form 10-Q for the period ended June 30, 1995, File No. 1-4315). * 3.4 Restated Certificate of Incorporation dated May 7, 1996. (Exhibit 3.4 to Form 10-Q for the period ended March 31, 1996, File No. 1-4315). * 4.1 Composite First Mortgage of the Company as Supplemented and Modified by Twenty-six Supplemental Indentures. (Exhibit 4.1 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.2 Twenty-seventh Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1980. (Exhibit 4.2 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.3 Mortgage Trust Indenture of Rockland Electric Company, dated as of July 1, 1954. (Exhibit 2.16 to Registration Statement No. 2-14159). * 4.11 Mortgage Trust Indenture of Pike County Light & Power Company, dated as of July 15, 1971. (Exhibit 4.31 to Registration Statement No. 2-45632). * 4.12 Twenty-eighth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1982. (Exhibit 4.12 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.17 Twenty-ninth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1984. (Exhibit 4.17 to Form 10-K for the fiscal year ended December 31, 1989, File No. 1-4315). * 4.20 Thirtieth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1986. (Exhibit 4.20 to Form 10-K for the fiscal year ended December 31, 1991, File No. 1-4315). * 4.21 Thirty-first Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1988. (Exhibit 4.21 to Form 10-K for the fiscal year ended December 31, 1988, File No. 1-4315). * 4.22 Thirty-second Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1990. (Exhibit 4.22 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.25 Indenture between the Company and The Bank of New York as Trustee regarding unsecured debt, dated March 1, 1990. (Exhibit 4.25 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). * 4.26 First Supplemental Indenture between the Company and The Bank of New York as Trustee regarding unsecured debt, dated March 7, 1990. (Exhibit 4.26 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1- 4315). * 4.27 Second Supplemental Indenture between the Company and the Bank of New York as Trustee regarding unsecured debt, dated October 15, 1992. (Exhibit 4.27 to Form 10- K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.28 Thirty-third Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1992. (Exhibit 4.28 to Form 10-K for the fiscal year ended December 3, 1992, File No. 1-4315). * 4.29 Third Supplemental Indenture between the Company and The Bank of New York as Trustee regarding unsecured debt, dated as of March 1, 1993. (Exhibit 4.29 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.30 Ninth Supplemental Indenture of Rockland Electric Company, dated as of March 1, 1993. (Exhibit 4.30 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). * 4.31 Thirty-fourth Supplemental Indenture to the First Mortgage of the Company, dated as of April 1, 1994. (Exhibit 4.31 to Form 10-K for the fiscal year ended December 31, 1994, File No. 1-4315). *10.1 General Agreement: Bowline Point Generating Plant, dated as of October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156). 10.1A Amendment to the General Agreement: Bowline Point Generating Plant, dated May 31, 1996. *10.2 Financing Agreements, dated as of February 1, 1971. (Exhibit 5(a) to Registration Statement No. 2-42156). *10.7 New York Power Pool Agreement, dated July 16, 1985. (Exhibit 10.7 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). *10.8 Agreement governing the supply of residual fuel oil by Con Edison to Bowline Point Generating Station dated August 31, 1983. (Exhibit 10.8 to Form 10-K for fiscal year ended December 31, 1991, File No. 1-4315). *10.10 PJM Facilities Agreement, dated May 1, 1970, as amended December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). +*10.11 Officers' Supplemental Retirement Plan, as amended April 1, 1993. (Exhibit 10.11 to Form 10-K for the fiscal year ended December 31, 1993, File 1-4315). +*10.12 Incentive Compensation Plan, amended January 3, 1991. (Exhibit 10.12 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). *10.13 Severance Pay Plan, as amended January 3, 1991. (Exhibit 10.13 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). *10.14 Management Long-Term Disability Plan as amended January 1, 1996. (Exhibit 10.14 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). *10.17 Coal Purchase and Sale Agreement among Orange and Rockland Utilities, Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc., dated March 9, 1984, as amended through July 1, 1991. (Exhibit 10.17 to Form 10-K for the fiscal year ended December 31, 1991, File No. 1-4315). *10.17A Seventh Amendment to the Coal Purchase and Sales Agreement among Orange and Rockland Utilities, Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc., dated July 1, 1994. (Exhibit 10.17 to From 10-K for the fiscal year ended December 31, 1994, File No. 1-4315). 10.17B Eighth Amendment to the Coal Purchase and Sales Agreement among Orange and Rockland Utilities, Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc., dated July 1, 1996. +*10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer Continuation Program, as amended March 2, 1995. (Exhibit 10.20 to Form 10-K for the fiscal year ended December 31, 1994, File 1-4315). +*10.22 Form of Severance Agreement applicable to R. J. McBennett and R. J. Biederman effective January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). +*10.26 Letter agreement dated September 29, 1994 between Orange and Rockland Utilities, Inc. and R. Lee Haney regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.26 to Form 10-Q for the period ended September 30, 1994, File No. 1-4315). +*10.27 Letter agreement dated September 29, 1994 between Orange and Rockland Utilities, Inc. and D. Louis Peoples regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.27 to Form 10-Q for the period ended September 30, 1994, File No. 1-4315). +*10.29 Deferred Compensation Plan for Non Employee Directors as amended and restated effective August 15, 1996. (Exhibit 10.29 to Form 10-Q for the period ended September 30, 1996, File No. 1-4315). +*10.30 Letter Agreement dated April 6, 1995 between Orange and Rockland Utilities, Inc. and G. D. Caliendo regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.30 to Form 10-Q for the period ended June 30, 1995, File No. 1-4315). +*10.31 Letter Agreement dated September 21, 1995 between Orange and Rockland Utilities, Inc. and Nancy M. Jakobs regarding participation in the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (Exhibit 10.31 to Form 10-Q for the period ended September 30, 1995, File No. 1-4315). +*10.35 Severance Agreement dated October 18, 1995 between Orange and Rockland Utilities, Inc. and Nancy M. Jakobs. (Exhibit 10.35 to Form 10-Q for the period ended September 30, 1995, File No. 1-4315). +*10.36 Agreement dated January 22, 1996 between Orange and Rockland Utilities, Inc. and D. L. Peoples regarding change in control arrangements. (Exhibit 10.36 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.37 Agreement dated January 21, 1996 between Orange and Rockland Utilities, Inc. and G. D. Caliendo regarding change in control arrangements. (Exhibit 10.37 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.38 Agreement dated January 22, 1996 between Orange and Rockland Utilities, Inc. and R. L. Haney regarding change in control arrangements. (Exhibit 10.38 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.39 Agreement dated January 22, 1996 between Orange and Rockland Utilities, Inc. and L. S. Brodsky regarding change in control arrangements. (Exhibit 10.39 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.40 Performance Share Unit Plan effective January 1, 1995, described on pages 10-11 of the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 7, 1997 for its 1997 Annual Meeting of shareholders, which description is hereby incorporated by reference (File No. 1-4315). +*10.41 Annual Team Incentive Plan effective January 1, 1995, described on pages 9-10 of the Company's definitive proxy statement filed with the Securities and Exchange Commission on March 7, 1997 for its 1997 Annual Meeting of shareholders, which description is hereby incorporated by reference (File No. 1-4315). +*10.42 Letter Agreement dated February 16, 1995 between Orange and Rockland Utilities, Inc. and G. D. Caliendo regarding employment. (Exhibit 10.42 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1- 4315). +*10.43 Letter Agreement dated July 14, 1994 between Orange and Rockland Utilities, Inc. and D. L. Peoples regarding employment. (Exhibit 10.43 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). +*10.44 Letter Agreement dated November 14, 1995 between Orange and Rockland Utilities, Inc. and L. S. Brodsky regarding employment. (Exhibit 10.44 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1- 4315). +*10.45 Letter Agreement dated March 21, 1995 between Orange and Rockland Utilities, Inc. and Nancy M. Jakobs regarding employment. (Exhibit 10.45 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1- 4315). +*10.46 Letter Agreement dated September 2, 1994 between Orange and Rockland Utilities, Inc. and R. L. Haney regarding employment. (Exhibit 10.46 to Form 10-K for the fiscal year ended December 31, 1995, File No. 1-4315). 13 The Company's 1996 Annual Report to Shareholders to the extent identified in this Form 10-K Annual Report for the fiscal year ended December 31, 1996. 21 Subsidiaries of the Company. 24 Powers of Attorney. 27 Financial Data Schedule. *99.1 Joint Cooperation Agreement between the Office of the Rockland County District Attorney and Orange and Rockland Utilities, Inc., dated November 3, 1993 (Exhibit 99.1 to Form 10-Q for the quarter ended September 30, 1993, File No. 1-4315). *99.5 Agreement Between Orange and Rockland Utilities, Inc. and Kroll Associates, Inc. dated as of November 1, 1994. (Exhibit 99.5 to Form 10-Q for the period ended September 30, 1994, File No. 1-4315). + Denotes executive compensation plans and arrangements. * Incorporated by reference to the indicated filings. The securities issued relevant to each of the following agreements were not registered with the Securities and Exchange Commission and the total amount of securities authorized under each agreement does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. Therefore, as provided in Item 601 of Regulation S-K, the following agreements are not filed as exhibits. The Company agrees, however, to furnish to the Commission a copy of each agreement upon request: - First Supplemental Indenture, dated August 15, 1990, to the Indenture of Mortgage and Deed of Trust of Pike County Light & Power Company. - Indenture of Trust between NYSERDA and the Bank of New York, as Trustee, relating to the Pollution Control Revenue Bonds (Orange and Rockland Utilities, Inc. Project) dated as of August 15, 1994. - Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of August 15, 1994. - Indenture of Trust between NYSERDA and the Bank of New York, as Trustee, relating to the Pollution Control Refunding Revenue Bonds dated as of July 1, 1995. - Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of July 1, 1995. - Tenth Supplemental Indenture of Rockland Electric Company, dated as of February 1, 1997. EX-10.1A 2 THIS AGREEMENT, dated as of May 31, 1996 ("Agreement") between ORANGE AND ROCKLAND UTILITIES, INC., a New York corporation, with offices at One Blue Hill Plaza, Pearl River, New York 10965 ("Orange and Rockland") and CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., a New York corporation with offices at 4 Irving Place, New York, New York 10003 ("Con Edison"). W I T N E S S E T H: WHEREAS, Orange and Rockland and Con Edison entered into an agreement dated October 10, 1969 ("General Agreement") for the joint development of the Bowline Point Generating Station located in Haverstraw, New York ("Bowline"); and WHEREAS, attached as Appendix B to the General Agreement is an operating agreement between Orange and Rockland and Con Edison ("Operating Agreement") which sets forth the basis and terms upon which Bowline shall be operated and maintained for the account of the parties; and WHEREAS, Orange and Rockland and Con Edison wish to amend the terms of the General Agreement and the Operating Agreement; NOW, THEREFORE, in consideration of the mutual convenants herein contained and for other good and valuable consideration, the parties agree as follows: 1. The term of this Agreement shall commence at 12:01 a.m. on June 1, 1996 and shall continue until 11:59 p.m. on May 31, 2001. Applicable provisions of this Agreement shall continue in effect after termination to the extent necessary to provide for final billings and adjustments. 2. For each period from June 1 - September 30 during the term of this Agreement, Bowline Unit #2 will be placed on 24-hour standby reserve outage. For each period from October 1 - May during the term of this Agreement, Bowline Unit #2 will be placed on a seven day cold standby reserve outage. During an emergency, Orange and Rockland will make every effort to return Bowline Unit #2 to service as expeditiously as practical. 3. Bowline Unit #2 will be equipped with lay-up equipment to protect the unit during each October 1 - May 31 period. This equipment will be disconnected prior to each June 1 - September 30 period to facilitate the return to service of the unit upon short notice (i.e., 24 hours). The estimated cost of this lay-up equipment is $750,000. 4. During the periods that Bowline Unit #2 is on either seven day cold standby or 24 hour standby reserve outage, Orange and Rockland shall schedule its percentage share of the operating capacity and generation from Bowline Unit #1 on a weekly basis. No later than noon on Thursday of each week, the Orange and Rockland Chief System Operator will inform the Con Edison Chief System Operator of Orange and Rockland's required percentage share of Bowline Unit #1 for the following week. This share shall become effective at 0001 hours on Sunday of the new week and will continue until 2359 hours on Saturday of such week. The percentage shares and timing of the commitment decision may be changed by mutual agreement of the parties' Chief System Operators. During the periods that Bowline Unit #2 is on a 24 hour standby reserve outage, Orange and Rockland shall be entitled to up to two-thirds (nominally 400 MW) of the operating capacity and generation from Bowline when required to meet its own system load requirements. During the periods that Bowline Unit #2 is on a seven day cold standby reserve outage, Orange and Rockland shall be entitled to up to two-thirds (nominally 400 MW) of the operating capacity from Bowline Unit #1. Orange and Rockland shall be entitled to up to two-thirds (nominally 400 MW) of generation from Bowline Unit #1 when required to meet its own system load, except Con Edison shall have the right to two-thirds of the operating capacity and generation from Bowline Unit #1, for a period up to two (2) equivalent days per month (but in no event for more than a total of six separate occasions per month), when Con Edison is required for its own system load to forestall use of significantly more expensive energy such as that supplied by gas turbines. If Bowline Unit #2 must be operated, all costs and output of Bowline will be allocated between Con Edison and Orange and Rockland in accordance with the terms of the General Agreement. 5. During those periods that Bowline Unit #1 is on a scheduled unit maintenance outage, Con Edition will make available to Orange and Rockland, to the extent that it is not required to meet its own system load, 200 MW of daily operating capacity and up to 200 MW of energy at a cost comparable to Bowline oil fired generation. Maintenance should be scheduled during the October - December or March - - May periods. 6. If during the term of this Agreement, Bowline Unit #1 experiences a prolonged forced outage for any reason, Orange and Rockland can place Bowline Unit #2 in operation. In such event, all costs and output of Bowline Unit #2 will be allocated between Con Edison and Orange and Rockland in accordance with the terms of the General Agreement. 7. If the parties are unsuccessful in implementing changes to the New York Power Pool's Methods and Procedures regarding capacity testing during the winter capability period, and Bowline Unit #2 is not available for winter installed capability, Con Edison will provide Orange and Rockland with 200 MW of installed capacity at no cost. Should Con Edison require the capacity from the Bowline Unit #2 during the winter capability period, Con Edison will pay the full cost of DMNC testing Bowline Unit #2 during the winter capability period. These costs shall include the cost of disconnecting and reconnecting the lay-up equipment. 8. Either party may terminate this Agreement upon six months written notice. 9. All of the terms of the General Agreement and the Operating Agreement, except as specifically amended or modified herein, shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ORANGE AND ROCKLAND UTILITIES, INC. By_______________________________________ Title______________________________________ CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. By_______________________________________ Title______________________________________ agree.jlc EX-10.17B 3 EIGHTH AMENDMENT TO COAL PURCHASE AND SALES AGREEMENT This EIGHTH AMENDMENT is made and entered into as of July 1, 1996, between ORANGE AND ROCKLAND UTILITIES, INC., a New York corporation ("Buyer") and MASSEY COAL SALES COMPANY, INC., a Virginia corporation ("Seller"). RECITALS 1. Buyer and Seller, together with Rawl Sales & Processing Company, Inc. ("Rawl"), an affiliate of Seller, entered into a Coal Purchase and Sales Agreement on March 9, 1984 (the "Agreement"), and have amended the Agreement on seven previous occasions, July 30, 1986, July 1986, September 1986, January 1987, January 1990, July 1, 1991 and July 1, 1994. 2. Buyer and Seller are mutually interested in continuing their relationship under the Agreement and agree to amend the Agreement to effect the amendments herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual agreements contained herein, and for other good and valuable consideration, the parties hereto agree as follows: 1. Article I of the Agreement is deleted in its entirety and in substitution thereof a new Article I is added to read as follows: ARTICLE I Amount of Coal - Term of Agreement 1.1 Seller agrees to sell, and Buyer agrees to purchase, coal of the quality and in quantities hereinafter stated and upon the terms and conditions herein set forth. Seller will deliver such coal to Buyer (f.o.b. cars at Seller's Mines (hereinafter defined)) for a period of twenty (20) years from July 31, 1987, subject to earlier termination as hereinafter provided. 1.2 The quantity of coal to be sold by Seller to Buyer and purchased by Buyer from Seller hereunder shall be the lesser of (i) ninety percent (90%) of the total tonnage of coal delivered to the Lovett Plant and to off-site storage during each Contract Year or (ii) 630,000 Tons (hereinafter defined) of coal. Buyer shall have the option to purchase up to an additional 100,000 tons of coal per Contract Year from Seller. Buyer must exercise its option on or before June 1st for up to 50,000 tons and on or before December 1st for up to 50,000 tons. The optional tonnage shall be shipped at the then- current contract price. 1.3 As used in this Agreement, the following terms shall have the meaning indicated: (1) "Contract Year" shall mean each 12-month period beginning on July 1, 1996, and ending on June 30, 1997, and for every 12-month period thereafter during the term of this Agreement. (2) "F.O.B. cars" means coal free on board railroad cars at Seller's Mines. (3) "Price per ton FOB cars" means the price of coal as loaded in railroad cars at Seller's Mines. (4) "Seller's Mines" means the Sidney Mines, the Rawl Mines, the Long Fork Mines and/or any alternate source(s) qualified pursuant to Article VI, herein. (5) "Shipment" means a trainload of coal, shipped from Seller's Mines in any single day. (6) "Ton" shall mean a net weight of 2,000 pounds avoir- dupois. (7) "Quality A Coal" shall mean that coal which at a minimum meets the quality specifications as stated in Article V, herein, under the heading Quality A Coal. (8) "Quality B Coal" shall mean that coal which at a minimum meets the quality specifications as stated in Article V, herein, under the heading Quality B Coal. (9) "Quality A Initial Price" shall mean $32.00 per ton F.O.B. cars at Seller's Mines for Quality A Coal, as set forth in Section 3.1 herein. (10) "Quality A Price" shall mean Quality A Initial Price as subsequently adjusted in accordance with Article III herein for Quality A Coal. (11) "Quality B Initial Price" shall mean $29.25 per ton F.O.B. cars at Seller's Mines for Quality B Coal, as set forth in Section 3.1 herein. (12) "Quality B Price" shall mean Quality B Initial Price as subsequently adjusted in accordance with Article III herein for Quality B Coal. (14) "Long Fork Mines" shall mean the Long Fork Preparation Plant in Belfry, Kentucky. (15) "Rawl Mines" shall mean the feeder mines for the Rawl Preparation Plant in LaVoy, West Virginia as further identified in Exhibit D hereto. (16) "Sidney Mines" shall mean the feeder mines for the Sidney Preparation Plant in Sidney, Kentucky as further identified in Exhibit A hereto, and which constitute the dedicated coal reserves underlying this Agreement. (17) "As Received" is an analytical term referring to an analysis of coal, including moisture content, in its natural conditions after washing, as opposed to a "dry basis", and has no reference to the receiving point of the coal. 1.3 Buyer and Seller agree that effective July 1, 1996 coal supplied under this Agreement shall, at a minimum, meet the quality specifications for Quality B Coal as specified in Article V herein and shall be priced at the Quality B Initial Price or Quality B Price, as applicable, according to Article III herein. Buyer and Seller agree that Quality B Coal supplied hereunder shall originate from Seller's Mines. Price, as determined under Article III herein, shall be calculated according to the quality of coal requested by Buyer and, except as provided in Article IX herein, without regard to whether the coal actually delivered by Seller to Buyer exceeds the quality requested by Buyer. 1.4 Buyer and Seller agree that upon ninety (90) days advanced written notice by Buyer to Seller, coal supplied under this Agreement shall, at a minimum, meet the quality specifications for Quality A Coal as specified in Article V herein and shall be priced at the Quality A Initial Price or Quality A Price, as applicable, according to Article III herein. Buyer and Seller agree that Quality A Coal supplied in accordance with Buyer's option to elect Quality A Coal at the Quality A Initial Price or Quality A Price, as applicable, may originate from Rawl Mines and/or from alternate source(s) qualified in accordance with Article VI herein. In the event Buyer has exercised its option to purchase Quality A Coal, Buyer shall have the right to switch back to Quality B Coal at the Quality B Price upon one hundred and twenty (120) days advanced written notice. 2. Article III of the Agreement is deleted in its entirety and in substitution thereof a new Article III is added to read as follows: ARTICLE III Price and Price Adjustments 3.1 Unless and until it is adjusted solely in accordance with the provisions hereinafter set forth in this Article III, effective as of July 1, 1996, the price per ton F.O.B. cars at Seller's Mines for all coal sold hereunder shall be $32.00 for Quality A Coal and shall hereinafter be referred to as "Quality A Initial Price" and $29.25 for Quality B Coal and shall hereinafter be referred to as "Quality B Initial Price", except as provided in Section 3.3(d) herein. After any such adjustments have been made in accordance with this Article III, the price per ton F.O.B. cars at Seller's Mines shall be the Quality A Initial Price or Quality B Initial Price, as adjusted, hereinafter referred to as Quality A Price and Quality B Price, as the case may be. The Quality A Initial Price and Quality B Initial Price, includes all costs associated with compliance with all Federal, State, and local laws and regulations as of the effective date of this Amendment as they are now interpreted and enforced in Producing District 8, as defined in the Federal Bituminous Coal Act of 1937, as amended. Notwithstanding the foregoing, Buyer shall only pay the Quality A Price in the event Buyer exercises its option to elect Quality A Coal at the Quality A Price in accordance with Article I herein. 3.2 Seller shall give Buyer notice of any proposed adjustment hereunder of the Quality A Initial Price, or the then applicable Quality A Price, and Quality B Initial Price, or the then applicable Quality B Price, within thirty (30) days after the beginning of each calendar quarter as set forth in Article 3.3 (a) herein, together with all documentation required to permit Buyer to substantiate the adjustment. 3.3 Beginning October 1, 1996, the Quality A Initial Price, or the then applicable Quality A Price, and Quality B Initial Price, or the then applicable Quality B Price, shall be subject to adjustment, on a quarterly basis, to reflect the total percentage change, increase or decrease, in the following indices, published by the U.S. Department of Labor, Bureau of Labor Statistics and the Bureau of Economic Analysis. (a) The total percentage change in the indices described below shall be multiplied by the Quality A Price and Quality B Price for the immediately preceding quarter, less the fixed cost portion of the price, to determine the change in the price for the current quarter. The fixed cost portion of the Quality A Price is $3.20 per Ton and the fixed cost portion of the Quality B Price is $2.92 per Ton. These fixed cost amounts shall remain fixed during the term of this Agreement unless the parties mutually agree otherwise. Component Description Component Weight * (a) Drills & Other Mining Machinery 6% (Index Code 1192-03) *** (b) Implicit Price Deflator - 22% Gross Domestic Product **** (c) Average Hourly Earnings of 33% Bituminous Coal and Lignite Workers (Index Code SIC 122) * (d) Industrial Commodities of 27% Producer Price Index * (e) Mining Machinery Parts, 6% Excluding Drills (Index Code 1192-5301) ** (f) Industrial Power, Middle Atlantic 6% 500 KW (Index Code 1481-132) * These indices shall be taken from Table 6 - Producer Price Indexes and percent change for commodity groupings and individual items in the Producer Price Index publication. ** This indice shall be taken from Table 5 - Producer Price Indexes for the net output of selected industries and their products in the Producer Price Index publication. *** This indice shall be taken from the Economic Indicators publication. **** This indice shall be taken from Table B-15 Average hours and earnings of production or nonsupervisory worker's on private nonfarm payrolls by detailed industry in the Employment and Earnings publication. (1) Said quarterly price adjustments shall be made on January 1, April 1, July 1 and October 1 of each year. For those indices defined in Component Descriptions (a), (d), (e) and (f) described above, the dates of the indices used to make the quarterly adjustment shall be as follows: Adjustment Date of Publication Date Index Date of Index January October October (of preceding year) (of preceding year) April January January July April April October July July The base index for the October 1, 1996 adjustment hereunder shall be that for April, l996. (2) The dates of the indices used to make said quarterly price adjustments involving the Average Hourly Earnings of Bituminous Coal and Lignite Workers (Index Code SIC 122) (as identified in Component Description (c) above) shall be as follows: Adjustment Date of Publication Date Index Date of Index January September November (of preceding year) (of preceding year) April December February (of preceding year) July March May October June August The base index for the October 1, 1996 adjustment hereunder shall be that for March, l996 published in May 1996. (3) The dates of the indices used to make said quarterly price adjustments involving the Implicit Price Deflator of the United States Gross Domestic Product (as identified in Component Description (b) above) shall be as follows: Adjustment Date of Publication Date Index Date of Index January Second Quarter October (of preceding year) (of preceding year) April Third Quarter January (of preceding year) July Fourth Quarter April (of preceding year) October First Quarter July The base index for the October 1, 1996 adjustment hereunder shall be that for the fourth quarter l995 as published in the April 1996 Economic Indicator. (4) As an illustration of the methodology for Quality B Coal, assume the following for October 1, 1996: Component Percent Weight of Component Change Change Component As Weighted (a) 0.95% 6% 0.06% (b) 0.31% 22% 0.07% (c) 1.41% 33% 0.47% (d) 1.05% 27% 0.28% (e) 0.15% 6% 0.01% (f) 0.47% 6% 0.03% 0.88% The components, as weighted, increased by 0.88%. Based on this increase, the Quality B Initial Price of $29.25 per Ton will be increased by $0.23 to $29.48 or [{($29.25 - $2.92) x 0.88%} + $29.25]. It is understood by the parties that the quarterly percentage change in indices mentioned above shall be calculated using the current applicable calendar quarter and the immediately previous calendar quarter. There shall not exist a stationary base from which to measure any change in cost under this Section 3.3. See Exhibit B for an illustration of these provisions. (5) Cost of Complying with New Federal, State or Local Regulations (A) In the event of the imposition on or after July 1, 1996 by Federal, State, or local legislation or regulations, of any new requirements or change in the interpretation and enforcement of existing requirements that affect the cost of production of coal at Seller's Mines, either party hereunder may propose a change in the price of coal to be sold hereunder. Any such change shall be applied on a prospective basis only. The party proposing a change shall compute the change in cost per ton of coal produced resulting therefrom. The party proposing a change shall submit detailed documentation in support of its request for any such change. Seller and Buyer agree to negotiate an adjustment in the Quality A Price and Quality B Price, as applicable, to reasonably reflect such change in cost. Notwithstanding the foregoing, Seller and Buyer may agree to a tentative change in the Quality A Price and Quality B Price, as applicable, subject to retroactive adjustment, to be utilized until the parties agree on a reasonable final adjustment. (B) In the event the Quality A Price or Quality B Price is adjusted pursuant to this Section 3.3(a)(5) by more than a cumulative adjustment of five percent (5%) in any one (1) Contract Year, Buyer may terminate this Agreement; provided, however, that Buyer shall not have the right to terminate this Agreement if Seller agrees to limit such price adjustment under this Section 3.3(a)(5) to the above-stated percentage increase. Seller shall have the right to accept the maximum change in price under the above-stated percentage limit and continue the Agreement. (b) Should any of the indices specified in Section 3.3(a) be discontinued, the parties hereto mutually determine that any of the indices have become inappropriate, or the basis of the calculations of such indices be modified, appropriate indices shall be substituted or adjustments made by mutual agreement of the parties hereto. (c) Seller agrees that the production and delivery of coal under this Agreement shall, at all times, be conducted efficiently and economically and in such manner that the costs thereof will be kept to a minimum consistent with good operating practices within the limits set by governmental regulations and proper mining and engineering techniques. (d)(1) The Quality A Price and Quality B Price, shall be subject to review by Buyer and Seller as of July 1, 1998, and every two (2) years thereafter (each such review date being hereinafter referred to as a "Review Date"). Sixty (60) days prior to each Review Date, Buyer and Seller shall begin negotiations in good faith to reach agreement on a new Quality A Price and Quality B Price effective as of the Review Date for the next succeeding two (2) year period, as adjusted according to the provisions of Section 3.3(a) of this Agreement. If Buyer and Seller are unable to reach agreement by the applicable Review Date, this Agreement shall automatically terminate one hundred twenty (120) days after the applicable Review Date unless Buyer and Seller agree otherwise in writing. During such one hundred twenty (120) day period, Seller shall deliver and Buyer shall accept the quantity of coal provided for in this Agreement at the Quality A Price or Quality B Price, as applicable prevailing on the last day immediately preceding the Review Date in question, subject to adjustment as provided for in Subsection 3.3(a) of this Agreement. (2) Notwithstanding Section 3.3(d)(1), if Buyer is willing to accept a ten percent (10%) increase in the Quality A Price and Quality B Price, or Seller is willing to accept a ten percent (10%) decrease in the Quality A Price and Quality B Price, the Quality A Price and the Quality B Price effective as of the applicable Review Date shall be increased by ten percent (10%) if acceptable to Buyer or decreased by ten percent (10%) if acceptable to Seller. The reduced or increased Quality A Price and Quality B Price shall be effective as of the Review Date for the next succeeding two (2) year period, as adjusted according to the provisions of Section 3.3(a) of this Agreement. If Buyer is limited to a ten percent (10%) price decrease by Seller on any Review Date, or if Seller is limited to a ten percent (10%) price increase by Buyer on any Review Date, then the party so limited shall not be limited in like manner on any subsequent Review Date for the remaining term of this Agreement. 3. ARTICLE V of the Agreement is deleted in its entirety and in substitution thereof a new Article V is added to read as follows: ARTICLE V Quality of Coal 5.1 The coal to be purchased and sold hereunder shall conform to the following: (a) Preparation and Top-Size Said coal shall be washed coal, free of extraneous materials, produced by surface or deep mining methods and meeting the specifications set forth in Section 5.1(b) of this Article V and having a maximum top-size of two inches. (b) Quality Specifications (1) The "As Received" quality of the coal delivered hereunder, determined by sampling and analysis made in conformity with the provisions of Article VIII, shall be as follows: Representative Coal Specifications (As Received Basis) Quality A Quality B Coal Coal Moisture 7.0% 7.0% Fixed Carbon 52.0% 52.0% Volatile Matter 33.0% 33.0% Ash 8.0% 8.5% Hardgrove Grind 46 43 Ash Softening Temp. ("AST") (Initial Deformation 2700o F 2700o F in Reducing Atmosphere) Ash Fluid Temp. 2700o F 2700o F Sulfur (SO2) 1.0 lbs. 1.0 lbs. SO2/MMBtu max SO2/MMBtu max. Btu/lb. 13,000 12,950 (2) The level of sulfur dioxide in the coal (lbs. SO2/MM Btu) shall be calculated based on a 2.5% credit that Buyer anticipates for sulfur dioxide capture in ash in accordance with industry standards. The formula to be used for calculating SO2 in the coal is: Lbs. SO2/MMBtu = 19.5 x % Sulfur x 1000 ---------------------- Btu/lb 5.2 (a) It is agreed that Buyer shall have the right to reject any and all shipments which, based on the procedures defined in Article VIII, fail to meet any of the individual shipment rejection limits shown below: Individual Shipment Rejection Limits (As Received) Quality A Quality B Coal Coal Volatile Matter 30.0% min. 30.0% min. AST (Initial Deformation in Reducing Atmosphere 2500o min. 2500o min. Sulfur (SO2) 1.0 lbs. 1.0 lbs. SO2/MMBtu max. SO2/MMBtu max. Moisture 8.0% max. 8.0% max. Btu/lb 12,800 min. 12,750 min. Hardgrove Grind See Below ___ ========================================================== Quality A Coal Moisture Above 7% 7% and below (maximum 8%) or and Heat Content Below 13,000 Btu/lb. 13,000 Btu/lb. (minimum 12,800 Btu/lb) and Above then then HGI 46 or Above 45 Minimum* * This limit is subject to the exception that one shipment during any 90-day period can have an HGI of 44 minimum. The moisture associated with this shipment must be 7% or lower and the Btu content 13,000 Btu/lb. or higher. If a shipment having a 44 HGI is delivered, another shipment of 44 HGI may not be delivered for another 90 days. Any failure to meet the Individual Shipment Rejection Limits as determined by sampling and analysis made in conformity with Article VIII shall be deemed material and shall trigger Buyer's rejection rights. Seller shall pay all freight, diversion, demurrage, testing and other expenses in connection with any such rejected shipment, or shipment found by Seller to be non-conforming unless such shipment is accepted by Buyer. Furthermore, Seller certifies that it will not make any shipment shown by sampling to exceed the maximum allowable SO2 levels. (b) In addition to the limits for individual shipments shown above, the delivered coal must meet the following specifications over each thirty (30) and ninety (90) day period: 30-Day Suspension Limits (As Received): Quality A Quality B Coal Coal Ash 10.0% max. 10.0% max. Volatile 30.0% min. 30.0% min. AST 2500o min. 2500o min. 90-Day Suspension Limits (As Received): Quality A Quality B Coal Coal Moisture 7.0% max. 8.0% max. Btu/lb. 12,800 min. 12,800 min. HGI In accordance with 43 min. following formula: Btu/lb. x HGI greater than or equal to 600 ------------- 1000 If the coal delivered hereunder, as determined by sampling and analysis made in conformity with Article VIII, does not meet the Thirty (30) Day Suspension Limits on specifications on an average for a thirty (30) day period, or does not meet the Ninety (90) Day Suspension Limits on specifications on average for a ninety (90) day period, Buyer shall thereupon have the right to suspend delivery under this Agreement until Seller furnishes reasonable assurance to Buyer in writing that the deviation from the specifications can and will be corrected. If Seller fails to promptly furnish reasonable assurance that such correction can and will be made within sixty (60) days after Buyer's suspension of deliveries (or within such longer period as shall be reasonably requested by Seller and agreed to by Buyer), or if corrections are not made within such sixty (60) day period (or such longer period agreed to by Buyer), Buyer shall have the right at any time thereafter to terminate this Agreement by giving written notice of such termination to Seller. Upon such termination Buyer shall stand discharged of any and all further obligations or liability under the terms of this Agreement or as a result of such termination, with the exception of paying for coal previously shipped and accepted by Buyer. Termination hereunder shall not constitute a waiver of any other rights or remedies that Buyer may have under this Agreement. Any deviation from the 30-Day Suspension Limits and/or the 90-Day Suspension Limits as determined by sampling and analysis made in conformance with Article VIII shall be deemed a material deviation from the quality specifications of the Agreement for which Buyer shall have the rights and remedies set forth in this section. If Buyer, after having suspended shipments for a period of one hundred eighty (180) days, has not elected to terminate this Agreement, then Seller shall have the option of terminating this Agreement by giving written notice of such termination within sixty (60) days after the expiration of such 180-day period. Nothing in this Section 5.2(b) shall be construed to relieve Seller of its obligation to conduct its mining and coal cleaning operations in a competent manner, consistent with good coal industry practices, so as to produce a product which will meet the specifications set forth in Section 5.1 above. The Thirty (30) Day and Ninety (90) Day Suspension Limits shall be calculated by the Buyer on a weighted average basis. In addition, the ninety (90) day weighted averages shall be computed on a rolling tri-monthly basis. For example, the ninety (90) day weighted average for the month of May shall consist of the deliveries during the months of March, April, and May. In a similar fashion, the ninety (90) day weighted average for the month of June shall consist of the deliveries actually completed at Buyer's plant during the months of April, May and June. Exhibit C sets forth illustrations of how the weighted average suspension limits shall be calculated hereunder. 5.3 Seller shall apply material of quality, in a quantity, and by customary method reasonably acceptable to Buyer, without delaying loading, to inhibit the freezing of coal in railroad cars during periods of cold weather, or for other purposes deemed necessary by Buyer. Buyer shall provide Seller reasonable advance notice of the dates for commencement and termination of such application(s) during each Contract Year. Seller shall only invoice Buyer for Seller's actual cost of freeze-inhibiting material. Such costs shall be accounted for separately by Seller. 4. Article VI of the Agreement is deleted in its entirety and in substitution thereof a new Article VI is added to read as follows: ARTICLE VI Alternate Source Seller shall, at its sole option, have the right, but not the obligation, to supply all or a portion of the coal required under Article I hereof from other mines, provided that shipments from such mines shall (a) meet the quality specifications of this Agreement in accordance with Buyer's election of coal quality between Quality A Coal and Quality B Coal under Article I; (b) meet all the other requirements of this Agreement; (c) not result in higher cents/MMBtu delivered cost to Buyer of coal to be delivered to Buyer under this Agreement; (d) pass a burn test at the Lovett Plant to Buyer's reasonable satisfaction; and (e) not adversely affect Buyer's ability to meet tonnage requirements under its then- effective coal transportation agreements so as to increase the delivered price per ton of coal under such agreements or otherwise result in Buyer incurring penalties or other additional charges under such agreements. 5. Article VIII of the Agreement is deleted in its entirety and in substitution a new Article VIII is added to read as follows. ARTICLE VIII Sampling and Analysis of Coal The Seller shall be responsible for collecting and analyzing the source sample and, except as otherwise provided in this Agreement, the results thereof shall be accepted and used for the "As Received" quality and characteristics of the coal delivered under this Agreement. The source sample is the sample taken by an automatic sampler at the FOB loading point at Seller's Mines, before the shipment is shipped, in accordance with the American Society for Testing and Materials ("ASTM") approved method or such other method mutually agreed to by Buyer and Seller. Car top sampling shall not be allowed, except on the occasions when the automatic sampling equipment becomes inoperative, as hereinafter provided for. All analyses shall be performed in accordance with methods approved by ASTM unless otherwise mutually agreed to by Buyer and Seller. All sampling and analyses shall be performed at the point of delivery at Seller's Mines at Seller's expense, except as hereinafter provided. Buyer shall have the right to have a representative at any and all times to observe the sampling and analysis, and to take check samples for further analysis. Buyer may also analyze samples taken by Seller. If Buyer questions Seller's automatic sampling equipment or procedures for sampling and/or analyzing coal as not resulting in accurate sampling and/or analytical determinations of coal quality at point of sampling, Buyer shall have the right to require that such equipment and procedures be evaluated by a competent third party mutually chosen and paid for equally by Seller and Buyer. If deficiencies are found by such third party, Seller shall be required immediately to have appropriate corrections made at Seller's cost. In the event that the automatic sampler becomes inoperative, and less than eighty (80) percent of the required tonnage for a shipment is sampled utilizing the automatic sampler, Buyer shall have the option to require Seller's laboratory to car top sample the remainder of the shipment or Buyer may utilize their own outside lab representative to car top sample the remainder of the shipment. In the event Buyer exercises this option, Seller shall bear the cost of sampling and analysis and the sample shall be handled as if taken by Seller and shall be accepted as the quality and characteristics of the coal "As Received" hereunder. In the event Buyer elects not to sample such shipment, then the weighted average coal quality of shipments delivered during the same calendar month (or the immediately preceding month if no shipments have been made during the current month) as such shipment will apply for calculation of coal quality price adjustments for such shipment. Seller shall, within two business days of loading Buyer's Shipment, furnish Buyer with a facsimile report showing the coal quality and quantity of said Shipment, railroad car numbers and the name of the mine or mines supplying the coal. Buyer and Seller mutually agree that it is essential to this Agreement that representative samples and accurate analysis of the coal be obtained. To insure this, Seller shall take at least three increments from every car during normal loading of cars; and from those increments there shall be made one composite sample. The sample taken by Seller shall be divided into three (3) parts and put into airtight containers, properly labeled and sealed. One part shall be used for analysis by Seller, one part shall be immediately sent to Buyer or its designated representative and one part ("Referee Sample") shall be retained by Seller. All samples retained by Seller shall be kept, under proper storage conditions, for a period of at least sixty (60) days. The Referee Sample shall be weighed during preparation before storage, and if later analyzed, it shall be weighed again with any weight loss indicated in the analysis as moisture content. Buyer shall be given timely copies of all analyses made by Seller. Unless Seller or Buyer requests a Referee Sample analysis, Seller's analysis shall be used to determine the quality of the coal delivered hereunder. If for any reason Seller fails to sample and provide an analysis for any shipment, then Buyer's independent sample and analysis for said Shipment shall be deemed to have been accepted by Seller. In the event that either Buyer or Seller questions the correctness of Seller's analysis, than Buyer or Seller shall have the right to have the Referee Sample analyzed by an independent testing laboratory selected by Buyer from an agreed-to list of such laboratories, not including a laboratory used by either party on the original sample. Said laboratory shall use methods approved by ASTM or such other procedures as may be accepted in writing by Buyer and Seller. The parameters for determining the acceptability of an analysis and use of the Referee Sample shall be in accordance with ASTM reproducibility standards, except for BTU and HGI specifications. The results of duplicate determinations carried out by different laboratories on representative samples taken from the same bulk sample after the last stage of reduction will be considered suspect if any of the analytical determinations differ by more than the reproducibility standards set by ASTM, except for BTU specifications where if the "As Received" BTU differs between analyses by more than 100 Btu's, the Referee Sample shall be sent out. If the analysis obtained by the independent laboratory selected by Buyer meets the ASTM reproducibility standards and/or the "As Received" BTU between different analyses is within 100 Btu's, then Seller's original analysis shall be binding on the parties with regard to both coal quality and rejection and suspension limits. However, in the event that the analysis obtained by the independent laboratory does not meet the ASTM reproducibility standards and/or the "As Received" Btu between analyses differs by more than 100 Btu's, then the analysis obtained by said independent laboratory shall be binding on the parties with regard to coal quality and rejection and suspension limits. If the correctness of the grind (HGI) is questioned, the Referee Sample shall be divided three (3) ways and tested by three (3) independent laboratories to be selected from a previously established list of mutually acceptable laboratories. The average of the results shall govern. No variations in the minimum specifications for grind (HGI) are permitted due to error tolerances under the ASTM standards or as assumed by testing laboratories. However, if the standards used by ASTM for evaluating grind (HGI) are changed, the parties agree that the minimum specifications herein set forth shall be adjusted to maintain a comparable minimum specification using the new ASTM standards. The cost of the analysis made by the independent testing laboratory shall be borne by the Seller unless: (a) Seller's analysis is confirmed to meet ASTM reproducibility standards or (b) the "As Received" Btu between different analyses is within 100 Btu's; or (c) the grind average of the three independent testing laboratories confirms the Seller's analysis, in which cases Buyer shall bear the cost of the analyses made on the Referee Sample by the independent laboratory. 6. Article IX of the Agreement is deleted in its entirety and in substitution a new Article IX is added to read as follows: ARTICLE IX Compensation for Variations in Heating and Ash Values 9.1 Compensation for variations in heating value for coal purchased and sold hereunder shall be determined in accordance with the following: (a) The F.O.B. Seller's Mines price provided for in Article III ("Price and Price Adjustment") is based on coal with a heating value as shown in the quality specifications of Section 5.1 (b), namely 13,000 "As Received" Btu per pound for Quality A Coal and 12,950 "As Received" Btu per pound for Quality B Coal. In accordance with the sampling and analysis procedures set forth in Article VIII ("Sampling and Analysis of Coal"), the average "As Received" Btu per pound of coal shipped hereunder during each calendar quarter during the term of this Agreement shall be calculated. Compensation to either Buyer or Seller, as the case may be, for variation in the weighted average heating value of the coal delivered during each calendar quarter shall be determined as follows: (1) If the weighted average "As Received" Btu for any calendar quarter is greater than 13,050 Btu per pound for Quality A Coal or for Quality B Coal, the additional compensation to Seller shall be computed in accordance with the following formula: C = P x T x B - 1 S ----------------------------- (13,000 for Quality A Coal or 12,950 for Quality B Coal) (2) If the weighted average "As Received" Btu for any calendar quarter is less than 12,950 Btu per pound for Quality A Coal or less than 12,850 Btu per pound for Quality B Coal, the compensation to Buyer shall be computed in accordance with the following formula: C = P x T x 1 - B B ------------------------------- (13,000 for Quality A Coal or 12,950 for Quality B Coal) (b) In the above formula: C = Total compensation to Seller. S C = Total compensation to Buyer. B P = Quality A Price or Quality B Price, as applicable, for the applicable calendar quarter. B = The weighted average "As Received" Btu for the applicable calendar quarter. T = The total tonnage shipped during the applicable calendar quarter. 9.2 Within thirty (30) days after the end of each calendar quarter, Seller shall calculate the three-month average "As Received" Btu (subject to Buyer's verification) and the compensation to Seller or Buyer, as the case may be, in accordance with Section 9.1 and shall forward the calculation to Buyer. Seller shall issue an invoice for payment by Buyer if the compensation is to Seller or shall issue a credit memorandum (or cash payments with respect to the final quarter of this Agreement) to Buyer if the compensation is to Buyer. 9.3 The initial price is based upon Seller supplying coal with an ash content ("Ash Value") of eight percent (8%) by weight of the "As Received" analysis for each shipment of Quality A Coal and an ash content ("Ash Value") of eight and one-half percent (8.5%) by weight of the "As Received" analysis for each shipment of Quality B Coal. The Ash Value of the coal sold hereunder may vary, and the Quality A Price and Quality B Price shall be adjusted in proportion to such variance as follows: For coal having an Ash Value greater than eight percent (8%) for Quality A Coal or greater than nine and one-half percent (9.5%) for Quality B Coal, the price shall be reduced at a rate of $0.30 per ton per one percent (1%) in excess of eight percent (8%) for Quality A Coal and nine and one-half percent (9.5%) for Quality B Coal. For coal having an Ash Value less than eight percent (8%) for Quality A Coal or less than seven and one-half percent (7.5%) for Quality B Coal, the price shall be increased at a rate of $0.30 per ton per one percent (1%) below eight percent (8%) for Quality A Coal and seven and one-half percent (7.5%) for Quality B Coal. 9.4 Within thirty (30) days after the end of each calendar quarter, Seller shall calculate the three-month average Ash Value (subject to Buyer's verification) and the compensation to Seller or Buyer, as the case may be, in accordance with Section 9.3 and shall forward the calculation to Buyer. Seller shall issue an invoice for payment by Buyer if the compensation is to Seller or shall issue a credit memorandum (or cash payments with respect to the final quarter of this Agreement) to Buyer if the compensation is to Buyer. 7. Article X of the Agreement is deleted in its entirety and in substitution thereof a new Article X is added to read as follows: ARTICLE X Terms of Payment 10.1 On or before the twenty-fifth (25th) day of each month during the term of this Agreement, Seller shall render a statement to Buyer for the total volume of coal shipped under this Agreement between the first (1st) day and the fifteenth (15th) day of the current month. Buyer shall pay to Seller, on or before the fifth (5th) day of the following month the amount due on Seller's statement. All such payments shall be made by wire transfer directed to a bank account designated by Seller. On or before the eleventh (11th) day of each month during the term of this Agreement, Seller shall render a statement to Buyer for the total volume of coal shipped under this Agreement between the sixteenth (16th) day and the last day of the preceding month. Buyer shall pay to Seller, on or before the twenty-first (21st) day of each month the amount due on Seller's statement. All such payments shall be made by wire transfer directed to a bank account designated by Seller. 10.2 If Buyer fails to pay when due the amount of any statement rendered by Seller, interest thereon shall accrue from the due date until the date of payment, at the then current prime rate of interest charged by Citibank, N.A. to its commercial and industrial borrowers. This paragraph 10.2 shall not bar either Party from asserting any other remedy it may have at law or in equity. 10.3 If presentation of a statement by Seller is delayed after the eleventh (11th) and/or the twenty-fifth (25th) day of a month, then the time for payment shall be extended by the same number of days that the statement by Seller is delayed at no interest correspondingly, unless Buyer is responsible for such delay. 8. Article XI of the Agreement is amended by deleting subsection 11.4 thereof in its entirety and substituting therefor new subsection 11.4 to read as follows: 11.4 The partial or complete limitation of performance referred to in this Article XI shall not invalidate the remainder of the Agreement or reduce the tonnages to be purchased and sold in subsequent periods, and upon removal of the cause of such suspension, shipments shall be resumed at the specified rates. 9. Article XIV of the Agreement is deleted in its entirety and in substitution thereof a new Article XIV is added to read as follows: ARTICLE XIV Reserves 14.1 The coal reserves owned by or otherwise available to Seller, and from which the coal to be shipped hereunder is to be produced, are located in the vicinity of Pike County, Kentucky on the Norfolk Southern Railway and are part of the mining properties constituting the Sidney Mines. The total quantity of suitable and economically recoverable coal of the quality required to meet Seller's minimum obligation to Buyer under this Agreement is 6.9 million tons. Seller shall dedicate a minimum of 6.9 million tons of its and/or its affiliates' or subsidiaries' suitable, economically recoverable coal reserves at Sidney Mines for production over the term of, and for the purpose of meeting Seller's obligations under this Agreement. Seller, its affiliates' or subsidiaries' shall not enter into other agreements for the production and sale of coal from the above reserves which production and sale would reduce or impair the reserves required to meet Seller's obligations under this Agreement. 14.2 The above reserves may be reduced each calendar year by the maximum amount of coal that Seller could have been required to deliver to Buyer during said calendar year. 14.3 Buyer shall have the right from time to time, with reasonable frequency and upon reasonable notice, to audit at Buyer's expense (1) said reserves owned by or otherwise available to Seller and (2) the commitments of Seller, its affiliates and/or subsidiaries for the purpose of determining if Seller has sufficient reserves available to it which are not otherwise committed to comply with the reserve requirements of this Agreement. Buyer may at its discretion have any such audit conducted by an independent firm or firms reasonably acceptable to Seller. 14.4 If, during the term of this Agreement, Seller, its affiliate(s), subsidiaries and/or parent, enter into any other agreements for the production and/or sale of coal from the Sidney Mines' reserves and/or for the sale or lease of the reserves themselves or interest(s) therein which production, sale, and/or lease would reduce or impair the reserves required to meet Seller's obligation under this Agreement, in addition to any and all remedies Buyer shall have in law or equity, Buyer shall have the right, but not the obligation to terminate this Agreement. Notwithstanding the foregoing, in the event Seller (i) demonstrates in advance to the reasonable satisfaction of Buyer by acceptable engineering data that any one or more of Seller's Mines, other than the Sidney Mines, have sufficient coal reserves to produce and deliver that amount of Quality A Coal or Quality B Coal, as applicable, dedicated under Section 14.1, as reduced in accordance with Section 14.2, and (ii) Seller executes an amendment substituting such one or more of Seller's Mines for Sidney's Mines as the dedicated reserve under Article 14; the sale of Sidney's Mines or the interest, if any, of Seller, its affiliates, subsidiaries or parent therein shall not constitute a breach of this Agreement and Seller shall have no right to terminate this Agreement. Provided, however, nothing herein shall be construed to prohibit Seller, its affiliate(s), subsidiaries and/or parent from a sale of the Sidney Mines' reserves or Seller's, its affiliate(s)', subsidiaries' and/or parent's interests therein, which is accompanied by an assignment of this Agreement in conformance with the terms and conditions of Article XX to the purchaser of such reserves or interests therein. 14.5 If, during the term of this Agreement, Seller enters into an agreement with a domestic electric utility to sell washed coal from Seller's Mines at a base price more than 10% below the then current Quality A Price or Quality B Price as applicable, and such agreement (a) specifies (1) the same or higher heating value (Btu/lb.), (2) the same or lower ash content, (3) the same or lower sulfur dioxide (SO2) content, and (4) the same or lower moisture content than specified under Section 5.1 (b), and (b) is on terms and conditions comparable to the terms hereof, including a term of ten (10) years or more and a quantity of 630,000 tons per year or more, then Seller shall give written notice of such agreement to Buyer within sixty (60) days of the execution thereof. Buyer shall have the right to require Seller to decrease the Quality A Price or Quality B Price hereunder, as applicable, within sixty (60) days of Seller's notice, to match the base price of the other agreement. 10. A new Article XXVI is added to the Agreement as follows: ARTICLE XXVI 1.5 lbs. SO2/MMBtu Coal Purchase Option 26.1 Buyer and Seller agree that upon forty-five (45) days advanced written notice, Buyer shall have the right to elect to receive 1.5 lbs. SO2/MMBTU coal from Seller's Mines for a period not to exceed sixty (60) days without Seller's prior consent, provided, however, Buyer shall have the right to elect to receive 1.5 lbs. SO2/MMBTU coal a minimum of two (2) times per year. 26.2 Buyer and Seller agree that upon Buyer's advanced written notice to Seller that it intends to exercise its option to purchase 1.5 lbs. SO2/MMBTU coal, Buyer and Seller will negotiate a mutually acceptable price to be paid for the 1.5 lbs. SO2/MMBtu coal. Any coal purchased pursuant to this Article XXVI shall apply to Buyer's contract volume requirement under Article I of the Agreement. Seller shall not be required to deliver such coal in any amounts greater than the proportionate monthly Tonnages as required for Quality A Coal or Quality B Coal under this Agreement. 11. A new Article XXVII is added to the Agreement as follows: ARTICLE XXVII DEC Permit Revision 27.1 Buyer and Seller agree that during the term of this Agreement the Buyer's New York State Department of Environmental Conservation Operating Permit for the Lovett Plant may be changed to allow the Buyer to burn coal with a higher sulfur content. If Buyer obtains a revised operating permit from the New York State Department of Environmental Conservation ("Revised Operating Permit"), then upon forty- five (45) days advanced written notice from Buyer to Seller, Seller agrees to supply Buyer with the higher sulfur coal consistent with Buyer's Revised Operating Permit for the remainder of the term of the Agreement, subject to earlier termination as provided in this Agreement. 27.2 Buyer and Seller agree that upon Buyer's advanced written notice to Seller that it has obtained a Revised Operating Permit, Buyer and Seller shall negotiate a new mutually acceptable Initial Price under Article III to be paid for the higher sulfur coal under this Agreement, provided; however, all other provisions of Article III herein shall continue to apply to the new Initial Price for the higher sulfur coal. Buyer and Seller agree to revise Article III of this Agreement to reflect the new Initial Price and to revise other terms and conditions of the Agreement as necessary to reflect the higher sulfur quality specifications of the coal and the source(s) to be used to supply such coal hereunder. 12. The Supplemental Agreement between Buyer and Seller, dated July 1, 1994, is cancelled effective July 1, 1996. 13. Except as amended hereby, and as previously amended, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized officers as of the date first written above. ORANGE AND ROCKLAND UTILITIES, INC. (BUYER) By ___________________________________ Date ___________ George V. Bubolo, Jr. Division Vice-President - Engineering & System Operations MASSEY COAL SALES COMPANY, INC. (SELLER) By ___________________________________ Date ___________ Thomas A. McQuade Senior Vice President EXHIBIT A Sidney Mines Pike County, Kentucky Properties [MAP ATTACHED HERETO] Page 1 of 2 Exhibit B Quarterly Price Adjustment Orange and Rockland/Massey Coal Sales October 1, 1996 Quality A Coal
Previous Quarter Current Quarter July 1996 October 1996 Index Date Index Date Index Drills & Other Mining Machinery 4/96 136.30 7/96 137.60 1192-03 Implicit Price Deflator 4th Qtr. 1995 127.90 1st Qtr. 1996 128.30 Gross Domestic Product Average Hourly Earnings of Bituminous 3/96 18.40 6/96 18.66 Coal & Lignite Workers SIC 122 Industrial Commodities 4/96 124.00 7/96 125.30 of Producer Price Index Mining Machinery Parts, Excluding 4/96 131.90 7/96 132.10 Drills, 1192-5301 Industrial Power, 500 KW 4/96 105.30 7/96 105.80 4981-132
Index/Cost Change Percent Weight of Component Change Component Change Component as Weighted PPI 1192-03 1.3000 0.0095 6% 0.0006 IPD-GDP 0.4000 0.0031 22% 0.0007 SIC 122 0.2600 0.0141 33% 0.0047 PPI-IC 1.3000 0.0105 27% 0.0028 PPI 1192-5301 0.2000 0.0015 6% 0.0001 4981-132 0.5000 0.0047 6% 0.0003 Total 0.0088 % Increase (Decrease) 0.0088 Previous Price ($32.00) less $28.80 Fixed Cost ($3.20) Quarterly Adjustment $0.25 New Price Effective 10/1/96 $32.25 (inclusive of fixed cost) Note: Indices shown are not actuals, used for illustration purposes only.
Page 2 of 2 Exhibit B Quarterly Price Adjustment Orange and Rockland/Massey Coal Sales October 1, 1996 Quality B Coal
Previous Quarter Current Quarter July 1996 October 1996 Index Date Index Date Index Drills & Other Mining Machinery 4/96 136.30 7/96 137.60 1192-03 Implicit Price Deflator 4th Qtr. 1995 127.90 1st Qtr. 1996 128.30 Gross Domestic Product Average Hourly Earnings of Bituminous 3/96 18.40 6/96 18.66 Coal & Lignite Workers SIC 122 Industrial Commodities 4/96 124.00 7/96 125.30 of Producer Price Index Mining Machinery Parts, Excluding 4/96 131.90 7/96 132.10 Drills, 1192-5301 Industrial Power, 500 KW 4/96 105.30 7/96 105.80 4981-132
Index/Cost Change Percent Weight of Component Change Component Change Component as Weighted PPI 1192-03 1.3000 0.0095 6% 0.0006 IPD-GDP 0.4000 0.0031 22% 0.0007 SIC 122 0.2600 0.0141 33% 0.0047 PPI-IC 1.3000 0.0105 27% 0.0028 PPI 1192-5301 0.2000 0.0015 6% 0.0001 4981-132 0.5000 0.0047 6% 0.0003 Total 0.0088 % Increase (Decrease) 0.0088 Previous Price ($29.25) less $26.33 Fixed Cost ($2.92) Quarterly Adjustment $0.23 New Price Effective 10/1/96 $29.48 (inclusive of fixed cost) Note: Indices shown are not actuals, used for illustration purposes only.
EXHIBIT C a) Illustration of 30 Day Weighted Average Calculation 30 Day Weighted Averages July 1996
Coal Train Arrival Ash Soft Ash Soft Vendor Number Mine Date Tonnage Ash Ash % Volatile Volatiles % Temperature Temperature % Massey UOR-2 Rawl 7/02/96 9325.45 6.52 60,801.93 33.63 313,614.88 2800 26,111,260.00 UOR-4 Rawl 7/08/96 9252.95 6.81 63,012.59 32.96 304,977.23 2800 25,908,260.00 UOR-6 Rawl 7/12/96 9119.05 6.43 58,635.49 33.42 304,758.65 2800 25,533,340.00 UOR-8 Rawl 7/25/96 8983.15 6.21 55,785.36 31.96 287,101.47 2800 25,152,820.00 Total 36,680.60 238,235.38 1,210,452.24 102,705,680.00 Total Weighted Average Tonnage 36,680.60 Ash 238,235.38 6.49 Volatiles 1,210,452.24 33.00 Ash Soft Temp. 102,705,680.00 2,800.00 Note: Figures shown are not actuals; used for illustration purposes only.
b)Illustration Of 90 Day Weighted Average Calculation 90 Day Weighted Averages July 1996- September 1996
Coal Train Arrival Vendor Number Mine Date Tonnage Grind Grind % BTU BTU % Moisture Moisture % Massey UOR-2 Rawl 7/02/96 9325.45 46 428,970.70 13,002 121,249,500.90 6.85 63,879.33 UOR-4 Rawl 7/08/96 9252.95 46 425,635.70 13,205 122,185,204.75 6.39 59,126.35 UOR-6 Rawl 7/12/96 9119.05 47 428,595.35 13,265 120,964,198.25 6.70 61,097.64 UOR-8 Rawl 7/25/96 8983.15 45 404,241.75 13,150 118,128,422.50 6.44 57,851.49 UOR-10 Rawl 8/06/96 9120.25 46 419,531.50 13,158 120,004,249.50 6.38 58,187.20 UOR-12 Rawl 8/11/96 9337.65 48 448,207.20 13,126 122,565,993.90 6.30 58,827.20 UOR-14 Rawl 8/16/96 9102.65 48 436,927.20 13,201 120,164,082.65 6.40 58,256.96 UOR-16 Rawl 8/22/96 8903.90 46 409,579.40 13,148 117,068,477.20 6.49 57,786.31 UOR-18 Rawl 9/02/96 9103.65 47 427,871.55 13,267 120,778,124.55 6.51 59,264.76 UOR-20 Rawl 9/12/96 9037.65 47 424,769.55 13,209 119,378,318.85 6.89 62,269.41 UOR-22 Rawl 9/20/96 9138.15 46 420,354.90 13,231 120,906,862.65 6.52 59,580.74 UOR-24 Rawl 9/30/96 9015.75 48 432,756.00 13,109 118,187,466.75 6.56 59,143.32 Total 109,440.25 5,107,440.80 1,441,580,902.45 715,270.69 Total Weighted Average Tonnage 109,440.25 Grindability 5,107,440.80 46.67 BTU 1,441,580,902.45 13,172.31 Moisture 715,270.69 6.54 Grind Matrix 614.74 Note: Figures shown are not actuals; used for illustration purposes only.
EXHIBIT D Rawl Mines Mingo County, West Virginia Properties [MAP ATTACHED HERETO] EX-13 4 REVIEW OF THE COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL PERFORMANCE Consolidated earnings per share were $3.17 for 1996, compared to $2.60 in 1995 and $2.50 in 1994. The increase in earnings was largely the result of higher electric and natural gas sales, reduced customer refunds and decreased investigation and litigation costs. The Company's continued success in controlling operating and maintenance expenses, and in lowering interest charges, also had a positive effect on earnings. While the Company's gas marketing subsidiary continued to underperform and experienced a net loss for the year, a new strategic initiative begun in the third quarter of 1996 is aimed at securing lower-volume, higher-margin customers, and will be fully implemented during 1997. The 1995 increase in earnings over 1994 is the result of the impact of the reduced costs associated with the investigation and litigation involving former officers and others, the provision for refunds to be passed back to customers and regulatory actions, partially offset by a decline in non-utility subsidiary operating results. Consolidated earnings available for common stock were $43.3 million in 1996, $35.4 million in 1995 and $34.0 million in 1994. Earnings per average common share are summarized as follows:
1996 1995 1994 --------- --------- --------- Utility operations....................................................................... $ 3.39 $ 3.20 $ 3.14 Events affecting the Company: Investigation & litigation costs......................................................... (.09) (.35) (.42) Refunds of misappropriated funds......................................................... -- (.14) (.20) Diversified activities................................................................... (.13) (.11) (.02) --------- -------- -------- Consolidated earnings per share.......................................................... $ 3.17 $ 2.60 $ 2.50 --------- -------- --------
The earned return on common equity was 11.3% in 1996, compared to 9.4% in 1995, and 9.0% in 1994. Book value per share at year-end 1996 was $28.41, compared to $27.82 in 1995 and $27.79 in 1994. The Company continued to provide a fair and equitable return on shareholders' investments. The dividends paid on common stock were $2.58, $2.57 and $2.54 per share in 1996, 1995 and 1994, respectively. The Company has maintained a strong capital structure: 46% long-term debt (includes debt due within one year), 5% preferred stock and 49% common equity. ARBITRATION PROCEEDINGS The Company was party to an arbitration proceeding relating to events surrounding the termination of James F. Smith, its former Chief Executive Officer and Chairman of the Board of Directors. On January 29, 1997, the Company received the decision of the arbitration tribunal awarding Mr. Smith the net sum of $5.5 million against the Company. Any amounts not previously provided for will be recorded in the first quarter of 1997. The Company does not expect the additional provision to have a significant impact on the overall results of operations in 1997. For more information on this matter, refer to Note 12 of the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS The discussion that follows identifies the principal causes of the significant changes in the amounts of revenues and expenses affecting earnings applicable to common stock by comparing 1996 to 1995 and 1995 to 1994. This discussion should be read in conjunction with the Notes to Consolidated Financial Statements and other financial and statistical information contained elsewhere in this report. 10 The following is a summary of the changes in earnings applicable to common stock:
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995 - --------------------------------------------------------------------------- --------- --------- (MILLIONS OF DOLLARS) Utility operations: Operating revenues......................................................... $ 53.3 $ (36.0) Energy and gas costs....................................................... 35.0 (27.2) --------- --------- Net revenues from utility operations....................................... 18.3 (8.8) Other utility operating expenses and taxes................................. 12.5 (9.6) --------- --------- Operating income from utility operations................................... 5.8 0.8 Diversified revenues....................................................... (158.1) 49.2 Diversified operating expenses and taxes................................... (158.4) 53.5 --------- --------- Income from operations..................................................... 6.1 (3.5) Other income and deductions................................................ -- 4.2 Interest charges........................................................... (1.6) (0.7) --------- --------- Net income................................................................. 7.7 1.4 Preferred dividends........................................................ (0.1) (0.1) --------- --------- Earnings applicable to common stock........................................ $ 7.8 $ 1.5 --------- ---------
ELECTRIC OPERATING RESULTS Electric operating revenues, net of fuel and purchased power costs, increased by 3.6% or $12.1 million in 1996 after decreasing by 2.5% or $8.5 million in 1995. These changes are attributable to the following factors:
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995 - --------------------------------------------------------------------------- --------- --------- (MILLIONS OF DOLLARS) Retail sales: Price changes.............................................................. $ (13.5) $ (19.3) Sales volume changes....................................................... 6.0 4.8 --------- --------- Subtotal................................................................... (7.5) (14.5) Sales for resale........................................................... 1.0 (4.5) Other operating revenues................................................... 23.6 -- --------- --------- Total electric revenues.................................................... 17.1 (19.0) Electric energy costs...................................................... 5.0 (10.5) --------- --------- Net electric revenues...................................................... $ 12.1 $ (8.5) --------- ---------
ELECTRIC SALES AND REVENUES Total sales of electric energy to retail customers during 1996 were 4,605,300 Mwh (megawatt hours), compared with 4,525,600 Mwh during 1995 and 4,464,000 Mwh in 1994. Revenues associated with these sales were $465.0 million, $472.5 million and $487.0 million in 1996, 1995 and 1994, respectively. Electric sales to customers for the last five years are shown in the accompanying chart. [Graphics Chart, See Appendix A of Exhibit 13] The changes in electric sales by class of customer from the prior year are as follows:
1996 1995 --------- ----- Residential......................................................... 2.7% 1.5% Commercial.......................................................... (0.5)% 0.3% Industrial.......................................................... 10.0% 3.6% Public street lighting.............................................. 5.0% 1.0% Sales to public authorities......................................... (31.9)% 9.5% --------- -------
Despite cooler summer conditions when compared to 1995, the increase in customer usage coupled with the increase in the number of customers, increased electric retail sales in 1996 by 1.7%. Electric retail sales increased 1.4% in 1995 when compared to 1994, resulting primarily from an increase in the number of customers coupled with unusually warm weather during the summer months. Through the PowerPick-TM- Program and other initiatives, the Company continues to meet the needs of its customers by pursuing least-cost strategies, designed to provide participants from all classes of customers with the opportunity to select an energy supplier other than the Company. It is also designed to minimize any potential adverse impacts on non-participants and to maintain the Company's system reliability. Program participants will continue to buy capacity and to take delivery from the Company, thereby protecting the interests of the Company's shareholders and non-participating customers. Other programs have been put into place which are designed to reduce peak load, encourage efficient energy usage and reduce the need for costly investments in new generating capacity. These efforts resulted in the Company achieving an energy-efficiency savings of approximately 240,000 Mwh in 1996, 235,000 Mwh in 1995 and 194,000 Mwh in 1994. Although Demand Side Management (DSM) incentives were discontinued in 1996, energy-efficiency incentives of $1.4 million and $0.6 million were earned by the Company in 1995 and 1994, respectively. In addition to DSM, the Company continues to actively seek cost effective energy supply options, such as purchased power agreements with others. On May 3, 1996, the Company and the New York Public Service Commission (NYPSC) eliminated the Revenue Decoupling Mechanism (RDM), which reconciled actual sales revenues in New York to levels allowed in rates (see Rate Activities section). As a result of this agreement, the Company's electric earnings in 1996 were partially affected by changes in sales volume and weather conditions. The Company's future electric earnings will be affected by changes in sales volumes resulting from the strength of the economy, weather conditions and conservation efforts of customers. Other operating revenues increased due to regulatory adjustments required by the May 3, 1996 agreement which were offset in operating expenses. Sales for resale increased by $1.0 million to $3.1 million in 1996 when compared to 1995, after decreasing from $6.6 million in 1994 to $2.1 million in 1995. Revenues from these sales are primarily a recovery of costs, under the applicable tariff regulations, and have a minimal impact on the Company's earnings. ELECTRIC ENERGY COSTS The cost of fuel used in electric generation and purchased power increased 4.0% or $5.0 million in 1996, after decreasing 7.8% or $10.5 million in 1995. The components of these changes in electric energy costs are as follows:
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995 - ------------------------------------------------------------------------------ --------- --------- (MILLIONS OF DOLLARS) Prices paid for fuel and purchased power...................................... $ 1.1 $ (2.4) Changes in Kwh generated or purchased......................................... 2.3 (2.1) Deferred fuel charges......................................................... 1.6 (6.0) --- --------- Total......................................................................... $ 5.0 $ (10.5) ------- ---------
The increase in electric energy costs in 1996 when compared to 1995 is the result of an increase in the cost of fuel as well as increased sales. Electric energy costs in 1995 reflect the lower costs of fuel used in generation, somewhat offset by an increase in purchased power costs when compared to 1994. The price paid for fuel and purchased power per kilowatt hour over the last five years is shown in the accompanying chart. [Graphics Chart, See Appendix A of Exhibit 13] The Company's tariff schedules include adjustment clauses under which fuel and certain purchased power costs are recovered. In New York, an incentive-based mechanism associated with the electric fuel adjustment clause requires the Company to share 20% of the variation between actual costs and forecast fuel targets, up to a maximum of $1,762,000. In 1996, 1995 and 1994, pre-tax earnings were enhanced by $580,000, $755,000 and $1,241,000, respectively, as a result of this mechanism. The Company maintains an aggressive program of managing its sources of fuel and 11 energy purchases to provide its customers with the lowest-cost energy available at any given time. Energy is purchased whenever available at a price lower than the cost of production at the Company's generating plants. The Company continues to use the least costly fuel available for generating electricity. GAS OPERATING RESULTS Gas operating revenues, net of gas purchased for resale, increased by 9.0%, or $6.2 million in 1996 when compared to 1995, after decreasing by 0.3%, or $0.2 million in 1995. These changes are attributable to the following factors:
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995 - ---------------------------------------------------------------------------- --------- --------- (MILLIONS OF DOLLARS) Sales to firm customers: Price changes............................................................. $ 22.6 $ (19.6) Sales volume changes...................................................... 3.4 (1.9) --------- --------- Subtotal................................................................ 26.0 (21.5) Sales to interruptible customers............................................ 8.4 2.7 Sales for resale............................................................ -- (0.1) Other operating revenues.................................................... 1.8 2.0 --------- --------- Total gas revenues...................................................... 36.2 (16.9) Gas energy costs............................................................ 30.0 (16.7) --------- --------- Net gas revenues........................................................ $ 6.2 $ (0.2) --------- ---------
GAS SALES AND REVENUES Firm gas sales amounted to 20,918 million cubic feet (Mmcf) in 1996, an increase of 5.5% over the 19,825 Mmcf recorded in 1995. Such sales in 1995 decreased by 2.9% from the 1994 level of 20,421 Mmcf. Gas revenues from firm customers were $153.9 million, $128.0 million and $149.4 million in 1996, 1995 and 1994, respectively. Gas sales to firm customers for the last five years are shown in the accompanying chart. [Graphics Chart, See Appendix A of Exhibit 13] The changes in firm gas sales by class of customer from the prior year are as follows:
1996 1995 ----- --------- Residential..................................................................... 6.3% (2.7%) Commercial and industrial....................................................... 3.3% (3.6%) ------ ------
Cooler weather in the first quarter of 1996 when compared to 1995 was the primary reason for the increase in sales. An increase in the number of customers in 1996 when compared to 1995 also enhanced sales. In addition, 1995, which also had an increase in the number of customers, was adversely affected by weather conditions. Under the terms of the current gas rate agreement in New York, the level of firm sales is subject to a weather normalization adjustment. The Company adjusts firm gas sales revenues to the extent actual degree days vary more than plus or minus 2.2% from the degree days utilized to project sales during a heating season. Therefore, weather conditions may have a minimal impact on gas operating results. The Federal Energy Regulatory Commission's (FERC) Order 636 required pipeline supply companies to separate or unbundle their charges for providing natural gas to the Company. The unbundling of charges provided the Company with the opportunity to put tariffs in place on October 1, 1996, which allowed the Company to market available pipeline transmission capacity. As approved, the tariffs granted the Company permission to retain 15% of all revenues derived from the sale of pipeline capacity during 1996. Additionally, as part of the Company's rate agreement in Case 92-G-0050, the Company is allowed to retain 25% of net revenues derived from Order 63 off-system transactions. Revenues retained from Order 636 and Order 63 transactions in 1996 amounted to $0.5 million. Revenues from interruptible gas customers (customers with alternative fuel sources) increased by 124.5% in 1996 after increasing by 68.3% in 1995 when compared to the previous year. These sales are dependent upon the availability and price competitiveness of alternative fuel sources. As a result of applicable tariff regulations, these interruptible sales do not have a substantial impact on earnings. GAS ENERGY COSTS Utility gas energy costs increased by 42.0% or $30.0 million in 1996 when compared to 1995, after decreasing by 19.0%, or $16.7 million in 1995. The changes in utility gas energy costs for the years 1996 and 1995 are a result of the following:
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995 - ---------------------------------------------------------------------------- --------- --------- (MILLIONS OF DOLLARS) Prices paid to gas suppliers*............................................... $ 15.7 $ (10.1) Firm and interruptible Mcf sendout.......................................... 9.1 3.1 Deferred fuel charges....................................................... 5.2 (9.7) --------- --------- Total.................................................................... $ 30.0 $ (16.7) --------- ---------
* Net of refunds received from gas suppliers. The Company continues its policy of the aggressive use of market purchases in order to provide price flexibility, while assuring an adequate supply of gas through a variety of long-term gas contracts. The price paid for purchased gas per thousand cubic feet (Mcf) over the last five years is shown in the accompanying chart. [Graphics Chart, See Appendix A of Exhibit 13] Gas costs from 1990-1993 were adversely affected by the actions of the FERC, which had authorized pipeline suppliers to pass through take-or-pay costs. As required by the NYPSC in Case 88-G-062, the Company has deferred a portion of these costs. As of December 31, 1996, $2.1 million of deferred take-or-pay charges and accrued interest remain on the books of the Company. The Company and the NYPSC have reached an agreement allowing the Company to recover these costs by March 1999. As a result of the FERC's objective to restructure the gas transportation industry to promote competition among gas suppliers and to ensure supply at the lowest reasonable costs, the FERC, pursuant to FERC Order 636, has authorized pipelines to recover certain transition costs from their customers. The Company currently estimates that its obligations for Order 636 transition costs will total approximately $36.7 million. Approximately $25.1 million of these transition costs have been billed to the Company. On December 20, 1994 the NYPSC issued an order establishing the regulatory and rate-making policies applicable to New York gas distribution utilities resulting from FERC Order 636. The NYPSC order provides mechanisms for the full recovery of transition costs. The Company is presently in the process of recovering these costs from its customers and believes it will be allowed to fully recover such costs by the end of the year 2000. OTHER UTILITY OPERATING EXPENSES AND TAXES A comparison of other operating expenses and taxes for utility operations is presented in the following table:
INCREASE (DECREASE) FROM PRIOR YEAR 1996 1995 - ------------------------------------------------------------------------------ --------- --------- (MILLIONS OF DOLLARS) Other operating expenses...................................................... $ 17.1 $ (8.7) Maintenance................................................................... (4.6) (2.8) Depreciation and amortization................................................. (5.2) 2.1 Taxes......................................................................... 5.2 (0.2) --------- --------- Total....................................................................... $ 12.5 $ (9.6) --------- ---------
12 The primary reason for the increase in utility operating expenses is the amortization of previously deferred Independent Power Producer costs of $16.2 million offset by a decrease in the costs of DSM programs, which decreased by $4.0 million in 1996. These costs are recovered in revenues on a current basis. The remaining increase in 1996 is the result of increased transmission and distribution activities during the current year. The primary reason for the decrease in operating expenses in 1995 was the decrease in DSM programs of $8.1 million from 1994. Additionally, the Company's cost containment program reduced 1996 and 1995 costs through operating efficiencies and lower labor costs realized by attrition. Maintenance costs decreased 11.1% in 1996 after decreasing by 6.4% in 1995. The decrease in 1996, when compared to 1995, is primarily a result of improvements to the Company's distribution and transmission systems during the year. The 1995 decrease was primarily the result of reduced distribution plant maintenance. Depreciation and amortization expenses decreased by $5.2 million in 1996 when compared to 1995, primarily as a result of the most recent rate decision in New York, after increasing by $2.1 million in 1995. The increases in 1995 were the result of normal plant additions. Taxes other than income taxes increased by $5.0 million in 1996 when compared to the $93.7 million recorded in 1995. This increase reflects the amounts previously deferred under the Company's RDM agreement. Exclusive of the RDM adjustment, the 1996 increase was less than two percent. The increase in 1995 was the result of taxes associated with revenues. Federal income tax expense increased $0.2 million in 1996, after increasing $1.7 million in 1995. The changes in both years are the result of changes in pre-tax book income. For a detailed analysis of income tax components, see Note 2 of Notes to Consolidated Financial Statements. DIVERSIFIED ACTIVITIES The Company's diversified activities at year end consisted of gas marketing and land development businesses conducted by its wholly owned non-utility subsidiaries. Revenues from diversified activities decreased by $158.1 million in 1996, after increasing by $49.2 million in 1995. The 1996 revenue decline reflects the gas marketing subsidiary's strategy to focus on securing lower-volume, higher-margin customers. Operating expenses incurred by the non-utility subsidiaries decreased by $158.4 million in 1996 after increasing by $53.5 million in 1995. These changes are directly related to gas marketing purchases which decreased by $155.4 million in 1996, after increasing by $53.6 million in 1995. Other expenses of operation, maintenance, depreciation and taxes decreased $3.0 million in 1996, after decreasing by $0.1 million in 1995. Earnings from diversified activities decreased by $0.2 million and $1.3 million in 1996 and 1995, respectively. The declines were primarily due to the gas marketing subsidiary which continues to underperform, resulting in lower margins and a net loss for the second consecutive year. A new strategic initiative (NORSTAR 2000), which began in the third quarter of 1996, aimed at increasing customers, sales and margin, will be fully implemented during 1997. Earnings in 1995 were further reduced by the recognition of the market value of properties held by an affiliate of the gas marketing subsidiary. However, 1995 diversified earnings were enhanced by a $2.9 million gain realized as a result of the formation of the NORSTAR Energy Limited Partnership. OTHER INCOME AND DEDUCTIONS Other income and deductions remained virtually unchanged in 1996 when compared to 1995. The increase from 1995 to 1994 was $4.2 million. The change was the result of lower investigation and litigation costs entirely offset by the gain realized in 1995 from the formation of the NORSTAR partnership. INTEREST CHARGES Interest charges decreased $1.6 million in 1996 when compared to 1995, after decreasing $0.7 million in 1995. The 1996 and 1995 decreases are the result of refinancing certain of the Company's long-term debt issues, taking advantage of the lower interest rates available and the retirement of long-term debt issues in 1995, offset by an increase in the cost of short-term debt. LIQUIDITY AND CAPITAL RESOURCES The Company's construction program is designed to maintain reliable electric and gas service, meet future customer service requirements and improve the Company's competitive position. The cash expenditures related to the construction program and other capital requirements for the years 1994-1996 were as follows:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Construction expenditures................................................................ $ 60.9 $ 56.8 $ 62.5 Retirement of long-term debt & preferred stock........................................... 1.6 20.8 4.1 --------- --------- --------- Total.................................................................................. $ 62.5 $ 77.6 $ 66.6 --------- --------- ---------
At December 31, 1996, the Company estimated the cost of its construction program in 1997 to be $57.7 million and retirement of long-term debt and preferred stock to be $79.6 million. It is expected that the Company's capital requirements for 1997, with the exception of $78.0 million in long-term debt maturities which the Company expects to refinance, will be met primarily with funds from operations, supplemented by the issuance of short-term borrowings. On February 4, 1997, Rockland Electric Company (RECO), a wholly owned utility subsidiary of the Company, issued $20 million of First Mortgage 7 1/8% Bonds, Series J due February 1, 2007 (Series J Bonds). The proceeds from the issuance of the Series J Bonds, together with other RECO funds will be used to refund, in March 1997, RECO's $20 million First Mortgage 9.59% Bonds, Series H. Neither the Company nor its utility subsidiaries have any plans at the present time for external additional financing other than securities issued for refunding purposes. The Company's Dividend Reinvestment Plan (DRP) and its Employee Stock Purchase and Dividend Reinvestment Plan (ESPP) provide that, at the option of the Company, the common stock requirements of the plans may be satisfied by either original issues of common stock or open market purchases. Since November 1, 1994, the requirements of both plans have been satisfied by open market purchases. The Company, however, has authority to issue up to 750,000 shares of its common stock under the DRP and ESPP through December 31, 1997, of which approximately 693,000 shares were unissued at December 31, 1996. The Company and its utility subsidiaries have unsecured bank lines of credit totaling $100 million. The Company may borrow under the lines of credit through the issuance of promissory notes to the banks. The Company, however, utilizes such lines of credit to fully support commercial paper borrowings. The aggregate amount of borrowings through the issuance of promissory notes and commercial paper cannot exceed the aggregate lines of credit. In addition, non-utility lines of credit amounted to $20.0 million at December 31, 1996, and the non-utility subsidiaries may undertake short-term borrowings or make short-term investments. 13 RATE ACTIVITIES NEW YORK--GAS On January 16, 1992, the Company filed an application for an increase in gas rates with the NYPSC. The Settlement Agreement in that case, which was approved by the NYPSC on September 30, 1992, provided, among other things, for multi-year rate adjustments through 1996 and for certain gas incentives. The second adjustment to gas rates under the Settlement Agreement, which amounted to an increase of $3.8 million or 2.5%, was to become effective on January 1, 1994. As a result of the NYPSC's investigation of alleged financial improprieties of certain former officers and former employees of the Company (the NYPSC Investigation), the implementation of the increase was first extended to June 30, 1994 and then further extended to December 30, 1994. On November 4, 1994, the NYPSC issued an Order terminating the Settlement Agreement effective December 31, 1994. The Order authorized the Company to defer the second-stage rate adjustments and all previously authorized reconciliations pertaining to periods prior to December 31, 1994, pending review and audit by the NYPSC Staff and the conclusion of the NYPSC's Investigation. In addition, on February 7, 1995, the Accounting and Finance Division of the NYPSC issued an interpretation of the November 4, 1994 termination order which stated that the gas incentive mechanism related to the attainment of certain goals was no longer available. The Company did not contest this interpretation. On October 2, 1995, the Company, the NYPSC Staff, the New York State Consumer Protection Board (CPB) and the Industrial Energy Users Association (IEUA) reached a settlement which resolved all outstanding issues relating to the NYPSC Investigation. The settlement provided for, among other things, the cancellation of the second-stage gas base rate increase scheduled for December 31, 1994. All deferred balances resulting from expense reconciliations and deferral of the second-stage rate adjustment were offset with an equal amount of deferred credits approved as part of the rate decision dated May 3, 1996, discussed below. In addition, the settlement provides for the recognition in gas rates of the change in accounting required by Statement of Financial Accounting Standards No. 106 (SFAS No. 106), "Employer Accounting for Postretirement Benefits Other Than Pensions." The annual cost increase due to gas operations as a result of SFAS No. 106 will be offset by an equal amount of previously deferred credits. On May 3, 1996, the NYPSC issued an order approving the settlement. By orders issued March 28, 1996 and September 13, 1996, the NYPSC approved utility restructuring plans designed to open up the local natural gas market to competition and allow residential and small commercial users the same ability to purchase gas supplies from a variety of sources, other than the franchised local distribution utility, that large industrial customers have enjoyed for several years. Small customers' usage volumes will be aggregated for purposes of obtaining access to alternative sources of natural gas. The Company revised tariffs for the transportation and delivery of third-party gas supplies for customers consistent with the NYPSC orders effective October 1, 1996. The NYPSC orders provide for a phase-in of the new service to ease potential implementation problems and the recovery of stranded costs which are incurred over the next three years. In recognition of the accelerating movement by customers to purchase natural gas supplies from alternate sources, the Company has restructured its gas supply and transportation contracts to reflect reduced requirements for Company-furnished gas and has been actively marketing available pipeline transportation capacity. NEW YORK--ELECTRIC On April 19, 1995, the NYPSC approved the Company's compliance filing regarding the operation of the RDM. The filing included a proposal to eliminate the RDM Adjustment Factor of $7.7 million effective May 1, 1995, reflecting the completion of the recovery of an RDM under-collection applicable to the year 1993. This equated to a 2.3% annual reduction in revenues. In addition, the filing requested that a net RDM over-collection of $0.7 million for the year 1994 be retained by the Company as a future rate moderator, subject to NYPSC verification. On May 25, 1995, the Company filed with the NYPSC for a decrease in electric revenues of $6.1 million to be effective April 1, 1996 (Case 95-E-0491). This equated to an overall reduction of 1.8% in annual retail revenues. The filing reflected a reduction in operating expenses due to the complete recovery of the Company's share of the Sterling Nuclear Project and other cost reductions. The Company proposed a multi-year rate plan covering the three-year period ending on March 31, 1999 with no base rate increases in the second and third years of the plan. The Company proposed an overall return on capital of 9.17% with a sharing mechanism governing any return on common equity above 11.2%. On August 1, 1995, the NYPSC approved a stipulation among the parties which provided for the early implementation of the Company's proposed annual rate reduction of $6.1 million. As a result, reduced rates became effective August 1, 1995 producing a revenue reduction of approximately $3.8 million for the period August 1, 1995 to March 31, 1996. The revenue reduction was offset by the recognition of deferred revenue for 1994 and 1995 related to sharing mechanisms previously approved by the Commission . On May 3, 1996, the NYPSC approved, subject to modifications required by the NYPSC decision in the Competitive Opportunities Proceeding (discussed below), a Settlement Agreement (1996 Agreement) among the Company, NYPSC Staff and other parties which resolved all remaining revenue requirement issues in the proceeding for a three-year period commencing May 1, 1996 and concluding April 30, 1999. Under the 1996 Agreement, the Company reduced its annual electric retail revenues in New York by an additional $7.75 million, or 2.3%, effective May 1, 1996. The agreement also provides for the recovery over a four-year period of the buyout costs associated with three non-utility generator contracts entered into by the Company and applicable to New York electric operations. In addition, the settlement provides for several performance mechanisms related to service reliability and customer service, and the elimination of all revenue and most expense reconciliation provisions of the RDM. The 1996 Agreement provides the Company with the opportunity to retain all New York electric earnings up to a 10.9% return on equity annually for each of the next three years. Earnings in excess of 10.9% will be shared equally between customers and shareholders. The 1996 Agreement implements several competitive initiatives sought by the Company. These include price reductions, the offering of service guarantees and the introduction of customer choice of energy providers. Since April 1995, the Company has reduced its overall electric rates by 6.4%, and through changes in rate design and revenue allocations, provided reductions to our largest commercial and industrial customers of up to 16%. The Company recognizes the critical need to retain and encourage the growth of existing businesses as well as attract new industry and jobs to the area served by Orange and Rockland Utilities, Inc. (O&R) and has successfully adjusted its prices and cost structure to achieve this vital objective. O&R now offers the second lowest electric rates for large industrial customers in New York. In addition, the settlement permits the Company to initiate its plan to achieve h higher consumer satisfaction through a new program that offers cash or credit rebates to customers if O&R does not meet specified service guarantees, such as keeping service appointments. 14 The NYPSC, in approving the 1996 Agreement, also authorized the Company to launch an innovative retail access pilot program --PowerPick-TM- - --which, for the first time, allows customers participating in the experimental program to choose their electric energy supplier. PowerPick-TM- is the first pilot program of its kind in New York, New Jersey and Pennsylvania and represents a significant step in the transition to a competitive electric industry. PowerPick-TM- is designed to provide participants from all classes of customers with the choice of selecting an energy supplier other than O&R. The amount of energy available to participating customers from alternate suppliers is limited to 40 megawatts of off-peak usage, and O&R continues to provide capacity and to deliver the energy to program customers, thereby protecting the interests of shareholders and non-participating customers. The program was first opened to the Company's largest industrial customers in July 1996. Eighteen industrial customers have participated in the program to purchase a total of 30 megawatts of energy from six marketers and others, and achieved a savings of approximately 3-5% on their total electric costs. On January 1, 1997, an additional 10 megawatts of energy was made available to the Company's commercial and residential customers. Over 400 commercial and residential customers have agreed to participate in the second phase of the pilot program, with total electric price savings anticipated to range between 1 and 2%. The PowerPick-TM- program will provide both regulators and the Company with valuable information about customer needs and power deliverability as the industry is restructured to a more competitive market. NEW JERSEY Under an agreement with the New Jersey Board of Public Utilities (NJBPU) to return to customers any funds found to be misappropriated or otherwise questionable as a result of the Company's investigation of alleged financial improprieties of certain former Company officers and former employees, RECO, a wholly owned utility subsidiary of the Company, refunded $93,000 through reductions in the applicable fuel adjustment charges in February and March 1994. In December 1994, RECO submitted a proposal to refund an additional $704,000. By Order dated January 27, 1995, the NJBPU approved this proposal and the refund was made in February 1995. On February 21, 1996, the NJBPU approved RECO's 1996 Levelized Energy Adjustment Clause (LEAC) filing whereby RECO passed back an additional $482,000 of refunds related to the investigation of the alleged financial improprieties referred to above, making the total amount refunded to RECO customers $1,279,000. In addition, as part of this LEAC filing, RECO was granted full recovery over a three-year period of its share of buyout costs associated with three non-utility generator contracts entered into by the Company. The NJBPU on January 8, 1997 approved a stipulation among New Jersey utilities, NJBPU Staff and the NJ Division of Ratepayer Advocate which provides a recovery plan for costs associated with the change in accounting required by SFAS No. 106. The approved plan provides several alternative recovery mechanisms for the recognition of SFAS No. 106 costs in a utility's cost of service. Each utility must choose the recovery procedure it believes most appropriate for its circumstances and file with the NJBPU for approval of implementation. RECO is reviewing the recovery mechanisms provided by the plan and will file for approval with the NJBPU in the first quarter of 1997. On January 23, 1997 a residential customer of RECO filed a petition with the NJBPU requesting a lowering of RECO's rates by $21.2 million or 16% based on the twelve months ended December 31, 1995 as adjusted. A central issue raised by the petition is whether RECO's continued purchase of all of its power supply requirement from the Company continues to be appropriate when lower cost energy is available from other sources. RECO believes that this petition is without merit and intends to contest it vigorously. COMPETITION Regulatory agencies at the federal level as well as the three states in which the Company has retail electric franchises are currently evaluating changes in regulatory and rate-making practices designed to promote increased competition consistent with safety, reliability and affordability standards. Depending on future developments in this area, the Company's market share and profit margins could become subject to competitive pressures in addition to regulatory constraints. A discussion of the current federal and state competitive initiatives follows. FEDERAL INITIATIVE On April 24, 1996, the FERC issued its final order (FERC Order 888) requiring electric utilities to file non-discriminatory open access transmission tariffs that would be available to wholesale sellers and buyers of electric energy. The order also provided for the recovery of related legitimate and verifiable strandable costs subject to FERC's jurisdiction. The Company filed the required open access transmission tariff on July 9, 1996 offering transmission service and certain ancillary services to wholesale customers on a basis comparable to that which it provides itself. The Company is operating under the filed tariff, subject to refund, pending final FERC approval of the Company's filing. The Company participates in the wholesale electric market primarily as a buyer of energy and, as a result, Ord er 888 is not expected to materially impact the Company's financial condition or results of operations. On January 31, 1997, O&R, in conjunction with the other members of the New York Power Pool (NYPP), filed tariffs with the FERC seeking permission to restructure the NYPPinto an independent system operator. NEW YORK COMPETITIVE OPPORTUNITIES PROCEEDING On May 20, 1996, the NYPSC issued an order setting forth its vision and goals for the future of the electric industry in New York. The order endorsed a fundamental restructuring of the industry based on competition in the generation and energy services sectors of the industry. Introduction of retail access for all electric customers is envisioned to begin in early 1998. In addition, the order calls for lowering rates to consumers, increasing customer choice, continued reliability of service, continuation of programs that are in the public interest and continuing customer protections and the obligation to serve. While the Company supports the NYPSC's goal of establishing a competitive electricity market in New York State, the Company believes that the May 20, 1996 Order was deficient in certain areas. On September 18, 1996, the Company, the six other New York investor-owned electric utilities and the Energy Association of New York State filed a suit in New York State Supreme Court challenging the May 20, 1996 Order. This litigation is discussed further in the Legal Proceedings section of Note 12 of Notes to Consolidated Financial Statements. On October 1, 1996, the Company, in response to the May 20, 1996 Order, filed a rate and restructuring plan (the Plan) with the NYPSC. The Company's filing presented a comprehensive plan for the functional separation of generation, a schedule for retail access with reciprocity, base rate freeze and stranded cost recovery. The Company intends to functionally separate its generation from the remainder of its operations. This functional separation is scheduled to be completed in 1998. The Company has no present plans to divest its generation. The Company's Plan sets forth a two-phase approach for implementing retail access. For the first phase, the Company proposes to expand its PowerPick-TM- program to all customers. This first phase would commence 12 months after a wholesale electric market is fully operational in New York state. A second phase, in which the Company's customers would be allowed a choice of capacity as well as energy providers, would become effective 24 months after the beginning of the first phase. 15 The Company's filing indicated that reciprocity would be required in order to implement retail access. By reciprocity, the Company means that if other generators are allowed access to the Company's retail customers, the Company should be permitted equal access to the customers of those utilities within New York state and regionally. The Company's current three-year electric rate settlement is effective until April 30, 1999. For those low-income, demand side management, research and development, and other public policy programs which the NYPSC continues to mandate, the Company proposes that the costs of these programs be recovered through a non-bypassable systems benefit charge. The Company proposes that it have a reasonable opportunity to recover its strandable costs from customers. Strandable costs are investments and expenditures made by utilities pursuant to their obligation under the existing regulatory framework to provide electric service to the public, whose continued recovery through electric rates may be jeopardized by the transition from traditional regulation and exclusive retail franchises to a different form of regulation and a more competitive marketplace. Three broad categories of potentially strandable costs are utility generation investment, purchase power contracts and regulatory assets. In its filing, the Company does not attempt to quantify the amount of its strandable costs since these costs are dependent on future market conditions. The Company's proposal is to recover strandable costs through the implementation of a non-bypassable competition transition charge (CTC). Under the Plan, the CTC would be recoverable during a transition period of eight years starting when the second phase of retail competition becomes effective. On October 9, 1996, the NYPSC issued an order establishing procedures and a schedule for considering the rate restructuring plans filed on October 1, 1996 in the Competitive Opportunities Proceeding. The NYPSC has established a separate proceeding for each of the five utilities (including the Company) which filed these plans. The utility, the NYPSC Staff and other interested parties have until February 14, 1997 to complete discovery, engage in settlement negotiations and submit testimony on any contested issues. Any responsive testimony must be submitted by February 24, 1997. If a settlement agreement is negotiated in a proceeding, it will be submitted to the Commission for approval. If a settlement agreement is not reached in a proceeding by February 14, 1997, the parties will have an additional 60-day period to submit any necessary briefs or other submissions to an administrative law judge. At the end of the 60-day period, the record in a proceeding will be closed and the matter will be submitted to the Commission for decision. Given the uncertainties regarding the Competitive Opportunities Proceeding, the Company is unable to predict the outcome of this regulatory proceeding and the ultimate effect on the Company's financial position or results of operations. NEW JERSEY--ENERGY MASTER PLAN On January 16, 1997, the NJBPU issued Proposed Findings and Recommendations for restructuring the electric power industry in New Jersey and introducing competition into the generation sector of the utility business (the Preliminary Report). The preliminary findings and recommendations contained in the Preliminary Report have been issued for public comment. The final report is scheduled to be issued in March 1997. The Preliminary Report calls for each of the state's utilities to file proposals for NJBPU review and approval by July 15, 1997 to implement retail competition, functionally separate generation from the utility's other operations, unbundle its current rate structure to accommodate customer choice, and propose a stranded cost recovery plan. The Preliminary Report proposes that retail choice be phased-in encompassing a cross-section of all customer classes over a two and one-half year period beginning in October 1998 and concluding April 2001. In addition, the Preliminary Report calls for regulatory assets and non-utility generator purchased power contracts to continue to be fully recoverable in rates. With respect to above market generation costs, the NJBPU has endorsed the creation of a Market Transition Charge (MTC) as a non-bypassable component of the delivery price of electricity which would be assessed for a period of four to eight years in order to provide utilities with the opportunity for recovery of stranded costs associated with generation capacity commitments made prior to the advent of competition. The amount of the MTC authorized and the length of time assessed is to be determined by the NJBPU on a case by case basis following a review of the July 15, 1997 filings made by each utility and will be contingent upon a number of conditions, including achievement of near-term rate reduction goals and cost mitigation measures instituted. The filings may be accepted or significantly modified by the NJBPU before becoming effective. It is not possible to predict the outcome of the NJBPU proceeding regarding the filings or its impact on the Company's consolidated financial position or results of operations at this time. PENNSYLVANIA--COMPETITION LEGISLATION On December 3, 1996, the "Electricity Generation Customer Choice and Competition Act" (Act) was signed into law by the Governor of the State of Pennsylvania. The Act provides for a transition of the Pennsylvania electric industry from a vertically integrated structure to a functionally separated model that permits direct access by customers to a competitive electric generation market while retaining the existing regulation and customer protections for the transmission and distribution systems. The transition plan of the Act calls for a three-year phase-in of retail access beginning January 1, 1998 and concluding January 1, 2001. The Act also provides for the opportunity for recovery of prudent and verifiable costs resulting from the restructuring through the implementation of a Competitive Transition Charge (CTC) for a period of up to nine years and the imposition of rate caps designed to prevent a customer's total electric costs from increasing during the transition period above current levels. In addition, the Act permits the refinancing of certain approved transition costs through the issuance of bonds secured by revenue streams guaranteed by the Pennsylvania Public Utility Commission (PPUC). The savings associated with this financing mechanism will be used to reduce strandable costs. The Act requires all Pennsylvania utilities to file restructuring plans with the PPUC no later than September 30, 1997. The PPUC is required to issue an order accepting, rejecting or modifying the plan within nine months of the filing. Pike County Light & Power Company (Pike), a wholly owned utility subsidiary of the Company, is reviewing the Act and will submit its restructuring plan to the PPUC no later than September 30, 1997. The Company's plan could be accepted or significantly modified before it becomes effective. It is not possible to predict the outcome of the PPUC proceeding required by the Act or its impact on the Company's consolidated financial position or results of operations at this time. OTHER DEVELOPMENTS See Note 1 of Notes to Consolidated Financial Statements for discussion on SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." EFFECTS OF INFLATION The Company's utility revenues are based on rate regulation, which provides for recovery of operating costs and a return on rate base. Inflation affects the Company's construction costs, operating expenses and interest charges and can impact the Company's financial performance if rate relief is not granted on a timely basis. Financial statements, which are prepared in accordance with generally accepted accounting principles, report operating results in terms of historic costs and do not generally recognize the impact of inflation. 16 Consolidated Statements of Income and Retained Earnings
YEAR ENDED DECEMBER 31, 1996 1995 1994 ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Operating Revenues: Electric (Note 1).......................................................... $ 473,936 $ 457,833 $ 472,393 Gas (Note 1)............................................................... 176,442 140,224 157,168 Electric sales to other utilities.......................................... 3,106 2,150 6,636 ---------- ---------- ---------- Total Utility Revenues.................................................... 653,484 600,207 636,197 Diversified activities (Note 1)............................................ 271,566 429,625 380,470 ---------- ---------- ---------- Total Operating Revenues.................................................... 925,050 1,029,832 1,016,667 ---------- ---------- ---------- Operating Expenses: Operations: Fuel used in electric production (Note 1)................................. 54,917 69,042 84,860 Electricity purchased for resale (Note 1)................................. 73,776 54,700 49,391 Gas purchased for resale(Note 1).......................................... 101,614 71,566 88,304 Non-utility gas marketing purchases....................................... 264,100 419,485 365,902 Other expenses of operation............................................... 158,880 143,009 151,918 Maintenance................................................................ 36,652 41,190 44,011 Depreciation and amortization (Note 1)..................................... 33,613 38,547 35,683 Taxes other than income taxes.............................................. 98,037 93,887 95,962 Federal income taxes (Notes 1 and 2)....................................... 24,820 25,902 24,629 ---------- ---------- ---------- Total Operating Expenses.................................................. 846,409 957,328 940,660 ---------- ---------- ---------- Income from Operations...................................................... 78,641 72,504 76,007 ---------- ---------- ---------- Other Income and Deductions: Allowance for other funds used during construction......................... 20 28 69 Investigation and litigation costs (Note 12)............................... (1,800) (7,218) (8,795) Other--net................................................................. 297 4,721 (754) Taxes other than income taxes.............................................. (281) (581) (123) Federal income taxes (Notes 1 and 2)....................................... 520 1,828 4,250 ---------- ---------- ---------- Total Other Income and Deductions......................................... (1,244) (1,222) (5,353) ---------- ---------- ---------- Income Before Interest Charges.............................................. 77,397 71,282 70,654 ---------- ---------- ---------- Interest Charges: Interest on long-term debt................................................. 24,221 26,620 29,553 Other interest............................................................. 5,977 5,495 3,088 Amortization of debt premium and expense--net.............................. 1,462 1,394 1,244 Allowance for borrowed funds used during construction...................... (566) (800) (448) ---------- ---------- ---------- Total Interest Charges.................................................... 31,094 32,709 33,437 ---------- ---------- ---------- Net Income.................................................................. 46,303 38,573 37,217 Dividends on preferred and preference stock, at required rates.............. 3,024 3,135 3,251 ---------- ---------- ---------- Earnings applicable to common stock......................................... 43,279 35,438 33,966 Cash dividends on common stock: $2.58, $2.57 and $2.54, respectively........ 35,227 35,089 34,486 ---------- ---------- ---------- Balance to retained earnings................................................ 8,052 349 (520) Retained earnings, beginning of year........................................ 184,008 183,659 184,179 ---------- ---------- ---------- Retained earnings, end of year.............................................. $ 192,060 $ 184,008 $ 183,659 ---------- ---------- ---------- Average number of common shares outstanding (000's)......................... 13,654 13,653 13,594 ---------- ---------- ---------- Earnings per average common share outstanding............................... $ 3.17 $ 2.60 $ 2.50 ---------- ---------- ---------- The accompanying notes are an integral part of these statements.
17 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 1995 ------------ ------------ (THOUSANDS OF DOLLARS) Assets: Utility Plant: Electric......................................................... $ 1,023,796 $ 993,926 Gas.............................................................. 219,712 211,135 Common........................................................... 59,589 56,796 ------------ ------------ Utility Plant in Service........................................ 1,303,097 1,261,857 Less accumulated depreciation.................................... 440,333 419,844 ------------ ------------ Net Utility Plant in Service.................................... 862,764 842,013 Construction work in progress.................................... 36,879 31,655 ------------ ------------ Net Utility Plant (Notes 1, 7 and 12)........................... 899,643 873,668 ------------ ------------ Non-utility Property: Non-utility property............................................. 20,784 34,376 Less accumulated depreciation, depletion and amortization........ 3,778 12,945 ------------ ------------ Net Non-utility Property (Notes 1 and 7)........................ 17,006 21,431 ------------ ------------ Current Assets: Cash and cash equivalents (Notes 8 and 9)........................ 3,485 5,164 Temporary cash investments (Note 9).............................. 1,289 1,335 Customer accounts receivable, less allowance for uncollectible accounts of $2,391 and $2,307, respectively..................... 60,992 61,653 Accrued utility revenue (Note 1)................................. 22,773 22,198 Other accounts receivable, less allowance for uncollectible accounts of $258 and $169, respectively......................... 10,473 9,752 Gas marketing accounts receivable, less allowance for uncollectible accounts of $606 and $133, respectively........... 45,589 51,198 Materials and supplies (at average cost): Fuel for electric generation.................................... 7,201 8,290 Gas in storage.................................................. 12,819 8,627 Construction and other supplies................................. 15,575 15,751 Prepaid property taxes........................................... 20,051 20,687 Prepayments and other current assets............................. 22,478 26,463 ------------ ------------ Total Current Assets............................................ 222,725 231,118 ------------ ------------ Deferred Debits: Income tax recoverable in future rates (Notes 1 and 2)........... 74,198 72,631 Extraordinary property loss--Sterling Nuclear Project (Notes 1 and 3).............................................................. 2,849 4,250 Deferred Order 636 transition costs (Notes 1 and 12)............. 11,732 6,064 Deferred revenue taxes (Note 1).................................. 14,271 15,596 Deferred pension and other postretirement benefits (Notes 1 and 10)............................................................. 9,922 10,422 IPP settlement agreements (Note 1)............................... 24,065 40,034 Unamortized debt expense (amortized over term of securities)..... 10,046 11,417 Other deferred debits............................................ 27,173 20,239 ------------ ------------ Total Deferred Debits........................................... 174,256 180,653 ------------ ------------ Total Assets.................................................... $ 1,313,630 $ 1,306,870 ------------ ------------ The accompanying notes are an integral part of these statements.
18
DECEMBER 31 1996 1995 ------------ ------------ (THOUSANDS OF DOLLARS) Capitalization and Liabilities: Capitalization: Common stock (Note 5)............................................ $ 68,271 $ 68,268 Premium on capital stock (Note 5)................................ 133,616 133,607 Capital stock expense............................................ (6,097) (6,107) Retained earnings (Note 4)....................................... 192,060 184,008 ------------ ------------ Total Common Stock Equity....................................... 387,850 379,776 ------------ ------------ Non-redeemable preferred stock................................... 42,844 42,844 Non-redeemable cumulative preference stock....................... 397 409 ------------ ------------ Total Non-Redeemable Stock (Note 5)............................. 43,241 43,253 ------------ ------------ Redeemable preferred stock (Note 6).............................. -- 1,390 ------------ ------------ Long-term debt (Notes 7 and 9)................................... 281,622 359,736 ------------ ------------ Total Capitalization............................................ 712,713 784,155 ------------ ------------ Non-current Liabilities: Reserve for claims and damages (Note 1).......................... 3,843 3,848 Postretirement benefits (Note 10)................................ 15,213 13,756 Pension costs (Note 10).......................................... 37,421 38,740 ------------ ------------ Total Non-current Liabilities................................... 56,477 56,344 ------------ ------------ Current Liabilities: Long-term debt due within one year (Note 7)...................... 78,203 466 Preferred stock to be redeemed within one year (Note 6).......... 1,390 1,384 Notes payable (Notes 8 and 9).................................... 1,005 7,300 Commercial paper (Notes 8 and 9)................................. 82,370 61,250 Accounts payable................................................. 67,036 62,082 Gas marketing accounts payable................................... 42,295 44,630 Dividends payable................................................ 665 693 Customer deposits................................................ 4,865 5,455 Accrued Federal income and other taxes........................... 1,268 2,050 Accrued interest................................................. 7,039 7,252 Refundable gas costs (Note 1).................................... 6,839 10,111 Refunds to customers............................................. 1,816 13,903 Other current liabilities........................................ 26,400 22,942 ------------ ------------ Total Current Liabilities....................................... 321,191 239,518 ------------ ------------ Deferred Taxes and Other: Deferred Federal income taxes (Notes 1 and 2).................... 186,354 183,396 Deferred investment tax credits (Notes 1 and 2).................. 15,292 16,217 Accrued Order 636 transition costs (Note 12)..................... 11,620 5,980 Accrued IPP settlement agreements (Note 1)....................... 2,000 17,500 Other deferred credits........................................... 7,983 3,760 ------------ ------------ Total Deferred Taxes and Other.................................. 223,249 226,853 ------------ ------------ Commitments and Contingencies (Note 12):.......................... -- -- ------------ ------------ Total Capitalization and Liabilities............................ $ 1,313,630 $ 1,306,870 ------------ ------------ 19
Consolidated Cash Flow Statements
YEAR ENDED DECEMBER 31, 1996 1995 1994 --------- --------- --------- (THOUSANDS OF DOLLARS) Cash Flow from Operations: Net income...................................................................... $ 46,303 $ 38,573 $ 37,217 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................................. 34,150 37,131 35,938 Deferred Federal income taxes.................................................. 5,545 9,924 (188) Amortization of investment tax credit.......................................... (924) (892) (895) Deferred and refundable fuel and gas costs..................................... (6,371) (6,606) 4,548 Allowance for funds used during construction................................... (586) (828) (517) Other non-cash changes......................................................... 3,759 8,682 6,042 Changes in certain current assets and liabilities: Accounts and gas marketing receivables, net and accrued utility revenue...... 4,974 2,431 (3,101) Materials and supplies....................................................... (2,927) 4,941 1,226 Prepaid property taxes....................................................... 636 (1,360) (913) Prepayments and other current assets......................................... 3,985 2,414 (6,665) Operating and gas marketing accounts payable................................. 2,619 (29,056) 24,162 Accrued Federal income and other taxes....................................... (782) (3,899) (3,637) Accrued interest............................................................. (213) (1,356) (1,269) Refunds to customers......................................................... (12,087) 3,638 9,472 Other current liabilities.................................................... 2,868 6,601 (332) Other--net..................................................................... 1,380 (7,123) 16,402 --------- --------- --------- Net Cash Provided by Operations............................................... 82,329 63,215 117,490 --------- --------- --------- Cash Flow from Investing Activities: Additions to plant.............................................................. (59,357) (55,030) (60,542) Temporary cash investments...................................................... 46 504 (392) Allowance for funds used during construction.................................... 586 828 517 --------- --------- --------- Net Cash Used in Investing Activities......................................... (58,725) (53,698) (60,417) --------- --------- --------- Cash Flow from Financing Activities: Proceeds from: Issuance of common stock........................................................ -- -- 3,868 Issuance of long-term debt...................................................... 26 44,048 55,000 Retirement of: Preference and preferred stock................................................. (1,384) (1,384) (1,384) Long-term debt................................................................. (195) (63,471) (57,688) Capital lease obligations--net................................................. (275) (518) (479) Net borrowings (repayments) under short-term debt arrangements.................. 14,825 39,150 (16,800) Dividends on preferred and common stock......................................... (38,280) (38,259) (37,765) --------- --------- --------- Net Cash Used in Financing Activities......................................... (25,283) (20,434) (55,248) --------- --------- --------- Net Change in Cash and Cash Equivalents.......................................... (1,679) (10,917) 1,825 Cash and Cash Equivalents at Beginning of Year................................... 5,164 16,081 14,256 --------- --------- --------- Cash and Cash Equivalents at End of Year......................................... $ 3,485 $ 5,164 $ 16,081 --------- --------- --------- Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest, net of amounts capitalized........................................... $ 29,438 $ 31,782 $ 33,134 Federal income taxes........................................................... $ 17,982 $ 15,575 $ 21,558 --------- --------- --------- The accompanying notes are an integral part of these statements. 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL Orange and Rockland Utilities, Inc. (the Company) and its wholly owned utility subsidiaries, Rockland Electric Company (RECO) and Pike County Light & Power Company (Pike), are subject to regulation by the Federal Energy Regulatory Commission (FERC) and various state regulatory authorities with respect to their rates and accounting. Accounting policies conform to generally accepted accounting principles, as applied in the case of regulated public utilities, and are in accordance with the accounting requirements and rate-making practices of the regulatory authority having jurisdiction. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A description of the significant accounting policies follows. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, all subsidiaries and the Company's PRO RATA share of an unincorporated joint venture. All intercompany balances and transactions have been eliminated. The Company's non-utility subsidiaries are wholly owned gas marketing and land development companies. RATE REGULATION The Company, RECO and Pike are subject to rate regulation by the New York Public Service Commission (NYPSC), the New Jersey Board of Public Utiliti es (NJBPU), the Pennsylvania Public Utility Commission (PPUC) and the FERC. The consolidated financial statements of the Company are based on generally accepted accounting principles, including the provisions of Statement of Finan cial Accounting Standards No. 71 (SFAS No. 71), "Accounting for the Effects of Certain Types of Regulation," which gives recognition to the rate-making and accounting practices of the regulatory agencies. The principal effect of the rate-making process on the Company's consolidated financial statements is that of the timing of the recognition of incurred costs. If rate regulation provides reasonable assurance that an incurred cost will be recovered in a future period by inclusion of that cost in rates, SFAS No. 71 requires the capitalization of the cost. Regulatory assets represent probable future revenue associated with certain incurred costs, as these costs are recovered through the rate-making process. The following regulatory assets were reflected in the Consolidated Balance Sheets as of December 31, 1996 and 1995:
1996 1995 ---------- ---------- (THOUSANDS OF DOLLARS) Deferred Income Taxes (Note 2)........................................ $ 74,198 $ 72,631 Extraordinary Property Loss (Note 3).................................. 2,849 4,250 FERC Order 636 Costs (Note 12)........................................ 11,732 6,064 Deferred Revenue Taxes (Note 1)....................................... 14,271 15,596 Deferred Pension and Other Postretirement Benefits (Note 10).......... 9,922 10,422 Gas Take-or-Pay Costs (Note 12)....................................... 2,117 1,640 Revenue Decoupling Mechanism (Note 1)................................. -- (2,485) Deferred Plant Maintenance Costs (Note 1)............................. 4,244 4,944 Demand-Side Management Costs (Note 1)................................. 1,181 (445) Deferred Fuel and Gas Costs (Note 1).................................. (4,943) (11,314) IPP Settlement Agreements (Note 1).................................... 24,065 40,034 Other................................................................. 5,985 5,778 ---------- ---------- Total............................................................... $ 145,621 $ 147,115 ---------- ----------
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This Statement imposes criteria for the continued recognition of regulatory assets by requiring that such assets be probable of future recovery at each balance sheet date. The Com pany adopted this standard on January 1, 1996. Based on the current regulatory structure in which the Company operates, the adoption did not have any effect on the financial position or results of operations of the Company. This conclusion may change in the future as competitive factors influence wholesale and retail pricing in this industry. UTILITY REVENUES Utility revenues are recorded on the basis of cycle billings rendered to certain customers monthly and others bimonthly. Unbilled revenues are accrued at the end of each month for estimated energy usage since the last meter reading. Effective May 1, 1996, as part of an agreement with the NYPSC, the Company eliminated its Revenue Decoupling Mechanism (RDM) for New York's electric revenues. Therefore, the electric revenues effective May 3, 1996 are based on actual sales. Previously, New York electric revenues were recognized in the accompanying consolidated financial statements based on amounts included in rates. The level of revenues from gas sales in New York is subject to a weather normalization clause that required recovery from or refund to firm customers for shortfalls or excesses of firm net revenues during a heating season due to variation from normal weather (which is the basis for projecting base tariff requirements). FUEL COSTS The tariff schedules for electric and gas services in New York include adjustment clauses under which fuel, purchased gas and certain purchased power costs, above or below levels allowed in approved rate schedules, are billed or credited to customers up to approximately 60 days after the costs are incurred. In accordance with regulatory commission policy, such costs, along with the related income tax effects, are deferred until billed or credited to customers. A reconciliation of recoverable gas costs with billed gas revenues is done annually as of August 31, and the excess or deficiency is refunded to or recovered from customers during a subsequent 12-month period. The NYPSC provides for a modified electric fuel adjustment clause requiring an 80% / 20% sharing between customers and shareholders of variations between actual and forecasted fuel costs annually. The 20% portion of fluctuations from forecasted costs is limited to a maximum of $1,762,000 annually. The fuel costs targets are approved by the NYPSC for each calendar year following the Company's filing of forecasted fuel costs. Tariffs for electric and gas service in Pennsylvania and electric service in New Jersey contain adjustment clauses which utilize estimated prospective energy costs on an annual basis. The recovery of such estimated costs is made through equal monthly charges over the year of projection. Any over- or under-recoveries are deferred and refunded or charged to customers during the subsequent 12-month period. UTILITY PLANT Utility plant is stated at original cost. The cost of additions to, and replacements of, utility plant include contracted work, direct labor and material, allocable overheads, allowance for funds used during construction and indirect charges for engineering and supervision. Replacement of minor items of property and the cost of repairs are charged to maintenance expense. At the time depreciable plant is retired or otherwise disposed of, the original cost, together with removal cost less salvage, is charged to the accumulated provision for depreciation. DEPRECIATION For financial reporting purposes, depreciation is computed on the straight-line method based on the estimated useful lives of the various classes of property. Provisions for depreciation are equivalent to the 21 following composite rates based on the average depreciable plant balances at the beginning and end of the year:
YEAR ENDED DECEMBER 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------- --------- --------- --------- Plant Classification: Electric................................................................................... 2.88% 3.07% 3.05% Gas........................................................................................ 2.91% 2.95% 2.80% Common..................................................................................... 5.93% 6.64% 6.37% ---- ---- ----
The composite gas depreciation rate in 1996 excludes the effects of adjustments provided for in the gas rate agreement with the NYPSC. JOINTLY OWNED UTILITY PLANT The Company has a one-third interest in the 1,200 megawatt Bowline Point generating facility, which it owns jointly with The Consolidated Edison Company of New York, Inc. The Company is the operator of the joint venture. Energy is allocated to the participants based on an agreement dated May 31, 1996. This agreement entitles each company to a certain amount of energy at different periods during the year. The operation and maintenance expenses of the facility are allocated to the Company on a one-third basis, except for major maintenance which is allocated based on the energy received from the plant by the partners. Under this agreement, each co-owner has an undivided interest in the facility and is responsible for its own financing. The Company's interest in this jointly owned plant consists primarily of the following:
YEAR ENDED DECEMBER 31, 1996 1995 - ---------------------------------------------------------------------- ---------- ---------- (THOUSANDS OF DOLLARS) Electric Utility Plant in Service..................................... $ 102,309 $ 101,747 Construction Work in Progress......................................... $ 1,317 $ 1,038 ---------- ----------
FEDERAL INCOME TAXES The Company and its subsidiaries file a consolidated federal income tax return, and income taxes are allocated based on the taxable income or loss of each company. Investment tax credits, which were available prior to the Tax Reform Act of 1986, have been fully normalized and are being amortized over the remaining useful life of the related property for financial reporting purposes. The consolidated financial statements of the Company are prepared pursuant to the provisions of Statement of Financial Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income Taxes," which requires the asset and liability method of accounting for income taxes. SFAS No. 109 retains the requirement to record deferred income taxes for temporary differences that are reported in different years for financial reporting and tax purposes. The statement also requires that deferred tax liabilities or assets be adjusted for the future effects of any changes in tax laws or rates and that regulated enterprises recognize an offsetting regulatory asset or liability, as appropriate. DEFERRED REVENUE TAXES Deferred revenue taxes represent the unamortized balance of an accelerated payment of New Jersey Gross Receipts and Franchise Tax required by legislation enacted effective June 1, 1991. In accordance with an order by the NJBPU, the expenditure has been deferred and is being recovered in rates, with a carrying charge of 7.5% on the unamortized balance, over a 10-year period. In addition, certain New York State revenue taxes included in rate base are deferred and amortized over a 12-month period following payment in accordance with the requirements of the NYPSC. IPP SETTLEMENT AGREEMENTS During 1994 and 1995, the Company negotiated termination agreements with Independent Power Producers (IPP) scheduled to provide electric generating capacity and energy services to the Company in the late 1990's. At December 31, 1996, $24.1 million of termination costs associated with these settlement agreements are being recovered in rates. DEFERRED PLANT MAINTENANCE COSTS The Company utilizes a silicone injection procedure as part of its maintenance program for residential underground electric cable in order to prevent premature failures and ensure the realization of the expected useful life of the facilities. In 1992, the FERC issued an accounting order that required the cost of this procedure to be treated as maintenance expense rather than as a plant addition. The Company requested deferred accounting for these expenditures from the NYPSC and NJBPU in order to properly match the cost of the procedure with the periods benefited. In 1994, the NYPSC approved the deferred accounting request and authorized a 10-year amortization. On January 12, 1996, the NJBPU authorized RECO to capitalize these costs until the next base rate case. RESERVE FOR CLAIMS AND DAMAGES Costs arising from workers' compensation claims, property damage, general liability and unusual production plant repair costs are partially self-funded. Provisions for the reserves are based on experience, risk of loss and the rate-making practices of regulatory authorities. SALE OF BROADCAST PROPERTIES The Company sold the six radio broadcasting properties operated by a wholly owned indirect subsidiary, Atlantic Morris Broadcasting, Inc. (AMB), during 1995. Operating losses of $1,188,000 and $484,000 for the years ended December 31, 1995, and 1994, respectively, for the radio broadcast properties are included in Other Income and Deductions in the accompanying Consolidated Statements of Income and Retained Earnings. RECLASSIFICATIONS Certain amounts from prior years have been reclassified to conform with the current year presentation. NOTE 2. FEDERAL INCOME TAXES The Internal Revenue Service (IRS) has completed its examination of the Company's tax returns for 1990, 1991 and 1992. The Company and IRS have agreed to an assessment for a tax deficiency of approximately $1.7 million plus interest, which primarily relates to the misuse and misappropriation of Company funds during this period. After offsetting the assessment with established reserves and other related items, this action had a minimal effect on the operating results of the Company. The IRS has recently commenced its examination of the Company's tax returns for 1993 and 1994. The components of federal income taxes are as follows:
YEAR ENDED DECEMBER 31, 1996 1995 1994 - --------------------------------------------------------------------------------- --------- --------- --------- (THOUSANDS OF DOLLARS) Charged to operations: Current......................................................................... $ 19,588 $ 18,048 $ 24,439 Deferred-net.................................................................... 5,360 7,976 322 Amortization of investment tax credit........................................... (128) (122) (132) --------- --------- --------- Total charged to operations.................................................... 24,820 25,902 24,629 --------- --------- --------- Charged to other income: Current......................................................................... 92 (3,160) (3,042) Deferred-net.................................................................... 184 2,097 (450) Amortization of investment tax credit........................................... (796) (765) (758) --------- --------- --------- Total charged to other income.................................................. (520) (1,828) (4,250) --------- --------- --------- Total............................................................................ $ 24,300 $ 24,074 $ 20,379 --------- --------- ---------
The tax effect of temporary differences which gave rise to deferred tax assets and liabilities is as follows:
AS OF DECEMBER 31, 1996 1995 - ---------------------------------------------------------------------- ---------- ---------- (THOUSANDS OF DOLLARS) Liabilities: Accelerated depreciation............................................. $ 188,039 $ 180,954 Other................................................................ 30,887 33,073 ---------- ---------- Total liabilities................................................... 218,926 214,027 ---------- ---------- Assets: Employee benefits.................................................... (17,136) (14,902) Deferred fuel costs.................................................. (404) (1,601) Other................................................................ (15,032) (14,128) ---------- ---------- Total assets........................................................ (32,572) (30,631) ---------- ---------- Net Liability......................................................... $ 186,354 $ 183,396 ---------- ----------
22 Reconciliation of the difference between federal income tax expenses and the amount computed by applying the prevailing statutory income tax rate to income before income taxes is as follows:
YEAR ENDED DECEMBER 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------- ----- ----- ----- (% OF PRE-TAX INCOME) Statutory tax rate........................................................................... 35% 35% 35% Reduction in computed taxes resulting from: Amortization of investment tax credits...................................................... (1) (1) (2) Cost of removal............................................................................. (1) (2) (1) Additional depreciation deducted for book purposes.......................................... 4 5 5 Other....................................................................................... (3) -- (2) ----- ----- ---- Effective Tax Rate........................................................................... 34% 37% 35% ----- ----- ----
NOTE 3. STERLING NUCLEAR PROJECT Costs associated with the Sterling Nuclear Project, which was abandoned in 1980, and in which the Company was a 33% participant, are recorded in Deferred Debits--Extraordinary Property Loss. The Company has recovered all of its share of costs associated with the Sterling Nuclear Project. The NJBPU had approved a 20-year amortization, which commenced June 23, 1982, of costs (excluding a return on the unamortized balance) attributable to the Company's subsidiary, RECO. At December 31, 1996 and 1995, the unamortized Sterling Project costs which have been approved for amortization and recovery, before reduction for deferred taxes, amounted to $3.0 million and $4.6 million, respectively. All of the $3.0 million in 1996 and $3.9 million of the 1995 costs are attributable to RECO and are not subject to an earned return on the unamortized balance. NOTE 4. RETAINED EARNINGS Various restrictions on the availability of retained earnings of RECO for cash dividends are contained in, or result from, covenants in indentures supplemental to that company's Mortgage Trust Indenture. Approximately $7,501,600 at December 31, 1996 and 1995 was so restricted. NOTE 5. CAPITAL STOCK OTHER THAN REDEEMABLE PREFERRED STOCK The table below summarizes the changes in Capital Stock, issued and outstanding, for the years 1994, 1995 and 1996.
(B) (C) NON-REDEEMABLE NON-REDEEMABLE (A) CUMULATIVE CUMULATIVE COMMON PREFERRED PREFERENCE CAPITAL STOCK STOCK STOCK STOCK ($5 PAR VALUE) ($100 PAR VALUE) (NO PAR VALUE) PREMIUM ----------------------- -------------------- ----------------------- ------- SHARES AMOUNT* SHARES AMOUNT* SHARES AMOUNT* AMOUNT* ------------ --------- --------- --------- ---------- ----------- ---------- Balance 12/31/93:........................ 13,532,055 $ 67,660 428,443 $ 42,844 13,590 $ 443 $ 130,313 Sales................................... 120,041 601 3,267 Conversions............................. 817 4 (565) (19) 15 ------------ --------- --------- --------- ---------- ----- ---------- Balance 12/31/94:........................ 13,652,913 68,265 428,443 42,844 13,025 424 133,595 Conversions............................. 700 3 (486) (15) 12 ------------ --------- --------- --------- ---------- ----- ---------- Balance 12/31/95:........................ 13,653,613 68,268 428,443 42,844 12,539 409 133,607 Conversions............................. 508 3 (359) (12) 9 ------------ --------- --------- --------- ---------- ----- ---------- Balance 12/31/96:........................ 13,654,121 $ 68,271 428,443 $ 42,844 12,180 $ 397 $ 133,616 ------------ --------- --------- --------- ---------- ----- ---------- Shares Authorized........................ 50,000,000 820,000 1,500,000 ------------ --------- --------- --------- ---------- ----- ---------- *(in thousands) (A) At December 31, 1996, 17,905 shares of common stock were reserved for conversion of preference stock. (B) Non-Redeemable Preferred Stock (cumulative):
Par Value --------- CALLABLE DECEMBER 31, REDEMPTION SHARES 1994, 1995 AND PRICE PER SERIES OUTSTANDING 1996 SHARE - --------------------------------------------------------------- ----------- ------------------ -------------- (THOUSANDS OF DOLLARS) A,4.65%........................................................ 50,000 $ 5,000 $ 104.25 B,4.75%........................................................ 40,000 4,000 $ 102.00 D,4.00%........................................................ 3,443 344 $ 100.00 F,4.68%........................................................ 75,000 7,500 $ 102.00 G,7.10%........................................................ 110,000 11,000 $ 101.00 H,8.08%........................................................ 150,000 15,000 $ 102.43 ----------- ------- ------- 428,443 $ 42,844 ----------- ------- -------
This stock is not subject to mandatory redemption, but rather is subject to redemption, at any time, solely at the option of the Company on 30 days minimum notice upon payment of the redemption price, plus accrued and unpaid dividends to the date fixed for redemption. Furthermore, the preferred stock is superior to cumulative preference stock and common stock with respect to dividends and liquidation rights. (C) The Non-Redeemable $1.52 Convertible Cumulative Preference Stock, Series A, is redeemable at the option of the Company on 30 days minimum notice upon payment of the redemption price, plus accrued and unpaid dividends. The redemption price per share is $32.50 plus accrued and unpaid dividends to the date fixed for redemption. This stock ranks junior to cumulative preferred stock and superior to common stock as to dividends and liquidation rights. Furthermore, this stock is convertible, at the option of the shareholder, into common stock at the ratio of 1.47 shares of common stock for each share of preference stock, subject to adjustment. NOTE 6. REDEEMABLE PREFERRED STOCK The table below summarizes the changes in Redeemable Cumulative Preferred Stock, issued and outstanding, for the years 1994, 1995 and 1996.
($100 PAR VALUE) ---------------------- SHARES AMOUNT* --------- ----------- Balance 12/31/93:........................................................ 55,422 $ 5,542 Redemptions............................................................. (13,842) (1,384) --------- ----------- Balance 12/31/94:........................................................ 41,580 4,158 Redemptions............................................................. (13,842) (1,384) --------- ----------- Balance 12/31/95:........................................................ 27,738 2,774 Redemptions............................................................. (13,842) (1,384) --------- ----------- Balance 12/31/96:........................................................ 13,896 $ 1,390 --------- ----------- Shares Authorized........................................................ 180,000 ---------
On January 6, 1997, the Company redeemed the remaining 13,896 shares of Redeemable Cumulative Preferred Stock, Series I, 8 1/8% then outstanding, at $100 per share. NOTE 7. LONG-TERM DEBT Under the terms of the Company's First Mortgage Indenture and the indentures supplemental thereto, and relative to all series of First Mortgage Bonds, the Company on May 1 of each year is required to make annual sinking fund payments equal to 1% of the maximum amount of bonds outstanding during the preceding calendar year. The Company has satisfied such requirements through 1996 by allocating an amount of additional property. The Company has one remaining series of First Mortgage Bonds outstanding, the Series I, 6 1/2%, due October 1, 1997, in the principal amount of $23.0 million. The indenture under which the Company's debentures are issued contains a covenant restricting the issuance by the Company of secured indebtedness while any securities are outstanding under the debenture indenture. The covenant prohibits the Company from issuing additional bonds under the First Mortgage Indenture. Pike is required, pursuant to its First Mortgage Indenture, to make annual sinking fund payments in the amount of $9,500 on July 15 of each year, with respect to its Series "A" Bonds. The sinking fund requirements of Pike for 1996 were satisfied by the allocation of an amount of additional property 23 and Pike expects to continue such practice in succeeding years. Details of long-term debt at December 31, 1996 and 1995 are as follows:
DECEMBER 31, 1996 1995 - ------------------------------------------------------------------------------------------- ---------- --------- (THOUSANDS OF DOLLARS) Orange and Rockland Utilities, Inc.: First Mortgage Bonds: Series I, 6 1/2% due Oct. 1, 1997........................................................ $ 23,000 $ 23,000 Promissory Notes (unsecured) 6.9%--6.96% due through July 15, 2000.................................................... 56 48 6.09% due Oct. 1, 2014 (a)............................................................... 55,000 55,000 Variable due Aug. 1, 2015 (b)............................................................ 44,000 44,000 Debentures: Series A, 9 3/8% due Mar. 15, 2000....................................................... 80,000 80,000 Series B, 6 1/2% due Oct. 15, 1997....................................................... 55,000 55,000 Series C, 6.14% due Mar. 1, 2000......................................................... 20,000 20,000 Series D, 6.56% due Mar. 1, 2003......................................................... 35,000 35,000 Rockland Electric Company: First Mortgage Bonds: Series H, 9.59% due July 1, 2020 (c)..................................................... 20,000 20,000 Series I, 6% due July 1, 2000............................................................ 20,000 20,000 Pike County Light & Power Company: First Mortgage Bonds: Series A, 9% due July 15, 2001........................................................... 884 884 Series B, 9.95% due Aug. 15, 2020........................................................ 1,800 1,800 Diversified Operations: Mortgage (secured) 8 1/2% due through June 18, 1999......................................................... 5,228 5,405 ---------- --------- 359,968 360,137 Less: Amount due within one year......................................................... 78,203 192 ---------- --------- 281,765 359,945 Unamortized discount on long-term debt................................................... (143) (209) ---------- --------- Total Long-Term Debt..................................................................... $ 281,622 $ 359,736 ---------- ---------
(a) The Company's $55 million Promissory Note was issued in connection with the New York State Energy Research and Development Authority (NYSERDA) variable rate Pollution Control Refunding Revenue Bonds (Orange and Rockland Utilities, Inc. Projects), 1994 Series A (1994 Bonds). Pursuant to an interest rate swap agreement, the Company pays interest at a fixed rate of 6.09% to a swap counter party and receives a variable rate of interest in return which is identical to the variable rate on the 1994 Bonds. The result is to effectively establish a fixed rate of interest on the 1994 Bonds of 6.09%. (b) The Company's $44 million Promissory Note was issued in connection with the NYSERDA's $44 million variable rate Pollution Control Refunding Bonds due August 1, 2015 (the 1995 Bonds). The average interest rate on the 1995 Bonds was 3.18% in 1996 and 3.63% in 1995. The interest rate is adjusted weekly, unless converted to a fixed rate. (c) On February 4, 1997, RECO issued $20 million of First Mortgage 7 1/8% Bonds, Series J due February 1, 2007 (Series J Bonds). The proceeds from the issuance of the Series J Bonds, together with other RECO funds will be used to refund, in March 1997, RECO's $20 million First Mortgage 9.59% Bonds, Series H. The aggregate amount of debt maturities, which will be satisfied by cash payments and sinking fund requirements (allocation of additional property) for each of the five years following 1996 is as follows: 1997 --$78,212,000; 1998--$139,000; 1999--$4,956,000; 2000--$120,014,000; 2001 --$884,000. Substantially all of the utility plant and other physical property is subject to the liens of the respective indentures securing the First Mortgage Bonds of the Company and its utility subsidiaries. Investments in the Company's wholly owned utility subsidiaries, costing $11,828,700, which have been eliminated from the consolidated balance sheet, are pledged under the Second Supplemental Indenture to the Company's First Mortgage Indenture. NOTE 8. CASH AND SHORT-TERM DEBT The Company considers all cash and highly liquid debt instruments purchased with a maturity date of three months or less to be cash and cash equivalents for the purposes of the Consolidated Financial Statements. At December 31, 1996, the Company and its utility subsidiaries had unsecured bank lines of credit totaling $100 million. The Company may borrow under the lines of credit through the issuance of promissory notes to the banks at their prevailing interest rate for prime commercial borrowers. The Company, however, utilizes such lines of credit to fully support commercial paper borrowings, which are issued through dealers at the prevailing interest rate for prime commercial paper. The aggregate amount of borrowings through the issuance of promissory notes and commercial paper cannot exceed the aggregate lines of credit. In addition, NORSTAR Energy Limited Partnership (NORSTAR), a diversified operation of RECO, maintains a $20 million line of credit with one commercial bank under which there were $2.0 million of letters of credit outstanding at December 31, 1996. Additionally, NORSTAR had $1.0 million of notes outstanding under this line of credit. Borrowings under this line are made at rates based on various financial indices, as determined by the borrower at the time of borrowing plus a premium. All borrowings for 1996, 1995 and 1994 had maturity dates of three months or less. Information regarding short-term borrowings during the past three years is as follows:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Weighted average interest rate at year-end............................................... 6.5% 6.1% 6.4% Amount outstanding at year-end........................................................... $ 84.0 $ 68.6 $ 29.4 Average amount outstanding for the year.................................................. $ 66.6 $ 37.1 $ 31.3 Daily weighted average interest rate during the year..................................... 5.7% 6.1% 4.5% Maximum amount outstanding at any month-end.............................................. $ 97.5 $ 69.6 $ 42.9 --------- --------- ---------
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS FINANCIAL ASSETS AND LIABILITIES For the Company, financial assets and liabilities consist principally of cash and cash equivalents, short-term debt, commercial paper, long-term debt and redeemable preferred stock. The methods and assumptions used to estimate the fair value of each class of financial assets and liabilities for which it is practicable to estimate that value are as follows: Cash equivalents and temporary cash investments--The carrying amount reasonably approximates fair value because of the short maturity of those instruments. Long-term debt--The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues. Notes payable and commercial paper--The carrying amount reasonably approximates fair value because of the short maturity of those instruments. Redeemable preferred stock--The carrying amount of the Company's redeemable preferred stock approximates fair value because of the redemption and retirement of that instrument on January 6, 1997.
1996 1995 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT AMOUNT AMOUNT AMOUNT --------- --------- --------- --------- (THOUSANDS OF DOLLARS) Cash and cash equivalents............................................. $ 3,485 $ 3,485 $ 5,164 $ 5,164 Temporary cash investments............................................ 1,289 1,289 1,335 1,335 Long-term debt........................................................ 359,968 366,509 360,137 349,694 Notes payable and commercial paper.................................... 83,375 83,375 68,550 68,550 Redeemable preferred stock............................................ 1,390 1,390 2,774 2,820 -------- -------- -------- --------
OFF BALANCE SHEET AND DERIVATIVE FINANCIAL INSTRUMENTS The Company and its gas marketing subsidiary utilize certain off balance sheet derivative financial instruments. Information regarding such instruments is as follows: Swap Agreement--In connection with the issuance of the 1994 Bonds, the Company entered into a single interest rate Swap 24 Agreement during 1992. The purpose of the Swap Agreement, which became effective on October 1, 1994, was to take advantage of the favorable interest rates which existed during 1992. Under the terms of the interest rate Swap Agreement, the Company pays interest at a fixed rate of 6.09% to a swap counterparty and receives a variable rate of interest in return. The variable rate is identical to the variable rate payment on the 1994 Bonds made pursuant to an indenture of trust dated August 15, 1994. The result is to effectively fix the interest rate on the 1994 Bonds at 6.09%. There were no gains or losses due to the execution of the Swap Agreement. The terms and conditions of the Swap Agreement are specific to the financing described. As a result, no market price is available. Under certain circumstances, although none are anticipated, the agreement may be terminated. The fair value of the agreement is the amount which one counterparty may be required to pay the other upon early termination. If the agreement had been terminated on December 31, 1996, the Company would have been required to make a payment of approximately $7.6 million to the Swap counterparty. Gas Futures Contracts--Natural Gas Futures Contracts are bought and sold on the New York Mercantile Exchange (NYMEX) by NORSTAR to hedge the physical sale and purchase of natural gas. The contracts are generally purchased or sold at the same time that the physical transaction is executed. The hedges are liquidated during the last three days of the NYMEX contract settlement each month which is the same period of time when the physical transaction is completed. When physical supply is sold at a fixed price, the margin on the ultimate commodity transaction is locked in by buying NYMEX futures contract(s). If physical supply is purchased at a fixed price, the margin is locked in by selling NYMEX futures contract(s). These NYMEX contracts are managed by executing trades in a timely manner when the physical transaction occurs and executing the number of contracts in lots which are close in volume to the physical volume. Also, the futures are bought and sold at price levels that maximize the value of the physical side of the transaction. Futures contracts outstanding at December 31, 1996 and December 31, 1995, amounted to 351 contracts purchased and 449 contracts purchased, respectively. The related margin deposits with brokers at December 31, 1996 and December 31, 1995, amounted to $1,433,221 and $2,202,542, respectively. The underlying futures contracts as of December 31, 1996 are of varying durations, none of which extend beyond March 1998. The fair value of the open futures contracts at December 31, 1996 and the amount NORSTAR would receive if these were settled on that day was approximately $940,220. Deferred hedging gains at December 31, 1996 relating to futures contracts were $3,070,460. Deferred gains at December 31, 1995 relating to futures contracts were $2,035,000. The January 1997 contracts were settled on December 24, 1996. These gains of $2,130,240 were deferred at December 31, 1996 and will be recognized in January 1997 when NORSTAR physically delivers the gas in January 1997 (i.e., the business NORSTAR hedged). The Company is exposed to credit risk in the event of nonperfor-mance by the counterparties of the transaction which they hedge. The Company believes that the credit risk related to the futures contracts is no greater than that associated with the primary contracts which they hedge, as these contracts are with major investment grade financial institutions, and that the elimination of the commodity price risk lowers overall business risk. NOTE 10. PENSION AND POSTRETIREMENT BENEFITS PENSION BENEFITS The Company maintains a non-contributory defined benefit retirement plan, covering substantially all employees. The plan calls for benefits, based primarily on years of service and average career compensation, to be paid to eligible employees at retirement. For financial reporting purposes, pension costs are accounted for in accordance with the requirements of Statement of Financial Accounting Standards No. 87 (SFAS No. 87), "Employers' Accounting for Pensions." SFAS No. 87 results in a difference in the method of determining pension costs for financial reporting and funding purposes. Plan valuation for funding and income tax purposes is prepared on the unit credit cost method, which makes no assumptions as to future compensation levels. In contrast, the projected unit credit cost method required for accounting purposes by SFAS No. 87 reflects assumptions as to future compensation levels. The Company's policy is to fund the pension costs determined by the unit credit cost method subject to the IRS funding limitation rules. For rate-making purposes, pension expense determined under SFAS No. 87 is reconciled with the amount provided in rates for pensions. Any difference is deferred for subsequent recovery or refund. The following table sets forth, pursuant to the requirements of SFAS No. 87, the plan's funded status and amounts recognized in the Consolidated Balance Sheets at December 31, 1996 and 1995. Plan assets are stated at fair market value and are composed primarily of common stocks and investment grade debt securities.
DECEMBER 31, 1996 1995 - -------------------------------------------------------------------- ----------- ----------- (THOUSANDS OF DOLLARS) Actuarial present value of benefit obligations: Vested............................................................. $ (191,499) $ (178,903) Nonvested.......................................................... (15,947) (15,719) ----------- ----------- Accumulated benefit obligation...................................... $ (207,446) $ (194,622) ----------- ----------- Projected benefit obligation........................................ $ (216,821) $ (203,956) Plan assets at fair market value.................................... 225,997 205,342 ----------- ----------- Excess of plan assets over projected benefit obligation............. 9,176 1,386 Unamortized net transition asset at adoption of SFAS No. 87 being amortized over 15 years........................................... (5,568) (6,681) Unrecognized prior service costs.................................... 29,485 32,455 Unrecognized net gain............................................... (58,497) (55,649) ----------- ----------- Accrued Pension Cost................................................ $ (25,404) $ (28,489) ----------- -----------
Net periodic pension expense calculated pursuant to the requirements of SFAS No. 87 for the years 1996, 1995 and 1994 includes the following components:
DECEMBER 31, 1996 1995 1994 - ---------------------------------------------------------------------------------- --------- --------- --------- (THOUSANDS OF DOLLARS) Service cost-benefits earned during year.......................................... $ 5,456 $ 5,151 $ 6,250 Interest cost on projected benefit obligation..................................... 15,135 14,996 14,132 Actual return on plan assets...................................................... (25,293) (37,863) 2,634 Net deferral and capitalized...................................................... 7,579 20,129 (18,426) --------- --------- --------- Net Pension Expense............................................................... $ 2,877 $ 2,413 $ 4,590 --------- --------- ---------
The expected long-term rate of return on plan assets, the weighted average discount rate and the annual rate of increase in future compensation assumed in determining the projected benefit obligation for 1996 and 1995 were 8.0%, 7.5% and 2.5%, respectively. In addition to the pension plan described above, the Company has an unfunded non-contributory supplemental retirement plan covering certain management employees. The cost to the Company of the supplemental plan in 1996, 1995 and 1994 was $1.6 million, $0.7 million and $0.8 million, respectively. POSTRETIREMENT BENEFITS In addition to providing pension benefits, the Company and its subsidiaries provide certain health care and life insurance benefits for retired employees. Employees retiring from the Company on or after having attained age 55 who have rendered at least 10 years of service are entitled to postretirement health care coverage. Pursuant to the provisions of Statement of Financial Accounting Standards No. 106 (SFAS No. 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions," which established the accounting and financial reporting standards for postretirement benefits other than pensions, the Company is required to accrue the estimated future cost of postretirement health and non-pension 25 benefits during the years that employees render the necessary service, rather than recognizing the cost of such benefits after employees have retired and when the benefits are actually paid. Deferred accounting for any difference between the expense charge required under SFAS No. 106 and the current rate allowance has been authorized by the NYPSC for the Company's New York electric and gas operations. Similar procedures have been adopted by the NJBPU and PPUC for the operations in those states. The NYPSC and PPUC allow the Company to recover SFAS No. 106 costs applicable to electric operations and gas operations currently in rates. New Jersey electric operations will be addressed in future rate filings. In order to provide funding for active employees' postretirement benefits, the Company has established Voluntary Employees' Beneficiary Association (VEBA) trusts for collectively bargained employees and management employees. Contributions to the VEBA trusts are tax deductible, subject to limitations contained in the Internal Revenue Code. The Company's policy is to fund postretirement health and life insurance costs to the extent recoveries are realized for these costs through rates. During 1996, the Company contributed $5.4 million to the VEBA trust. Rate recoveries and billings to others totaled $5.1 million in 1996 and $3.9 million in 1995. As permitted by SFAS No. 106, the Company has elected to amortize the accumulated postretirement benefit obligation at the date of adoption of the accounting standard, January 1, 1993, over a 20 year period. This transition obligation totaled $57.2 million. The following table sets forth the plan's funded status, reconciled with amounts recognized in the Company's financial statements at December 31, 1996 and December 31, 1995:
1996 1995 ---------- ---------- (THOUSANDS OF DOLLARS) Accumulated postretirement benefit obligation: Fully eligible active employees...................................... $ (13,765) $ (18,989) Other active employees............................................... (34,902) (31,644) Retirees............................................................. (34,332) (26,976) ---------- ---------- Total benefit obligation............................................ (82,999) (77,609) Plan assets at fair value............................................. 14,822 8,926 ---------- ---------- Accumulated postretirement obligation in excess of plan assets........ (68,177) (68,683) Unrecognized transition obligation.................................... 44,409 47,185 Prior service cost.................................................... 2,174 -- Unrecognized experience net loss...................................... 6,881 8,639 ---------- ---------- Accrued Postretirement Benefit Cost................................... $ (14,713) $ (12,859) ---------- ----------
The components of net periodic postretirement benefit cost for the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 --------- --------- --------- (THOUSANDS OF DOLLARS) Service cost......................................................................... $ 2,050 $ 1,586 $ 1,817 Interest cost........................................................................ 5,925 5,622 5,198 Return on plan assets................................................................ (546) (319) -- Amortization of transition obligation................................................ 2,776 2,790 2,861 Prior service cost................................................................... 202 -- -- Net losses........................................................................... 855 529 553 Deferred and capitalized............................................................. (2,400) (3,424) (4,480) --------- --------- --------- Net Expense.......................................................................... $ 8,862 $ 6,784 $ 5,949 --------- --------- ---------
The calculation of the actuarial present value of benefit obligations at December 31, 1996 assumes a discount rate of 7.5% and health care cost trend rates of 7.5% for medical costs and 10.0% for prescription drugs in 1997, decreasing through 2002 to a rate of 5.0%. If the health care trend rate assumptions were increased by one percent, the accumulated postretirement benefit obligation would be increased by approximately $9.1 million. The effect of this change on the sum of the service cost and interest cost would be an increase of $1.1 million. The assumed discount rate for 1995 was 7.5% and health care cost trend rates were 8.0% for medical costs and 11% for prescription drugs in 1995, decreasing through 2002 to a rate of 5.0%. NOTE 11. LEASES The Company's aggregate commitments under the Company's non-cancellable operating leases for the years following 1996 are as follows: 1997 - --$4,600,000; 1998--$3,900,000; 1999--$3,600,000; 2000-- $3,200,000; 2001 - --$3,500,000 and all years thereafter--$26,600,000. Rental expense for 1996, 1995 and 1994 was $6.2 million, $6.0 million and $5.3 million, respectively. NOTE 12. COMMITMENTS AND CONTINGENCIES CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk, as defined by Statement of Financial Accounting Standards No. 105 "Financial Instruments with Concentrations of Credit Risk," consist principally of temporary cash investments, accounts receivable and gas marketing accounts receivable. The Company places its temporary cash investments with high quality financial institutions. Concentrations of credit risk with respect to accounts receivable are limited due to the Company's large, diverse customer base within its service territory. With respect to gas marketing operations, the customer base consists of a large diverse group of users of natural gas across the United States, with the Company's credit risk being dependent on overall economic conditions. Therefore, as of December 31, 1996, the Company had no significant concentrations of credit risk. CONSTRUCTION PROGRAM Under the construction program of the Company and its subsidiaries, it is estimated that expenditures (excluding allowance for funds used during construction) of approximately $57.7 million will be incurred during 1997. Construction expenditures, including cost of removal and salvage, amounted to $60.9 million for 1996. GAS SUPPLY AND STORAGE CONTRACTS The Company has long-term contracts for firm supply, transportation and storage of gas. The Company's obligations under these contracts for the five years following 1996 are as follows: 1997-- $73,000,000; 1998--$73,400,000; 1999--$73,200,000; 2000--$71,800,000 and 2001--$54,900,000. On July 1, 1995, pursuant to a settlement agreement between the Company and the NYPSC, all issues concerning the Company's take- or-pay liability have been resolved. The Company has been granted permission to collect from its customers the remaining deferred amounts plus accrued interest. As of December 31, 1996, the Company has deferred $2.1 million of these costs remaining on the books of the Company. On April 8, 1992, the FERC issued Order 636. The rule required significant changes to the structure of the natural gas industry, and more specifically, to the manner in which pipelines provide service. Order 636 changed the manner in which the Company obtains its gas supplies by unbundling the transportation, storage and supply services offered by interstate gas pipelines into separate components. Since 1993, the Company has assumed responsibility for acquiring its own gas supply and assumed direct responsibility for its gas acquisition and transportation. While the FERC's objective is to restructure the industry to promote competition among gas suppliers to ensure supply at the lowest reasonable cost, there are significant initial costs associated with the implementation of the restructuring rule. Specifically, Order 636 authorizes pipelines to recover from their customers certain transition costs resulting from implementation of the rulemaking. The Company's four principal pipeline suppliers made filings with the FERC since the implementation of Order 636 for approval of a portion of their restructuring transition costs and allocation procedures to flow the approved costs through to their customers. Through December 31, 26 1996, the Company has paid $25.1 million of transition costs. The Company currently estimates that its remaining obligation for FERC Order 636 transition costs will be approximately $11.6 million. This estimate was determined from information provided in Order 636 FERC compliance filings by the Company's pipeline suppliers and from subsequent transition cost filings. This estimate is subject to adjustment by the FERC in its deliberations on these filings and any future filings by the suppliers. The Company has provided for the unpaid liability as of December 31, 1996 with an offsetting charge to Deferred Transition Costs. In December 1994, the NYPSC issued an order establishing the regulatory and rate-making policies applicable to New York gas distribution utilities resulting from FERC Order 636. The order provides the mechanisms for the full recovery of transition costs. The Company is presently in the process of recovering these costs from its customers and believes it will be allowed to fully recover such costs by the end of 2000. COAL SUPPLY CONTRACTS The Company has one long-term contract for the supply of coal and two long-term contracts for the transportation of coal. The Company has the right under the long-term coal purchase contract to suspend the purchase of coal if an alternative fuel source becomes less expensive. The Company's aggregate contract obligations for the supply and transportation of coal, for each of the five years following 1996 are as follows: 1997--$30,800,000; 1998--$33,100,000; 1999--$33,900,000; 2000 - --$28,600,000; 2001--$21,500,000. POWER PURCHASE AGREEMENTS The Company has three long-term contracts for the purchase of electric generating capacity and energy. The contracts expire in 1998, 2000 and 2015. The Company's aggregate contract obligations for the purchase of electric capacity and energy for each of the five years following 1996 are as follows: 1997--$14,400,000; 1998--$11,500,000; 1999--$5,100,000; 2000--$5,400,000; 2001--$700,000. LEGAL PROCEEDINGS INVESTIGATION AND RELATED LITIGATION On February 7, 1994, the Company commenced an action entitled ORANGE AND ROCKLAND UTILITIES, INC. V. JAMES F. SMITH (SMITH), in New York State Supreme Court against its former Chief Executive Officer and Chairman of the Board of Directors, who was terminated for cause by the Company's independent Directors in October 1993. The action asserts claims against Mr. Smith for breach of his fiduciary duties of loyalty and care, waste, conversion, fraud and unjust enrichment based on misuse of Company assets and personnel and misappropriation of Company funds for his own benefit or for other improper purposes, and failure to maintain proper management controls or to properly supervise corporate affairs and subordinate employees. Mr. Smith filed a counterclaim for benefits in excess of $3 million and filed a motion demanding arbitration under his employment agreement with the Company. On June 17, 1994, the court issued an Order granting Mr. Smith's motion to compel arbitration. Under a second Order dated August 10, 1994, the parties filed demands for arbitration of the claims asserted by the Company and by Mr. Smith with the American Arbitration Association. Hearings began in June 1995 and concluded in October 1996. Post arbitration briefs were submitted in November 1996 and the arbitrators heard closing arguments in December 1996. The arbitration panel released a written decision on January 29, 1997. The arbitrators found that the Company had "successfully proved that over the years [Mr. Smith] dishonestly and deceptively reported certain expense account items, listing on expense account documentation names of prominent persons who were not present, or inventing fictitious business purpose rationales for social encounters, or pretending to attend business conventions as a ruse for obtaining company-paid vacations for his family." The arbitrators charged Mr. Smith with costs and expenses totaling $2,786,643 for "maintaining the expense account fictions..." and "for some of the costs of unraveling [Mr. Smith's] deceptions." That money was awarded to the Company. However, the arbitrators also ruled that Mr. Smith's conduct did not result in "material economic damage" to the Company. As a result, the panel awarded Mr. Smith $8,309,855, which includes his legal and arbitration fees. The offsetting costs between his award and what was awarded to the Company resulted in a net award to Mr. Smith of $5,523,212. The Company is currently considering its legal options. Any amounts not previously provided for will be recorded in the first quarter of 1997. The Company does not expect the additional provisions to have a significant impact on the overall results of operations in 1997. On March 22, 1994, an indictment was returned by a Rockland County grand jury charging Mr. Smith with eight felony counts of grand larceny and two misdemeanor counts of petit larceny. In June 1994, a superseding indictment charged Mr. Smith with 15 felony counts of grand larceny, seven counts of falsifying business records and two misdemeanor counts of petit larceny. On August 15, 1995, Mr. Smith was acquitted of the charges in a non-jury trial. On September 19, 1995, the Company was served with an Amended Summons and First Amended Complaint (Complaint) in an action filed in the United States District Court for the Southern District of New York by Mr. Smith. (An earlier complaint had been filed which did not name the Company.) Named as defendants in the Complaint are former Rockland County District Attorney Kenneth Gribetz, the Office of the Rockland County District Attorney, the Company, "John and Jane Does" (identified in the Complaint as certain directors of the Company and/or members of the Special Committee of the Board and referred to in the Complaint as the "Defendant Directors"), Edwin Stier and Stier, Anderson & Malone. The Complaint alleges three causes of action: (1) the violation by Mr. Gribetz and the District Attorney's office of Mr. Smith's federal constitutional rights to fair trial and due process of law; (2) malicious prosecution by the Company, Defendant Directors and Mr. Stier in that these defendants allegedly caused the arrest and criminal prosecution of Mr. Smith; and (3) abuse of process by the Company, Defendant Directors and Mr. Stier in that these defendants were allegedly responsible for the arrest, indictment and prosecution of Mr. Smith. Mr. Smith seeks damages in excess of $25 million, special damages and punitive damages, attorney fees and other costs on each count. On December 22, 1995, the Company, Edwin Stier, and Stier, Anderson & Malone filed a Motion for Summary Judgment and related papers (Motion) seeking to terminate this action. The Motion is currently pending; if the Motion is unsuccessful, the Company intends to defend the action vigorously. The Company cannot predict the outcome of this proceeding. On November 10, 1994, the Company filed with the NYPSC a quantification of the rate-making effects of its ongoing investigation into prior financial improprieties. The Company requested that the NYPSC approve an additional refund of approximately $3.4 million to its New York electric and gas customers. This amount was in addition to the $369,000 previously refunded by the Company. This amount was charged to operations in the fourth quarter of 1994. The NYPSC instituted a proceeding (Case 93-M-0849) to provide the opportunity for other parties, including the NYPSC Staff, which was conducting an independent investigation of the Company, to be heard on this matter. On July 6, 1995, the NYPSC issued an order stating that the issues of the amount, timing and allocation of New York ratepayer refunds as a result of the investigation in Case 93-M-0849 should be considered in the context of the Company's then current electric base rate case (Case 95-E-0491) and ordered the consolidation of the two cases (Consolidated Case). 27 On October 2, 1995, in the Consolidated Case, the Company filed a settlement agreement with the NYPSC Staff relating to the amount, timing and allocation of investigation refunds. Under the terms of the settlem ent agreement, the Company agreed to (1) return approximately $6.5 million to its electric customers; (2) forego a gas rate increase authorized by a previous rate case, thereby saving gas customers an additional $1.7 million; and (3) reduce its gas adjustment clause by $0.3 million. These amounts were charged to operations in the second quarter of 1996. On May 3, 1996, the NYPSC issued an order approving the settlement. Under an agreement with the NJBPU to return to customers any funds found to be misappropriated or otherwise questionable as a result of its investigation of certain Company officers and former employees, in December 1994, RECO submitted a proposal to the NJBPU to refund an additional $704,000 to RECO's customers. This amount was in addition to the $93,000 refunded to the Company's New Jersey customers through its Levelized Energy Adjustment Clause (LEAC) in February and March 1994. These amounts were charged to operations in the fourth quarter of 1994. By order dated January 27, 1995, the NJBPU approved the Company's proposal. In January 1996, the Company proposed to refund an additional $482,000 to its New Jersey customers through LEAC. On February 21, 1996, the NJBPU approved this refund making the total amount refunded to RECO's customers $1,279,000. In the opinion of the Company, no significant additional refunds will be required in connection with these proceedings. OTHER LEGAL PROCEEDINGS The Company, the six other New York State investor-owned electric utilities, and the Energy Association of New York State filed a petition in New York State Supreme Court on September 18, 1996 challenging the NYPSC's May 20, 1996 Order in the Competitive Opportunities Proceeding (Case 94-E-0952) under Article 78 of the New York Civil Practice Law and Rules. In their Article 78 petition, the petitioners alleged that the Order is vague, ambiguous and procedurally defective, that the May 20, 1996 Order fails to assure the utilities a reasonable opportunity to recover strandable costs, and the NYPSC lacks the authority to order retail wheeling or divestiture. On November 26, 1996, the Supreme Court issued a ruling denying the Article 78 petition. In its ruling, the Court determined that because the Commission has not yet directed retail wheeling, generation deregulation and asset divestiture, there is no justiciable controversy regarding these issues. Despite this finding, the Court proceeded to opine that the Commission is not precluded by state or federal law from ordering retail wheeling or generation divestiture. The Court also determined that the utiliti es are not entitled, as a matter of law, to recover from customers the full amount of the utilities' strandable costs. On December 24, 1996, the Energy Association and the New York utilities appealed to the Appellate Division of the Supreme Court for the Third Judicial Department from the Supreme Court's November 26, 1996 decision. The Company is unable to predict the final result of this litigation. On September 25, 1991, the Company was named as one of several hundred third party defendants in the UNITED STATES V. KRAMER, ET AL. and STATE OF NEW JERSEY DEPARTMENT OF ENVIRONMENTAL PROTECTION V. ALMO ANTI-POLLUTION SERVICES, ET AL., which cases have been consolidated in the United States District Court for the District of New Jersey, Camden Vicinage. The allegations in this action concern the Helen Kramer Landfill site in Mantua, New Jersey, which operated from 1963 to 1981. Suit in this case was brought under Superfund laws. Although it is presently unclear whether any hazardous waste generated by the Company was transported to the Helen Kramer Landfill site, a final report by an independent waste consultant firm indicates that no such waste was delivered to the site. On October 2, 1996, the Company entered into a DE MINIMIS settlement agreement with certain third-party plaintiffs which, INTER ALIA, provides for (i) dismissal of the claims asserted against the Company and a bar to future claims against the Company related to the site, (ii) indemnification of the Company for any future claims or expenses related to the site, each with certain standard limited exceptions, and (iii) payment of $15,000 into a fund which will be used to pay for clean-up costs related to the site. On March 29, 1989, the New Jersey Department of Environmental Protection (NJDEP) issued a directive under the New Jersey Spill and Control Act to various potentially responsible parties (PRPs), including the Company, with respect to a site formerly owned and operated by Borne Chemical Company in Elizabeth, Union County, New Jersey, ordering certain interim actions directed at both site security and the off-site removal of certain hazardous substances. Certain PRPs, including the Company, signed an administrative consent order with the NJDEP requiring them to remove and dispose of the hazardous substances located above ground at the Borne site, which removal and disposal was completed on June 22, 1992. In October 1995, the PRPs entered into an additional administrative consent order with the NJDEP which obligated the PRPs, including the Company, to perform a remedial investigation to determine what, if any, subsurface remediation at the Borne site is required. The remedial investigation is proceeding. The Company does not believe that this matter will have a material effect on the financial condition of the Company. On August 2, 1994, the Company entered into a Consent Order with the New York State Department of Environmental Conservation (DEC) in which the Company agreed to conduct a remedial investigation of certain property it owns in West Nyack, New York. Polychlorinated biphenyls (PCBs) have been discovered at the West Nyack site. Petroleum contamination related to a leaking underground storage tank has been found as well. The Company has completed this remedial investigation. In November 1996, the Company submitted to the DEC a Feasibility Study Report which evaluates various remedial actions to eliminate the contamination discovered at the West Nyack site. After the DEC approves the Feasibility Study and solicits public comment, the DEC shall select a final remedial alternative for the West Nyack site. The Company does not believe that this matter will have a material effect on the financial condition of the Company. The Company has identified six former Manufactured Gas Plant (MGP) sites which were owned and operated by the Company or its predecessors. The Company may be named as a potentially responsible party for these sites under relevant environmental laws, which may require the Company to clean up these sites. To date, no claims have been asserted against the Company. The Company is unable at this time to estimate what, if any, costs it will incur at these sites. The Company and the DEC have executed a Consent Order dated as of January 8, 1996, which provides for preliminary site assessments of these six MGP sites. In November 1996, the Company submitted to the DEC, for its review and approval, a draft work plan for the preliminary site assessment of three of the MGP sites. On May 29, 1991, a group of ten electric utilities (Metal Bank Group) entered into an Administrative Consent Order with the United States Environmental Protection Agency (EPA) to perform a remedial investigation and feasibility study (RIFS) at the Cottman Avenue/Metal Bank Superfund site in Philadelphia, Pennsylvania. PCBs have been discharged at the Cottman Avenue site from an underground storage tank and the handling of transformers and other electrical equipment. On May 25, 1994, the Company entered into a tolling agreement by which the Metal Bank Group reserved its right to file suit against the Company, while the Metal Bank Group and the Company entered into discussions to determine the Company's involvement with the Cottman Avenue site. These discussions continue. The RIFS was completed and submitted to the EPA for determination of what remedial measures will be required at the Cottman Avenue site. The Metal Bank Group has assigned the Company with a 2.87% share although, to date, 28 because the Company is not a member of the Group, the Company has been unable to confirm this allocation. In addition, the Company received in November 1996 a letter from the EPA requesting information and documentation concerning the Company's connection to the site. The EPA has issued a recommended proposed remediation plan which, if approved, will cost approximately $17 million. The Company is unable at this time to estimate the Company's share, if any, of past or future costs at this site. On November 19, 1996, the Company was served with a Summons and Complaint (Summons and Complaint) in a litigation entitled CROSSROADS COGENERATION CORPORATION V. ORANGE AND ROCKLAND UTILITIES, INC., filed in the United States District Court for the District of New Jersey. The litigation relates to a power sales agreement between the Company and Crossroads Cogeneration Corporation (Crossroads), which requires the Company to purchase electric capacity and associated energy from a cogeneration facility in Mahwah, New Jersey. The Complaint alleges damage claims for breach of contract, breach of the implied covenant of good faith and fair dealing and violations of the Federal Antitrust laws and seeks a declaration of Crossroads' rights under the Agreement. In February 1997, the Company expects to file a motion to dismiss the action. The Company will defend the action vigor ously. The Company cannot predict the outcome of this proceeding. On January 17, 1997, the Company received a Third-Party Summons and "Additional Third-Party Complaint" in a litigation pending in the United States District Court for the Southern District of New York entitled TOWN OF WALLKILL AND STATE OF NEW YORK V. TESA TAPE, INC., ET AL. The Additional Third-Party Complaint purports to allege claims against the Company and other third-party defendants for response costs under the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), and for contribution and/or indemnity under CERCLA, the New York Contribution Among Tort-Feasors Act and common law principles of contribution and indemnity. The Additional Third-Party Complaint alleges that the Company transported wastes containing hazardous substances and/or generated, disposed of, and/or arranged for disposal or transport of wastes containing hazardous substances during the relevant time period (identified as 1965 through on or about 1974 in a pleading attached to the Additional Third-Party Complaint) at a landfill site located in the Town of Wallkill, Orange County, New York. On January 21, 1997, the Company received an Amended Summons and Amended Complaint of Plaintiff-Intervenor State of New York in the same action (State Complaint). The State Complaint names the Company as a direct defendant, and purports to allege claims under CERCLA and the common law of the State of New York governing public nuisance, restitution, subrogation and implied indemnities. The State Complaint alleges upon information and belief that the Company disposed of and/or arranged for the disposal or transport for disposal of hazardous substances at the Wallkill landfill site. The Company has insufficient information at this time to predict the outcome of this proceeding. On February 4, 1997, the Company's subsidiary, Rockland Electric Company (RECO), was served with a Summons and Complaint in a litigation entitled PHILIP GRIFFIN AND MARJORY GRIFFIN V. ROCKLAND ELECTRIC COMPANY filed in the Superior Court of New Jersey, Bergen County, Law Division. The Complaint alleges claims on behalf of owners of real property located in Old Tappan, New Jersey related to RECO's operation of a substation in Old Tappan. The Complaint alleges that a September 10, 1996 resolution (Resolution) of the Board of Adjustment of the Borough of Old Tappan, New Jersey (Board of Adjustment) orders RECO to abate a nuisance of excessive noise at the substation, and that RECO has refused and failed to comply with the Resolution. The Complaint includes nine counts, eight of which claim compensatory damages of $2 million and exemplary damage of $4 million for each count (the ninth count does not quantify the damages claimed). By Petition dated October 11, 1996, RECO petitioned the State of New Jersey Board of Public Utilities (NJBPU) for relief from the September 10, 1996 resolution, including a judgment finding the ordinance to be void. On or about December 9, 1996, the Board of Adjustment filed an Answer to the Petition asserting defenses. The Company intends to pursue the proceedings before the NJBPU and to defend the court action vigorously. The Company cannot predict the outcome of either proceeding. On July 19, 1996 NORSTAR Energy Limited Partnership (NORSTAR), an indirect subsidiary of the Company, filed a Complaint in the United States District Court for the Northern District of Georgia, Atlanta Division against Petroleum Source and Systems Group, Inc. (PSI), seeking to recover approximately $700,000 for natural gas delivered to PSI. On or about August 26, 1996, PSI filed an Answer denying its liability and asserting counterclaims against NORSTAR. The counterclaims seek damages for breach of contract including an unspecified amount for loss of profits and approximately $8.0 million for liquidated damages and costs. The case is currently in the discovery phase, and NORSTAR is vigorously pursuing its claims and defending against PSI's counterclaims. The Company cannot predict the outcome of this proceeding. ENVIRONMENTAL The CERCLA and certain similar state statutes authorize various governme ntal authorities to issue orders compelling responsible parties to take cleanup action at sites determined to present an imminent and substantial danger to the public and to the environment because of an actual or threatened release of hazardous substances. As discussed above, the Company is a party to a number of administrative and litigation proceedings involving potential impact on the environment. Such proceedings arise out of, without limitation, the operation and maintenance of facilities for the generation, transmission and distribution of electricity and natural gas. As noted above, the Company does not believe that certain proceedings will have a material effect on the Company, while as to others, the Company is unable at this time to estimate what, if any, costs it will incur. Pursuant to the Clean Air Act Amendments of 1990, which became law on November 15, 1990, a permanent nationwide reduction of 10 million tons in sulfur dioxide emissions from 1980 levels, as well as a permanent nationwide reduction of 2 million tons of nitrogen oxide emissions from 1980 levels, must be achieved by January 1, 2000. In addition, continuous emission monitoring systems were required at all affected facilities effective January 1, 1995. Pursuant to New York State attainment of ozone standards, Nitrogen Oxide (NOx) reductions were achieved effective May 31, 1995. The Company has two base load generating stations that burn fossil fuels that will be impacted by this legislation. These generating facilities already burn low sulfur fuels, so additional capital costs are not anticipated for compliance with the sulfur dioxide emission requirements. The Company installed low nitrogen oxide burners at Lovett Plant and made operational modifications at Bowline Plant to meet NOx reduction levels for ozone attainment. Additional emission monitoring systems were installed at both facilities. Beginning with calendar year 1994, Title V sources (Bowline Point and Lovett) are required to pay an emission fee. Each facility's fee is based upon actual air emissions reported to the DEC for the preceding calendar year. For 1996, the Company paid an emission rate of approximately $27 per ton based upon 1995 emissions. The emission fee will be reevaluated by New York State annually. The Company will continue to assess the impact of the Clean Air Act Amendments of 1990 on its power generating operations as additional regulations implementing these Amendments are promulgated. 29 NOTE 13. SEGMENTS OF BUSINESS The Company defines its principal business segments as utility (electric and gas) and diversified activities. The diversified segment includes gas marketing and land development. Total utility revenue as reported in the Consolidated Statements of Income and Retained Earnings include both sales to unaffiliated customers and intersegment sales which are billed at tariff rates. Income from operations is total revenue less operating expenses. General corporate expenses were allocated in the manner used in the rate-making process. Identifiable assets by segment are those assets that are used in the production, distribution and sales operations in each segment. Allocations were made in a manner consistent with the rate-making process. Corporate assets are principally property, cash, sundry receivables and unamortized debt expense.
YEAR ENDED DECEMBER 31, 1996 1995 1994 - ------------------------------------------------------------------------ ------------ ------------ ------------ (THOUSANDS OF DOLLARS) Operating Information: Operating revenues: Sales to unaffiliated customers: Electric.............................................................. $ 477,032 $ 459,876 $ 478,909 Gas................................................................... 176,400 140,177 157,045 Intersegment sales: Electric.............................................................. 10 107 120 Gas................................................................... 42 47 123 ------------ ------------ ------------ Total Utility Operating Revenues..................................... 653,484 600,207 636,197 Diversified activities................................................ 271,566 429,625 380,470 ------------ ------------ ------------ Total Operating Revenues............................................. $ 925,050 $ 1,029,832 $ 1,016,667 ------------ ------------ ------------ Operating income before income taxes: Electric............................................................... $ 86,161 $ 85,156 $ 80,355 Gas.................................................................... 22,447 17,467 19,724 Diversified activities................................................. (5,147) (4,217) 557 ------------ ------------ ------------ Total Operating Income Before Income Taxes........................... 103,461 98,406 100,636 ------------ ------------ ------------ Income Taxes: Electric............................................................... 21,585 22,406 19,894 Gas.................................................................... 4,879 3,859 4,644 Diversified activities................................................. (1,644) (363) 91 ------------ ------------ ------------ Total Income Taxes................................................... 24,820 25,902 24,629 ------------ ------------ ------------ Total Income From Operations......................................... $ 78,641 $ 72,504 $ 76,007 ------------ ------------ ------------ Other Information: Identifiable assets: Electric.............................................................. $ 978,952 $ 979,512 $ 960,143 Gas................................................................... 240,471 217,357 214,933 Diversified activities................................................ 71,553 80,073 95,846 ------------ ------------ ------------ Total Identifiable Assets............................................ 1,290,976 1,276,942 1,270,922 Corporate assets....................................................... 22,654 29,928 42,082 ------------ ------------ ------------ Total Assets......................................................... $ 1,313,630 $ 1,306,870 $ 1,313,004 ------------ ------------ ------------ Depreciation expense: Electric............................................................... $ 29,430 $ 30,594 $ 29,161 Gas.................................................................... 2,578 6,646 5,940 Diversified activities................................................. 1,605 1,307 582 ------------ ------------ ------------ Total Depreciation Expense........................................... $ 33,613 $ 38,547 $ 35,683 ------------ ------------ ------------ Additions to plants: Electric............................................................... $ 41,932 $ 43,225 $ 44,832 Gas.................................................................... 16,766 10,894 15,242 Diversified activities................................................. 659 911 468 ------------ ------------ ------------ Total Additions...................................................... $ 59,357 $ 55,030 $ 60,542 ------------ ------------ ------------
NOTE 14. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
EARNINGS EARNINGS APPLICABLE PER INCOME TO AVERAGE OPERATING FROM NET COMMON COMMON REVENUES OPERATIONS INCOME STOCK SHARE ---------- ----------- --------- ----------- ----------- (THOUSANDS OF DOLLARS) Quarter Ended 1996 March 31............................................... $ 285,672 $ 21,526 $ 14,555 $ 13,799 $ 1.01 June 30................................................ 212,364 16,609 6,320 5,563 .41 September 30........................................... 215,606 25,687 18,676 17,921 1.31 December 31............................................ 211,408 14,819 6,752 5,996 .44 ---------- ----------- --------- ----------- ----- 1995 March 31............................................... $ 311,807 $ 20,549 $ 15,321 $ 14,537 $ 1.06 June 30................................................ 245,298 12,384 3,722 2,937 .22 September 30........................................... 231,867 23,957 14,792 14,008 1.03 December 31............................................ 240,860 15,614 4,738 3,953 .29 ---------- ----------- --------- ----------- -----
Quarterly results reflect the seasonal effect of electric and gas sales. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ARTHUR ANDERSEN LLP To the Board of Directors and Shareholders of Orange and Rockland Utilities, Inc.: We have audited the accompanying consolidated balance sheet of Orange and Rockland Utilities, Inc. and Subsidiaries (a New York Corporation) as of December 31, 1996 and 1995, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Orange and Rockland Utilities, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the three years ended December 31, 1996, in conformity with generally accepted accounting principles. [SIG] New York, New York February 6, 1997 30 OPERATING STATISTICS
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- Electric: Sales (Mwh): Residential..................................... 1,731,105 1,685,110 1,660,755 1,611,602 1,532,915 Commercial...................................... 2,044,759 2,056,185 2,049,265 2,018,240 1,986,048 Industrial...................................... 748,484 680,678 657,142 627,944 594,912 Public Street Lighting.......................... 29,522 28,107 27,836 27,705 27,538 Public Authorities.............................. 51,392 75,506 68,972 72,037 70,257 ---------- ---------- ---------- ---------- ---------- Total Sales to Customers....................... 4,605,262 4,525,586 4,463,970 4,357,528 4,211,670 Other Utilities for Resale...................... 190,394 118,730 265,311 234,751 253,290 ---------- ---------- ---------- ---------- ---------- Total Sales of Electricity..................... 4,795,656 4,644,316 4,729,281 4,592,279 4,464,960 ---------- ---------- ---------- ---------- ---------- Revenues (000's): Residential..................................... $ 209,706 $ 208,862 $ 214,439 $ 211,082 $ 193,124 Commercial...................................... 200,281 204,240 212,214 212,240 202,523 Industrial...................................... 46,663 50,205 51,316 50,983 47,128 Public Street Lighting.......................... 4,903 4,930 4,939 4,967 4,880 Public Authorities.............................. 3,453 4,257 4,051 4,344 4,212 ---------- ---------- ---------- ---------- ---------- Total Revenues from Sales to Customers......... 465,006 472,494 486,959 483,616 451,867 Other Utilities for Resale...................... 3,106 2,150 6,636 6,414 6,965 ---------- ---------- ---------- ---------- ---------- Total Revenues from Sales of Electricity....... 468,112 474,644 493,595 490,030 458,832 Other Electric Operating Revenues............... 8,930 (14,661) (14,566) (3,063) 4,901 ---------- ---------- ---------- ---------- ---------- Total Electric Operating Revenues.............. $ 477,042 $ 459,983 $ 479,029 $ 486,967 $ 463,733 ---------- ---------- ---------- ---------- ----------
Gas: Sales (Mmcf): Residential.............................. 15,685 14,759 15,164 15,323 15,212 Commercial and Industrial................ 5,233 5,066 5,257 5,233 5,295 --------- --------- --------- --------- --------- Total Firm Sales........................ 20,918 19,825 20,421 20,556 20,507 Interruptible............................ 3,996 2,327 1,023 653 889 Other Utilities for Resale............... 4 4 27 8 556 --------- --------- --------- --------- --------- Total Sales of Gas...................... 24,918 22,156 21,471 21,217 21,952 --------- --------- --------- --------- --------- Revenues (000's): Residential.............................. $ 116,981 $ 96,737 $ 112,759 $ 113,116 $ 97,646 Commercial and Industrial................ 36,954 31,226 36,676 36,707 32,541 --------- --------- --------- --------- --------- Total Revenues from Firm Sales.......... 153,935 127,963 149,435 149,823 130,187 Interruptible............................ 15,101 6,725 3,996 2,605 3,414 Other Utilities for Resale............... 94 59 203 105 1,950 --------- --------- --------- --------- --------- Total Revenues from Sales of Gas........ 169,130 134,747 153,634 152,533 135,551 Other Gas Revenues....................... 7,312 5,477 3,534 4,724 5,128 --------- --------- --------- --------- --------- Total Gas Operating Revenues............ $ 176,442 $ 140,224 $ 157,168 $ 157,257 $ 140,679 --------- --------- --------- --------- ---------
31 FINANCIAL STATISTICS
YEAR ENDED DECEMBER 31, 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- Common Stock Data: Earnings Per Average Common Share................................ $3.17 $2.60 $2.50 $3.06 $3.15 Dividends Declared Per Share..................................... $2.58 $2.57 $2.54 $2.49 $2.43 Book Value Per Share (Year End).................................. $28.41 $27.82 $27.79 $27.79 $27.22 Market Price Range Per Share: High............................................................ $37 1/8 $37 3/8 $41 1/4 $47 1/2 $41 7/8 Low............................................................. $33 3/8 $30 7/8 $28 3/8 $38 5/8 $32 3/8 Year End........................................................ $35 7/8 $35 3/4 $32 1/2 $40 5/8 $41 5/8 Price Earnings Ratio............................................. 11.32 13.75 13.00 13.28 13.21 Dividend Payout Ratio............................................ 81.39% 98.85% 101.60% 81.37% 77.14% Common Shareholders at Year End.................................. 21,322 22,916 23,299 24,328 25,696 Average Number of Common Shares Outstanding (000's).............. 13,654 13,653 13,594 13,532 13,438 Total Common Shares Outstanding at Year End (000's).............. 13,654 13,654 13,653 13,532 13,531 Return on Average Common Equity.................................. 11.33% 9.35% 9.01% 11.16% 11.88% --------- --------- --------- --------- --------- Capitalization Data (000's): Common Stock Equity.............................................. $387,850 $379,776 $379,403 $376,044 $368,321 Non-Redeemable Preferred Stock................................... 43,241 43,253 43,268 43,287 43,306 Redeemable Preferred Stock....................................... 0 1,390 2,774 4,158 5,542 Long-Term Debt (includes current portion)........................ 359,968 360,137 379,561 382,248 382,339 --------- --------- --------- --------- --------- Total Capitalization............................................ $791,059 $784,556 $805,006 $805,737 $799,508 --------- --------- --------- --------- --------- Capitalization Ratios: Common Equity.................................................... 49.03% 48.41% 47.14% 46.67% 46.07% Non-Redeemable Preferred Stock................................... 5.47% 5.51% 5.37% 5.37% 5.42% Redeemable Preferred Stock....................................... 0.00% 0.18% 0.34% 0.52% 0.69% Long-Term Debt (includes current portion)........................ 45.50% 45.90% 47.15% 47.44% 47.82% --------- --------- --------- --------- --------- Selected Financial Data (000's ): Operating Revenues............................................... $925,050 $1,029,832 $1,016,667 $966,864 $839,695 Operating Expenses............................................... $846,409 $957,328 $940,660 $883,943 $759,691 Operating Income................................................. $78,641 $72,504 $76,007 $82,921 $80,004 Net Income....................................................... $46,303 $38,573 $37,217 $44,815 $45,812 Earnings Applicable to Common Stock.............................. $43,279 $35,438 $33,966 $41,451 $42,334 Net Utility Plant................................................ $899,643 $873,668 $856,289 $831,980 $814,686 Total Assets..................................................... $1,313,630 $1,306,870 $1,313,004 $1,280,973 $1,127,501 Long-Term Debt Including Redeemable Preferred Stock....................................... $359,968 $361,527 $382,335 $386,406 $387,881 Ratio of Long-Term Debt to Net Plant............................. 40.0% 41.2% 44.4% 46.0% 47.0% Ratio of Accumulated Depreciation to Utility Plant in Service.... 33.8% 33.3% 33.1% 31.7% 30.7% 32
ORANGE AND ROCKLAND UTILITIES, INC. APPENDIX A TO EXHIBIT 13 FORM 10-K DECEMBER 31, 1996 The Review of the Company's Results of Operations and Financial Condition, which is included in the Company's Annual Report to Shareholders and is incorporated by reference in this Annual Report on Form 10-K, contains certain graphic presentations of financial data which are presented in tabular format as follows: 1. Graph entitled "Electric Sales to Customers" Year Mwh (Millions) 1992 4.21 1993 4.36 1994 4.46 1995 4.53 1996 4.61 2. Graph entitled "Cost per Kwh" Year Cents 1992 2.70 1993 2.67 1994 2.51 1995 2.46 1996 2.48 3. Graph entitled "Firm Gas Sales" Year Mmcf (Thousands) 1992 20.5 1993 20.6 1994 20.4 1995 19.8 1996 20.9 4. Graph entitled "Cost per Mcf" Year Dollars 1992 3.52 1993 3.63 1994 3.52 1995 3.43 1996 4.05 EX-21 5 ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Subsidiaries Exhibit 21 State of Parent and Subsidiary* Incorporation Orange and Rockland Utilities, Inc. New York Rockland Electric Company New Jersey Saddle River Holdings Corp. Delaware NORSTAR Holdings, Inc. Delaware NORSTAR Management, Inc. Delaware Millbrook Holdings, Inc. Delaware Atlantic Morris Broadcasting, Inc. Delaware Compass Resources, Inc. Delaware Palisades Energy Services, Inc. Delaware Pike County Light & Power Pennsylvania Clove Development Corporation New York O&R Energy Development, Inc. Delaware O&R Development, Inc. Delaware * Each level of indentation represents subsidiary status of the company under which it is immediately indented. EX-24 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. _/s/ D. Louis Peoples______ D. Louis Peoples Vice Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. _/s/ R. Lee Haney___________ R. Lee Haney Senior Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. _/s/ Edward M. McKenna______ Edward M. McKenna Controller POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. __s/ Ralph M. Baruch________ Ralph M. Baruch Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. ___/s/ J. Fletcher Creamer__ J. Fletcher Creamer Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. _/s/ Michael J. Del Giudice__ Michael J. Del Giudice Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. _/s/ Jon F. Hanson_________ Jon F. Hanson Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. __/s/ Kenneth D. McPherson__ Kenneth D. McPherson Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. __/s/ Robert E. Mulcahy III_ Robert E. Mulcahy III Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. __/s/ James F. O'Grady, Jr.__ James F. O'Grady, Jr. Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. __/s/ Frederic V. Salerno___ Frederic V. Salerno Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO her true and lawful attorney, for her and in her name, place and stead, and in her office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as she might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set her hand and seal this 6th day of March 1997. __/s/ Linda C. Taliaferro____ Linda C. Taliaferro Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a Director of Orange and Rockland Utilities, Inc., which Company proposes to file with the Securities and Exchange Commission an Annual Report on Form 10-K for the Company's fiscal year ended December 31, 1996 pursuant to the provisions of the Securities Exchange Act of 1934, as amended, has made, constituted and appointed and by these presents does hereby make, constitute and appoint G. D. CALIENDO his true and lawful attorney, for him and in his name, place and stead, and in his office and capacity as aforesaid, to sign and file said Form 10-K and any and all other documents to be signed and filed with the Securities and Exchange Commission in connection therewith, hereby granting to said G. D. CALIENDO full power and authority to do and perform each and every act as fully, to all intents and purposes, as he might or could do if personally present, hereby ratifying and confirming in all respects all that G. D. CALIENDO may or shall lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has set his hand and seal this 6th day of March 1997. __/s/ H. Kent Vanderhoef____ H. Kent Vanderhoef Chairman of the Board of Directors EX-27 7
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORANGE AND ROCKLAND UTILITIES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 PER-BOOK 899,643 17,006 222,725 174,256 0 1,313,630 68,271 127,519 192,060 387,850 0 43,241 281,622 0 0 82,370 78,203 1,390 0 0 438,954 1,313,630 925,050 24,820 821,589 846,409 78,641 (1,244) 77,397 31,094 46,303 3,024 43,279 35,227 24,221 82,329 3.17 0
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