-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, j9Rogwx4QKaB98PvKRsu+E33jSidXCWUp52PMv+8rJLczI4jICdFUtGtna2sKJWV LpPnWmoSsGMnkz1OAFla+w== 0000074778-94-000017.txt : 19940331 0000074778-94-000017.hdr.sgml : 19940331 ACCESSION NUMBER: 0000074778-94-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORANGE & ROCKLAND UTILITIES INC CENTRAL INDEX KEY: 0000074778 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 131727729 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-04315 FILM NUMBER: 94519105 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-K 1 BODY OF FORM 10-K 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 (Fee Required) For the fiscal year ended December 31, 1993 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) 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 Identification No.) incorporation or organization) 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. 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, 1994, the approximate aggregate market value of the voting stock held by nonaffiliates of the registrant was $487,642,452* At February 28, 1994, the registrant had 13,532,439 shares of Common Stock ($5 par value) outstanding. (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) Documents incorporated by reference: Annual Report to Shareholders for the year ended December 31, 1993 incorporated in Part I, Part II and Part IV to the extent described therein. The Company's definitive Proxy Statement in connection with the 1994 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. 0064O.wp TABLE OF CONTENTS Page PART I Item 1. Business General Development of Business 1 Financial Information about Industry Segments 1 Narrative Description of Business: 1 Principal Business 1 Events Affecting the Company 2 Electric Operations 3 Gas Operations 9 Diversified Activities 12 Construction Program and Financing 13 Regulatory Matters 16 Utility Industry Risk Factors 19 Competition 20 Marketing 21 Environmental Matters 21 Research and Development 24 Franchises 24 Employee Relations 25 Item 2. Properties 26 Item 3. Legal Proceedings 28 Item 4. Submission of Matters to a Vote of Security Holders 39 Executive Officers of the Registrant 40 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 41 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 50 Report of Independent Certified Public Accountants on Financial Statement Schedules 52 Consent of Independent Certified Public Accountants 52 -i- 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, O&R Energy Development, Inc. ("ORED"), a Delaware corporation, Clove Development Corporation ("Clove"), a New York corporation and O&R Development, Inc. ("ORD"), a Delaware corporation. RECO has a wholly owned non-utility subsidiary, Saddle River Holdings Corp. ("SRH"), a Delaware corporation. SRH has two wholly owned non-utility subsidiaries, O&R Energy, Inc. and Atlantic Morris Broadcasting, Inc., both Delaware corporations. O&R Energy, Inc. has a wholly owned non-utility subsidiary, Millbrook Holdings, Inc., also a Delaware corporation. 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 36 of the 1993 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, 1993, the Company and its utility subsidiaries furnished electric service to approximately 257,000 customers in 96 communities with an estimated population of 656,000 and gas service to approximately 109,000 customers in 57 communities with an estimated population of 463,000. There have been no significant changes in either the population of the Company's service territory or in the number of customers served since December 31, 1992. At that time, electric service was provided to approximately 254,000 customers in 95 communities with an estimated population of 648,000 and gas service was provided to approximately 108,000 customers in 56 communities with an estimated population of 465,000. At December 31, 1993 and 1992, 95% of the Company's residential gas customers used gas as their major source of space heating fuel. While the territory served is predominantly residential, the Company also serves a number of commercial and industrial customers in diversified lines of business activities from which significant electric and gas revenues are derived. No 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 space heating requirements. Events Affecting the Company On August 16, 1993, the Rockland County, New York District Attorney charged a then Vice President of the Company with grand larceny, commercial bribery and making illegal political contributions and commenced a related investigation of the Company. Two other former employees who had reported to the Vice President were also charged with grand larceny. On August 20, 1993, the Company's Board of Directors created a Special Committee (the "Special Committee") of the Board, consisting entirely of outside Directors, to conduct an independent investigation of the issues raised by the Rockland County District Attorney and any other matters discovered in the course of the investigation as the Special Committee deems necessary or desirable. The Special Committee was granted full and complete power and authority to take whatever steps it deems necessary or desirable, including retention of counsel and other advisors, presenting to the Board of Directors periodic reports regarding its activities and at the appropriate time its full findings, and making recommendations to the Board of Directors with respect to any remedial measures it deems appropriate to prevent a recurrence of any improprieties or irregularities discovered by the investigation. The Special Committee has retained the law firm of Stier, Anderson & Malone as investigative counsel, and Price Waterhouse & Co. as accounting experts, to assist it in conducting its independent investigation. The Special Committee will present preliminary conclusions of its investigation at the Annual Meeting of Shareholders on May 11, 1994. The Special Committee intends to complete its investigation as promptly as practicable after the Annual Meeting and will report its final conclusions and recommendations to the Board of Directors at that time. In addition, during the fourth quarter, James F. Smith was terminated for cause as Chief Executive Officer and removed as Chairman of the Board of Directors. President and Chief Operating Officer, Victor J. Blanchet, Jr. was appointed to serve as acting Chief Executive Officer. Details concerning these events, including the cost incurred for legal counsel, accounting services, and other professional and consultative services related to the ongoing investigations and their effect on the Company's results of operations, are contained in the "Review of the Company's Results of Operations and Financial Condition" under the captions "Events Affecting the Company" and "Rate Activities" and in Note 12 of the Notes to Consolidated Financial Statements under the caption "Legal Proceedings" on pages 15, 19 and 34, respectively, of the 1993 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. 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 1,032 megawatts ("Mw") in the winter and 1,020 Mw in the summer. 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 8, 1993 and was 1,037 Mw. Additional statistics regarding electric operations are contained under the caption "Operating Statistics-Electric" on page 38 of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. In addition to the energy produced at its generating facilities, the Company, through various transmission interconnections, purchases both capacity and energy from other utilities 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, coordinate inter- utility operating and emergency procedures to assure reliable, adequate and economic electric service throughout the state and provide for the equitable sharing of the resulting benefits and costs. 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 1993, the Company purchased 464,334 megawatt hours ("Mwh") from or through the NYPP. In addition, the Company has agreements with the New York Power Authority ("NYPA") and certain other utilities for the purchase of firm power. During 1993, an agreement with the NYPA provided for firm purchases of 25 Mw of year-round capacity from the Blenheim-Gilboa pumped-storage generating facility ("Gilboa Facility") and firm power purchase agreements with Central Hudson and with Pennsylvania Power & Light Company ("PP&L") provided for an additional 225 Mw of capacity. Other agreements were in effect from time to time throughout 1993 with several other utilities, including an agreement with Philadelphia Electric Company pursuant to which significant economy purchases were made during 1993, which provided for short-term, firm purchases on an as-available, as-needed basis. During 1993 purchased power, including purchases made pursuant to firm purchase contracts, short-term purchase agreements and interchange agreements, amounted to 42% of the Company's energy requirements. Details are as follows: 191993 PURCHASED POWER Purchased From Megawatt hours Central Hudson Gas & Electric Corp. 68,925 Philadelphia Electric Co. 427,545 New York State Electric & Gas Corp. 26,606 General Public Utilities 83 New York Power Authority (1) 130,143 New York Power Pool 464,334 Niagara Mohawk Power Corp. 16,429 Public Service Electric & Gas Corp. 321,846 Pennsylvania Power & Light Company 387,654 Cogeneration and Small Power Producers 210,688 Total 2,054,253 ========= (1) The Company delivered 2,202 Mwh of NYPA hydroelectric power to residential customers in Rockland County and Orange County under NYPA's municipal distribution agency program. In addition, the Company is party to an agreement with the NYPA regarding the purchase of peaking power from the Gilboa Facility. Pursuant to the agreement, the Company must replace the energy purchased from the Gilboa Facility at a ratio of three-to-two. During 1993, the Company purchased 31,738 Mwh from the Gilboa Facility and replaced 47,636 Mwh, for the net amount of (15,898) Mwh, which is included in the amount shown above. With regard to future purchases of capacity and energy, contracts are in place with NYPA, Central Hudson, PP&L 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 firm purchase agreement with Central Hudson will provide 50 Mw of capacity through April 1994, and the agreement with PP&L will provide capacity ranging between 10 Mw and 125 Mw through October 1995. In addition, a firm purchase power agreement with PSE&G will provide between 75 Mw and 300 Mw of capacity during the base contract term which extends from May 1994 through April 1998, with an additional 100 Mw available throughout the base contract term at the option of the Company. The contract also provides that at the option of the Company 100 Mw of additional capacity would be available between May 1992 and April 1994 and 400 Mw of additional capacity will be available from May 1998 through October 2000. During 1994, the Company expects to purchase 50 Mw of capacity above the base contract amount under these options. Other agreements will continue to be in effect which will enable the Company to take advantage of economic power purchases on an as available, as-needed basis. Additional information regarding future power supply, particularly capacity purchase contracts with Independent Power Producers and Qualifying Facilities, is contained under the caption "Future Energy Supply and Demand" in this Item 1. 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 34 of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Fuel Supply. The Company's 1,032 Mw winter generating capacity is available from the following fuel sources: Coal, Oil Oil Gas Plant* & Gas & Gas Hydro Turbine Total (Megawatts) Lovett Plant Units 1, 2 & 3 102.0 102.0 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 86.0 86.0 Bowline Point Plant Units 1 & 2 400.6 400.6 502.6 399.6 43.8 86.0 1,032.0 ===== ===== ==== ==== ======= *For a description of the Company's generating plants, see "Electric Generating Facilities" in Item 2 of this Form 10-K Annual Report. The availability and cost of fuels and the Company's choice of fuel in any particular circumstance are affected by a number of factors, the majority of 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. The Company's principal generating plants use natural gas, coal or oil as their primary fuels. The Company has, however, reduced its dependence on oil through the use of coal as the primary fuel for the Lovett Plant's two largest generating units, the burning of increased volumes of natural gas in its boilers and the purchase of power from other systems. 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 1989 through 1993 are as follows: 1989 1990 1991 1992 1993 Gas 25% 27% 22% 21% 16% Coal 29 32 36 33 33 Oil 28 19 14 10 5 Hydro 3 4 3 3 4 Purchased Power 15 18 25 33 42 Total 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== Gas - During 1993, the Company was able to use significant volumes of natural gas for boiler fuel at both its Lovett Plant and the Bowline Point Plant. It also expects to be able to use natural gas in the Lovett Plant and the Bowline Point Plant during 1994, whenever such gas is more economical than alternative fuels. In 1993, the Company used 2.1 billion cubic feet ("Bcf") and 6.0 Bcf of gas, respectively, at the Lovett Plant and the Bowline Point Plant. The annual average cost per thousand cubic feet ("Mcf") of natural gas burned in the Company's generating plants during each of the years ended December 31, 1989 through 1993 was $2.79, $2.78, $2.64, $2.82 and $3.01, respectively. This is equivalent to $2.71, $2.69, $2.56, $2.74 and $2.92, respectively, per million British Thermal Unit ("MMBTU"). Coal - The low sulfur coal (1.0 lbs. SO2 per MMBTU) used in Lovett Plant Units 4 and 5 has been supplied to the Company primarily through long term contracts with Massey Coal Sales, Inc. ("Massey") and Pittston Coal Sales Corporation ("Pittston") as well as through spot market purchases, which accounted for approximately 22% of the Company's 1993 coal requirements. The Company has the right, under the coal purchase contracts, to suspend the purchase of coal if alternative fuel sources become less expensive. The coal is fully washed and, as such, is low in ash (typically 7%) and high in BTU content (26 MMBTU's per ton). The annual average cost per ton of coal consumed at the Lovett Plant during each of the years ended December 31, 1989 through 1993 was $58.53, $58.40, $56.57, $55.95 and $55.25, respectively. This is equivalent to $2.26, $2.25, $2.18, $2.16 and $2.14, respectively, per MMBTU. During 1993 coal was the predominant fuel burned at the Lovett Plant, and the Company expects it to be the predominant fuel burned during 1994. In February 1994, the contract with Pittston was terminated by the Company because of Pittston's failure to meet the coal quality specification of its contract. Alternative supplies have been obtained and arrangements for longer term replacement coal are under review. Information regarding the coal supply contracts is contained in Note 12 of the Notes to Consolidated Financial Statements under the caption "Coal Supply Contracts" on page 34 of the 1993 Annual Report to Shareholders which material is incorporated by reference in this Form 10-K Annual Report. Oil - The Company does not anticipate purchasing any significant quantity of fuel oil for its Lovett Plant. Con Ed has undertaken the supply of #6 fuel oil (0.37% maximum sulfur content by weight) to the Bowline Point Plant, which is supplied under a contract between Con Ed and the Company. Pursuant to that contract, Con Ed has also undertaken to provide a backup oil supply for the Company's Lovett Plant under certain conditions. The Company believes that it will be able to secure sufficient oil supplies to meet the total requirements of #6 fuel oil for the calendar year 1994. The annual average cost per barrel of oil burned in the Company's generating plants during each of the years ended December 31, 1989 through 1993 was $19.21, $23.73, $21.23, $20.43 and $21.27, respectively. This is equivalent to $3.09, $3.81, $3.40, $3.26 and $3.39, respectively, per MMBTU. 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 Grahamsville 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. Water in excess of 8.1 Bcf, which amounted to 9.0 Bcf during 1993, is 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. In addition, information regarding the cost of electric energy is contained under the caption "Electric Energy Costs" in the "Review of the Company's Results of Operations and Financial Condition" on page 16 in the 1993 Annual Report to Shareholders, which material 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. 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 from both utility and non-utility generators, into its energy strategy. The 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, 1993, DSM efforts have reduced the annual need for increased generating capacity and energy by 97.9 Mw and 173,104 Mwh, respectively, both through programs administered by the Company and by RECO as well as through contracts with outside consultants pursuant to the competitive bidding program. The New York State Public Service Commission ("NYPSC") has consistently authorized the recovery of DSM costs, and in New Jersey, RECO's DSM costs are recoverable on a current basis. Additional information regarding the recovery of DSM costs, including the Company's achievement of certain DSM related goals and their impact on the 1993 results of operations, as well as the impact of certain events described under the caption "Events Affecting the Company" in this Item 1, is contained under the captions "Electric Operating Revenues and Sales" and "Rate Activities" in the "Review of the Company's Results of Operations and Financial Condition" on pages 15 and 19, respectively, of the 1993 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. The Company's Supply-Side Management program involves the acquisition of future increments of capacity and energy from both investor-owned utilities and from non-utility generators. The Company has entered into several agreements in this regard. In 1990, the Company entered into a power supply agreement ("Wallkill Agreement") with Wallkill Generating, L.P. ("Wallkill Generating"). The Wallkill Agreement was approved by the NJBRC in October 1991, and in July 1991 the Federal Energy Regulatory Commission ("FERC") approved the rates contained in the Wallkill Agreement. Pursuant to the agreement, Wallkill Generating, a limited partnership formed by PG&E/Bechtel Generating Company (now U.S. Generating Company), has contracted to construct and operate a gas-fired combined cycle generating facility in the Town of Wallkill, N.Y. and sell 95 Mw of capacity and associated energy to the Company. The original target date for commercial operation of this project as set forth in the Wallkill Agreement was April 1994. Wallkill Generating has reported that construction of the project will begin in the spring of 1994 and it will be available for commercial operation in late 1995. In 1990, the Company entered into a long-term power supply agreement ("State Line Agreement") with State Line Power Associates Limited Partnership ("State Line"). Under the terms of the State Line Agreement, State Line contracted to construct and operate a gas-fired combined cycle generating facility in the Borough of Ringwood, New Jersey and sell 100 Mw of capacity and associated energy to the Company. In July 1992, the State Line Agreement was terminated by the Company for, among others things, State Line's failure to make a required milestone payment pursuant to specified contract terms. On August 3, 1992, State Line filed suit against the Company in the United States District Court for the Southern District of New York claiming that the Company had wrongfully terminated the State Line Agreement. On January 7, 1994, State Line and the Company settled all litigation relating to the State Line Agreement. Information regarding the settlement of the State Line litigation is contained under Item 3, "Legal Proceedings" of this Form 10-K Annual Report, as well as in the 1993 Annual Report to Shareholders in Note 12 of the Notes to Consolidated Financial Statements under the caption "Legal Proceedings" on page 34, which information is incorporated by reference in this Form 10-K Annual Report. In addition to the Wallkill Agreement, future increments of purchased capacity and energy have been contracted from investor owned utilities and the NYPA as previously described under the caption "Generating Capacity and Purchased Power" in this Item 1. In addition, the Company has contracted to purchase approximately 90 Mw of capacity and associated energy from various Public Utility Regulatory Policies Act ("PURPA") Qualifying Facilities. These contracts include a contract between the Company and Harriman Energy Partners, Ltd., ("Harriman Energy") a limited partnership, the general partner of which is Destec Holdings, Inc. (formerly PSE, Inc.). This contract provides for the construction of a project that upon commercial operation, which Harriman Energy has reported to be in late 1996, would provide the Company with approximately 57 Mw of capacity and associated energy for a period of 25 years. Although this contract has been approved by the NYPSC and the New Jersey Board of Regulatory Commissioners ("NJBRC"), the Company is seeking a NYPSC order that would revise the purchase price downward to reflect current costs of alternative supplies. Construction has not been commenced on either the Wallkill Generating or Harriman Energy projects and the Company cannot predict whether either of these projects will be constructed. If either or both of these projects are not constructed, other economic sources of capacity and energy should be available to the Company. 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 34 of the 1993 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, 1993, the gas distribution system included 1,685 miles of mains. The highest historical maximum daily gas send out of 200,396 Mcf occurred on January 19, 1994. Additional statistics regarding gas operations are contained under the caption "Operating Statistics - Gas" on page 39 of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Supply, Transportation and Storage. On April 8, 1992, the FERC issued Order No. 636 which required significant changes to the structure of the natural gas industry. Specifically, gas pipeline companies, which previously had provided gas supply, transportation and gas storage services to local gas distribution companies such as the Company, were required to unbundle their services, and provide transportation services only. As a result of Order No. 636, the Company is responsible for the acquisition of gas supply directly from gas production companies and gas marketers. The Company was well-positioned to comply with the changes in the gas industry which resulted from Order No. 636 by virtue of its geographic location, high load factor and extensive gas procurement experience. Four major pipeline company facilities are located within the Company's service territory, and the gas supply into the territory is enhanced by an additional pipeline interconnection with a fifth Company. These interconnections provide the Company with access to interruptible spot market supply and the ability to pursue least-cost supply options to serve the Company's market area. In addition, the Company has been contracting for gas supply from producers and marketers for several years and has made extensive use of the gas spot market. As a result, the Company has negotiated a gas supply portfolio which is diverse as to supplier, pipeline and terms of contract. 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 32% of supply requirements and expires in the year 2002. Contracts for the remaining 68% of the Company's required gas supply have been executed with six domestic producers and have expiration dates ranging between 1994 and 2004. 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 insure 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 has made and will continue to make direct spot purchases from producers at competitive prices to lower its average gas cost and to secure increments of additional supply. During 1993, the Company made spot purchases of approximately 14.1 million Mcf of gas or 33% of the total gas supply. In addition to 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 and projected new customers through the year 1998. Additional increments of new supply beyond this point are being 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 Corporation ("Algonquin") and Texas Eastern Transmission Corporation ("Texas Eastern"). The earliest expiration date of any of these contracts is in the year 1999. The Company also has entered into interruptible transportation agreements with the same pipeline companies and has the ability to make use of the spot transportation market. 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, Texas Eastern and Penn-York Energy Corporation ("Penn-York"). The Tennessee, Columbia and Texas Eastern agreements include a provision for the transportation of the gas held in storage by these companies, and separate agreements with Tennessee and Columbia provide for firm transportation services for gas held in storage by Penn-York. The earliest expiration date of any of these storage contracts is 1995 and all storage contracts contain options for renewal. During 1993 the Company elected to secure capacity in an innovative gas storage project operated by Avoca Natural Gas Storage. The storage facility, which uses leached-out caverns in underground salt beds to create a storage reservoir, is designed for fast withdrawal and refill capacity and will enhance the Company's ability to meet incremental peak day gas requirements. Columbia, which provides the Company with both transportation and gas storage services, filed for protection under Chapter 11 of the bankruptcy code during 1991. This action has not affected Columbia's ability to provide services under existing contracts while bankruptcy proceedings are in progress. As noted earlier, the Company's maximum daily send out of gas occurred during 1994 and amounted to 200,396 Mcf. This compares to the maximum daily gas delivery capacity of the Company's system of 225,227 Mcf which is available from the following sources: direct purchases - 117,978 Mcf; storage withdrawals - 76,649 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 33 of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. Transportation for Others. The Company, through the provisions of FERC Order No. 436 concerning the transportation of natural gas, provides gas transportation services for end users in the Company's service territory who elect to obtain their own direct gas supplies. During 1993, approximately 5.9 million Mcf of gas were transported for such end users. 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 regarding the pass-through of certain "take-or- pay" costs by gas suppliers, the Company has deferred approximately $3.7 million of gas surcharges through December 31, 1993. In addition, certain costs incurred by the gas pipeline companies in complying with Order 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 636 transition costs will amount to $23 million. It is anticipated that transition costs incurred by the Company will be recoverable in gas rates to the extent such costs were prudently incurred. Information regarding take-or-pay charges and FERC Order 636 transition costs 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 17 and 33, respectively, of the 1993 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. Diversified Activities Both the Company and RECO have certain non-utility subsidiaries which engage in the following diversified, non-regulated business activities: gas marketing, radio broadcasting, real estate development and oil and gas production. The Company's Consolidated Financial Statements, which are incorporated in this Form 10-K Annual Report by reference to the Company's 1993 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 revenue. 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 considered to be 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 losses, profits, 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"). SRH, a wholly owned subsidiary of RECO, was established for the purpose of investing in non-utility business ventures and, through subsidiaries, is currently engaged in natural gas marketing and radio broadcasting. Gas marketing activities are conducted through a subsidiary, O&R Energy, Inc., which provides natural gas to industrial, commercial and institutional end users, gas distribution companies and electric generating facilities in 38 states. A subsidiary of O&R Energy, Inc., Millbrook Holdings, Inc., holds approximately twelve acres of non-utility real estate in Morris County, New Jersey. Broadcasting activities are conducted through Atlantic Morris Broadcasting, Inc., a subsidiary of SRH which owns radio stations WKTU (FM) in Ocean City, New Jersey, WABT (FM) in Dundee, Illinois, WALL (AM) and WKOJ (FM) in Middletown, New York and WCSO (FM) and WLPZ (AM) in Portland, Maine. O&R Development, Inc. ("ORD"). 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 lineal feet of street and utilities have been installed, and two buildings totaling over 200,000 square feet have been completed and fully leased. Due to the current depressed condition of the real estate industry, further construction at the Orange County site has been suspended and emphasis is placed on marketing of available properties. Clove Development Corporation ("Clove"). Clove, a wholly owned subsidiary of the Company, holds approximately 5,500 acres of non-utility 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 which are not required for the Company's utility operations. 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 eight lots having been sold through 1993. O&R Energy Development, Inc. ("ORED"). ORED, a wholly owned subsidiary of the Company, is engaged in oil and gas production. Production activities are carried on through ownership interests in producing wells in Texas, Mississippi, Ohio and Pennsylvania. At December 31, 1993, ORED's net investment in producing properties was $558,000. Additional information regarding the non-utility subsidiaries of the Company and of RECO is contained in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Diversified Activities", and in Note 1 of the Notes to Consolidated Financial Statements under the caption "Principles of Consolidation" and Note 13 - "Segments of Business", on pages 18, 25 and 36 respectively, of the 1993 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Construction Program and Financing Construction Program. The construction expenditures, excluding allowance for funds used during construction ("AFDC"), of the Company and its utility subsidiaries for the period 1994 through 1998 are presently estimated at approximately $377.2 million, as set forth in the table below. 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, construction delays, the level of internally generated funds and other modifications to the construction program. Forecasted Construction Expenditures (000's) 1994 1995 1996 1997 1998 Electric Production $18,675 $24,240 $20,980 $20,230 $24,740 Electric Transmission and Substation 12,085 12,400 14,545 8,605 6,845 Electric Distribution 20,050 21,535 21,825 21,965 23,695 Gas Plant 14,455 14,050 14,735 16,345 12,655 General Plant 6,060 6,860 6,075 6,150 7,385 Total Construction $71,325 $79,085 $78,160 $73,295 $75,320 The Company's forecasted construction expenditures for the five year period 1994 through 1998 consist primarily of routine production, transmission and distribution projects for capital replacements or system betterments and do not include any additions to generating capacity. The 1994, 1995 and 1996 forecasts do, however, contain forecasted environmental protection expenditures of $8.2 million, $12.0 million and $6.0 million, respectively, which will be required in order to comply with regulations regarding reductions in nitrogen oxide emissions resulting from the Clean Air Act Amendments of 1990. 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 18 and 33, respectively, of the 1993 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 the proceeds of long-term debt and equity offerings. At December 31, 1993, the Company and its utility subsidiaries had unsecured bank lines of credit totaling $59 million. Commercial paper borrowings, which are supported by such credit lines, amounted to $45.0 million at year end. Additional information regarding the Company's short-term debt position 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 8 of the Notes to Consolidated Financial Statements - "Cash and Short-Term Debt" on pages 18 and 30, respectively, of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. The external financing activities of the Company and its utility subsidiaries during 1993 were limited to refinancing of certain series of first mortgage bonds by the Company and RECO. During the first quarter of 1993, the Company sold, at face value, $20 million of 6.14% Debentures due 2000 (Series C) and $35 million of 6.56% Debentures due 2003 (Series D), (together the "Debentures"). The net proceeds to the Company from the sale of the Debentures, together with cash provided by the Company were used to refund, on April 3, 1993, an aggregate of $58 million principal amount of the Company's First Mortgage Bonds outstanding. The principal amount and series of First Mortgage Bonds refunded were: $21 million of 7 1/2% Bonds, Series K due 2001; $12 million of 8% Bonds, Series L due 2001 and $25 million of 8 1/8% Bonds, Series M due 2003. In addition, on March 10, 1993, RECO sold $20 million of First Mortgage 6% Bonds, Series I due 2000 ("Series I Bonds"). The Series I Bonds were sold at a discount to yield 6.11% to the public. The net proceeds to RECO from the sale of the Series I Bonds were used to pay the principal and redemption premium on an aggregate of $16,017,000 of RECO's First Mortgage Bonds outstanding and for other corporate purposes. The principal amount and series of First Mortgage Bonds which were refunded on March 27, 1993 were: $5,000,000 of 9 1/8% Bonds, Series D due 2000; $6,000,000 of 7 7/8% Bonds, Series E due 2001; $3,680,000 of 8.95% Bonds, Series F due 2004 and $1,337,000 of 10% Bonds, Series G due 1997. It is currently expected that the Company's capital requirements will be met primarily with funds from operations. The Company does, however, anticipate that it may issue debentures during 1995, the amount, timing and terms of which would be determined by market conditions at the time of issuance. The proceeds of such debt issuance would be used to refinance the Company's First Mortgage Bonds, Series H, which mature during 1995 and to reduce short term debt. With regard to equity issues, from mid 1988 through the end of 1992 the common stock requirements under the Company's Dividend Reinvestment and Stock Purchase Plan ("DRP") and Employee Stock Purchase and Dividend Reinvestment Plan ("ESPP") were satisfied with original issue shares which provided approximately $28.6 million of equity capital. Effective January 1, 1993, common shares acquired under the DRP and ESPP have been purchased on the open market. The Company, however, retains the option of satisfying plan requirements with original issue shares, has registered common stock available for that purpose and is currently evaluating a return to the original issue option. Additional information regarding the Company's financing activities 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 18 and 29, respectively, of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. 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. The non-utility long-term notes outstanding are borrowings made pursuant to several loan arrangements. At December 31, 1993, SRH and its subsidiaries had outstanding loans aggregating $2.9 million, the proceeds of which were used to make investments in broadcasting properties, and ORD had an intermediate term mortgage outstanding which amounted to $5.4 million. In addition, a subsidiary of SRH had an available line of credit and standby letters of credit which together amounted to $15 million under which there were $1.2 million of borrowings at December 31, 1993. Non-utility temporary cash investments amounted to $1,440,000 at December 31, 1993. 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. Information regarding certain financial statistics of the Company is contained under the caption "Financial Statistics" on page 40 of the 1993 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: Duff and Phelps Moody's Standard Credit Fitch Investors & Poor's Rating Investors Service,Inc. Corporation Company Service,Inc. First Mortgage Bonds A2 A+ A+ AA- Unsecured Debt A3 A+ A AA- Preferred Stock a2 A A- AA- Commercial Paper P-1 A-1 D-1 F-1+ The Company's credit ratings are not fixed, but rather 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 a high credit rating, its preferred stock has a medium credit rating and its commercial paper has a high credit rating. Regulatory Matters 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 energy sales. RECO is subject to the jurisdiction of the NJBRC, which covers approximately 21% of consolidated energy sales. Pike is subject to the jurisdiction of the Pennsylvania Public Utility Commission (the "PAPUC") which covers approximately 1% of consolidated energy sales. Sales for resale, which are subject to regulation by the FERC, account for the remaining 1% of consolidated 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, which are described under the caption "Events Affecting the Company" in this Item 1, 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 19 of the 1993 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. Information regarding NYPSC proceedings dealing with certain "take-or-pay" gas contract costs is also contained under Item 3, "Legal Proceedings" of this Form 10-K Annual Report, and in the 1993 Annual Report to Shareholders in the "Review of the Company's Results of Operations and Financial Condition" under the caption "Gas Energy Costs" beginning on page 17 and in Note 12 of the Notes to Consolidated Financial Statements under the caption "Gas Supply and Storage Contracts" on page 33, which information is incorporated by reference in this Form 10-K Annual Report. Rate Relief. During the past five years, the Company and its utility subsidiaries have sought rate relief to cover the impact of increased costs. The amounts of rate relief approved by the NYPSC, NJBRC and PAPUC are set forth in the following table. Historical Rate Relief 1989 - 1993 Annual Amount Overall Rate Return on Class of ($000's) of Return Equity Service Effective Date Requested Granted Granted (%) Granted (%) No Activity 1989 - - - - Electric - N.Y. 01/01/90 (a) 6,800 - - Gas - Pa. 06/16/90 100 55 (b) (b) Electric - Pa. 10/01/90 210 105 (b) (b) Gas - N.Y. 12/01/90 (c) 2,500 (c) (c) Electric - N.Y. 01/01/91 22,483 10,450 (d) (d) Gas - N.Y. 12/29/91 3,570 554 9.42 10.3 Electric - N.J. 01/24/92 12,863 5,100 10.17 12.0 Electric - N.Y. 05/01/92 (e) 7,417 (e) (e) Gas - N.Y. 12/15/92 7,962 3,776 (f) (f) Electric - N.J. 01/01/93 (g) 1,685 (g) (g) Electric - N.Y. 05/08/93 (h) 11,308 (h) (h) Electric - Pa. 06/11/93 498 270 (i) (i) Gas - Pa. 06/25/93 36 12 (i) (i) (a) Recovery of DSM costs pursuant to a cost recovery mechanism, Least Cost Annual Power Supply ("LCAPS"), as approved by the NYPSC. Beginning in January 1991, DSM cost recovery is accomplished through the RDM procedures as approved by the NYPSC in Case 89-E-175. (b) No redetermination of the rate of return on common equity was made under a stipulated agreement. The implied return on common equity is 12.50%, and the implied overall rate of return is 10.33%. (c) A third stage filing made pursuant to the NYPSC Order in the Company's 1988 gas base rate case provided for the recovery of wages, employee welfare expenses, property taxes, inflation on non-fuel operation and maintenance expenses and gas rate base additions. (d) The Company was provided with an opportunity to earn a return on common equity of 12.51% through the achievement of incentives related to certain DSM and customer service goals. (e) 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 of inflation on non-fuel operation and maintenance expenses, rate base additions and cost of capital. In addition, the Company was permitted to recover a net under collection resulting from the reconciliation of revenue and expenses as provided in the 1989 Order. (f) 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. (g) Rate increase as ordered by the NJBRC to reflect the effect of revised legislation regarding gross receipts and franchise taxes. Rate recovery with interest is permitted over a ten year period. (h) 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. In addition, the Company was permitted to recover a net under collection resulting from the reconciliation of revenue and expenses as provided in the 1989 Order. (i) 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%. Information regarding possible rate impacts of certain events described under the caption "Events Affecting the Company" in this Item 1 is contained in Item 3, "Legal Proceedings", of this Form 10-K Annual Report. Utility Industry Risk Factors The electric and gas utility industry is exposed to risks relating to increases in fuel costs, numerous regulatory and environmental restrictions, delays in obtaining adequate rate relief, increases in the costs of construction and construction delays, the effects of energy conservation, the effect of weather-related sales and revenue fluctuations and meeting the growth of energy sales. The Company and its utility subsidiaries are, to some extent, experiencing all of these challenges. However, the impact on the Company and its utility subsidiaries has been less than for the utility industry in general, principally due to the Company's relatively low construction expenditures, low external financing requirements, and, in particular, due to rate procedures in effect for the Company's New York electric and gas operations. Under an electric rate mechanism, the Revenue Decoupling Mechanism ("RDM"), the cost of conservation programs is recoverable on a current basis and, because of the decoupling of sales volume fluctuations from revenues, any decrease in earnings which would otherwise result from customer conservation is also recoverable. This decoupling of sales level fluctuations from revenue, although reconciled in subsequent periods, also mitigates the risk of loss of earnings due to abnormal weather conditions. In addition, the NYPSC has approved certain incentives in the form of an increased return on equity based on the achievement of goals related to the Company's DSM programs. Capacity costs associated with purchased power are recoverable under the RDM. Pursuant to an Order of the NYPSC dated October 4, 1993, the RDM has been extended until June 30, 1994. Information regarding such October 4, 1993 Order and its effect is contained in Item 3, "Legal Proceedings" of this Form 10-K Annual Report. Under the provisions of the gas rate settlement agreement which was approved by the NYPSC on September 30, 1992, the Company's New York gas revenue became subject to a weather adjustment clause which, as in the case of New York electric revenue, mitigates the effect of variations in weather conditions on gas revenue and earnings. With regard to future power supply, the Company will utilize competitive bidding to mitigate the risks associated with the Company's purchase of both electric energy and capacity, particularly with regard to prudency determinations and cost recovery. Additional information concerning the DSM program, the RDM rate procedure and the gas weather adjustment clause is contained under the captions "Electric Operating Revenues and Sales", "Gas Operating Revenues and Sales" and "Rate Activities" in the "Review of the Company's Results of Operations and Financial Condition" on pages 15, 17 and 19, respectively, of the 1993 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. 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 cancelled Sterling Nuclear Project, see Note 3 of the Notes to Consolidated Financial Statements - "Sterling Nuclear Project" on page 27 of the 1993 Annual Report to Shareholders, which information is incorporated by reference in this Form 10-K Annual Report. Competition 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 recent years, changing laws and governmental regulation, combined with a growing interest in self-generation and an increase in nonregulated energy suppliers has served to intensify the level of competition experienced by regulated utilities. The National Energy Policy Act of 1992 ("Energy Policy Act") is expected to bring major changes to the electric utility industry, including increased competition from a new category of wholesale electric generators which are exempt from the Public Utility Holding Company Act of 1935. The Energy Policy Act also empowers the FERC to require utilities, under certain circumstances, to provide open access to electric wholesalers for use of the utility's transmission systems. With regard to the natural gas industry, FERC Order 636 will increase competition by assuring that equitable access to interstate pipeline capacity is provided to local distribution companies and end- users. The Company recognizes the changes in the regulated utility environment and is committed to remain competitive in its core business. The Company's five year strategic plan has put forth as a corporate objective the achievement of a competitive edge by providing the most economical and effective energy service to customers. Such competitive factors are not expected to have a material effect on either the Company or its utility subsidiaries for the foreseeable future. Marketing The primary focus of the Company's marketing efforts is the efficient use of energy by the Company's residential, commercial and industrial customers. Existing programs being marketed include all state approved DSM programs, as well as all other energy conservation programs. With regard to economic development incentive mechanisms, the Company's marketing program promotes the NYPSC approved competitive gas pricing rates which are aimed at maintaining duel fuel and interruptible gas customers. In New Jersey, marketing efforts include promotion of the NJBRC Job Development Rates which offer discounts to customers who expand their operations or who locate to vacant buildings in the RECO service territory. 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. On May 18, 1992, the Company applied to the State of New York Department of Environmental Conservation (the "NYDEC") for the renewal of its SPDES Permit for the Lovett Coal Ash Management Facility. The existing permit expired on December 1, 1992, but remains in effect until issuance of a new permit. The Company also has a SPDES Permit, effective October 1, 1991 for its Lovett generating station. Additional information concerning the Lovett SPDES Permit is contained in Item 3, "Legal Proceedings" of this Form 10-K Annual Report. 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 process as part of the permit renewal procedure. The Company entered into a settlement with the United States Environmental Protection Agency (the "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 NYDEC 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. The Consent Order was due to expire on September 1, 1993. On August 5, 1993, the parties executed the First Amended Consent Order which extends the agreement through September 1, 1994. Air Quality. Under the Federal 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 NYDEC 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 NYDEC has proposed to revise the SIP to meet ozone attainment standards and to provide a mechanism for Title V emissions fee billing. Under the proposed fee revision, beginning in 1994, Title V sources which include the Company's Lovett Plant and Bowline Point Plant will be required to pay an emission fee based upon actual air emissions reported to NYDEC at a rate of approximately $25 per ton of air emissions. The effect of the proposed revision, based on 1992 emissions would have been approximately $450,000. The Clean Air Act Amendments of 1990, which became law on November 15, 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. Regulations pertaining to nitrogen oxide reduction and continuous emissions monitoring systems will require increased capital expenditures totaling approximately $26.2 million during 1994 through 1996 as follows: $8.2 million in 1994, $12.0 million in 1995 and $6.0 million in 1996. 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. The NYPSC has commenced a proceeding to consider the implications of compliance with the Clean Air Act Amendments of 1990 by electric utilities in New York State. 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 ("PCB's"), 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. However, based on the information and relevant circumstances known to the Company at this time, the Company's share of these costs is not expected to be material. 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 estimates that expenditures attributable, in whole or in substantial part, to environmental considerations totaled $13.7 million in 1993. 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 financial impact on 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 "Construction Program" and "Environmental" on pages 33 and 35 of the 1993 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 $5.0 million in 1993, $3.7 million in 1992, and $3.4 million in 1991. 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 safe and reliable electric and gas service to customers at a minimum price and in an environmentally acceptable manner. The program includes projects which seek improvement of generation and distribution systems, mitigation of environmental impacts of electric power generation, and advancement in customer utilization and conservation. Current projects include a demonstration of a process to beneficiate coal combustion fly ash for use in the construction industry, the development of a new technique for locating faults in underground cables, and the development of a methodology for measuring the impact of commercial and industrial demand- side management programs. Franchises The Company's municipal consents or franchises, together with its corporate or charter powers, give it the right to carry on its operations in the territory served. The municipal consents or franchises held by the Company are not exclusive. In certain municipalities, the area served by the Company is limited either by the terms of the consents or franchises or by order of the NYPSC. Under the present provisions of the Public Service Law of the State of New York, no other private corporation can commence public utility operations in any part of the territory now served by the Company without obtaining a certificate of public convenience and necessity from the NYPSC. Such certificate would not be required with respect to a municipality furnishing electric or gas service under the provisions of the General Municipal Law of the State of New York. Municipal corporations, upon compliance with the provisions of the General Municipal Law, are authorized to acquire the public utility service of any public utility company by purchase or by condemnation. The municipal consents or franchises of the Company 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. In connection with the construction and maintenance of its electric transmission lines, the Company has specific franchises for transmission lines constructed outside its electric service territory and is authorized under its general consents or franchises to construct and maintain its transmission lines where constructed in its electric service territory. The Company's gas franchises authorize the construction and maintenance of its gas mains. Employee Relations At December 31, 1993, the Company had 1,721 employees of whom 27 were part-time employees. The current contract with Local 503 of the International Brotherhood of Electrical Workers ("IBEW") representing 977 production, maintenance, commercial and service employees of the Company became effective June 1, 1991 and expires June 1, 1994. 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 NJBRC 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, 1993, had 147 full-time and 51 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. These properties are 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 1993 Swinging Bridge, 8 Mongaup & Rio Hydroelectric 25.8 2.5% 60,437 Grahamsville 1 Hydroelectric 18.0 1.8 103,941 Hillburn 1 Jet Fuel/Gas 37.0 3.6 2,509 Shoemaker 1 Jet Fuel/Gas 37.0 3.6 5,048 Lovett 5 Coal/Oil/Gas 501.7 49.2 1,869,967 Bowline Point 2 Oil/Gas 400.6(1) 39.3 850,930 1,020.1 100.0% 2,892,832 (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 512 miles of transmission lines, 67 substations, 67,683 in-service line transformers and 4,891 miles of distribution lines. 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. 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 1,685 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. Substantially all of the utility plant and other physical property owned by the Company and its utility subsidiaries are 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 Investigation and Related Litigation: On August 16, 1993, Linda Winikow, then a Vice President of the Company, was arrested by the Rockland County (New York) District Attorney (the "District Attorney") and charged with grand larceny, commercial bribery and making campaign contributions under a false name. In essence, the District Attorney alleged that Ms. Winikow (1) had been coercing or inducing certain vendors of goods or services to the Company to make contributions to political candidates or causes, while arranging for some of those contributions to be, in effect, reimbursed by means of false or inflated invoices paid by the Company, and (2) had used advertising contracts to try to influence news reports about the Company. Two other former employees who reported to Ms. Winikow were charged with grand larceny. Ms. Winikow was immediately placed on leave of absence by the Company. The District Attorney also announced that he would commence an investigation of the Company and the Company announced that it would undertake its own investigation into the matters cited by the District Attorney. On August 26, 1993, the Board of Directors terminated Ms. Winikow's employment. On the same day, the Company filed Orange and Rockland Utilities, Inc. v. Winikow in the United States District Court, Southern District of New York, against Ms. Winikow, three other former Company employees and two vendors. In its suit, filed under the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), the Company alleges that the defendants had engaged in a conspiracy to divert monies from the Company through the submission of false and fraudulent invoices totaling approximately $155,000 in order to pay personal expenses of and/or to provide personal services to the defendants. In addition, the Company alleges that the defendants made various contributions to political candidates consisting of money and services diverted from the Company. Accordingly, the Company seeks treble damages as called for by the RICO statute, punitive damages, attorney's fees, interest and court costs. On October 5, 1993, the independent Directors determined to terminate for cause the employment of James F. Smith as Chief Executive Officer of the Company and to remove him as Chairman of the Board. On October 7, 1993, notice of such termination was delivered to Mr. Smith and he was suspended from all duties effective immediately. On the same day, the Board of Directors appointed Victor J. Blanchet, Jr. to serve as Acting Chief Executive Officer. Mr. Smith had certain rights under his employment agreement with the Company to take corrective action with respect to his termination for cause which lapsed, without such action being taken, on December 6, 1993. Mr. Smith also has the right to contest his termination for cause in an arbitration proceeding. On February 7, 1994, the Company commenced Orange and Rockland Utilities, Inc. v. James F. Smith, in New York State Supreme Court by the filing of a Summons with Notice. The Summons put Mr. Smith on notice of claims for breach of his fiduciary duties of loyalty and care, waste, conversion, fraud, and unjust enrichment based on allegations that Mr. Smith misused Company assets and personnel and misappropriated Company funds for his own benefit or for other improper purposes, and failed to maintain proper management controls or to properly supervise corporate affairs and subordinate employees. The Company seeks an accounting by Mr. Smith of certain Company funds and property, restitution of all amounts misappropriated, misused, or unaccounted for, forfeiture of compensation paid or awarded by the Company to Mr. Smith during the period in which breaches of fiduciary duties occurred, and compensatory and punitive damages. The Company seeks recovery in an amount not less than $5,000,000. On February 25, 1994, Mr. Smith served a Notice of Appearance upon the Company, which required the Company to file a complaint in the action no later than March 17, 1994. The Company served a complaint in this action on March 16, 1994. Unless otherwise extended, Mr. Smith's answer will be due 20 days after the complaint was served. The complaint alleges, among-other-things, that (i) Mr. Smith intentionally misappropriated and converted Company funds, assets and services to his own use by causing the Company to pay, through the submission of false and inaccurate expense reports, for personal expenses associated with his travel, entertainment, purchases of merchandise, use of Company vendors and use of the Company's conference center facilities; (ii) Mr. Smith engaged in a pattern of excessive and extravagant expenditures of Company funds in connection with purported business travel, entertainment and Company-sponsored events that had no legitimate business purpose or conferred little or no benefit to the Company's business, and constituted waste of corporate assets; and (iii) Mr. Smith failed to institute and maintain adequate internal controls, and knowingly permitted, induced and authorized the personal use of Company funds, assets and services by other Company officers. On October 6, 1993, Ms. Winikow pleaded guilty in the Supreme Court of the State of New York, County of Rockland, to grand larceny (a class D felony), commercial bribery (a class A misdemeanor), and making a campaign contribution under a false name (an unclassified misdemeanor) and, on November 10, 1993, the two former employees pleaded guilty to grand larceny (a class D felony). In pleading guilty to the felony count, Ms. Winikow stated she had been acting on behalf of the Company. The presiding judge informed Ms. Winikow that her sentence would be based on her assistance to the prosecution in its investigation. Ms. Winikow's sentencing on these pleas is currently scheduled for April 7, 1994. On March 22, 1994, a Rockland County Grand Jury indictment was returned charging Mr. Smith with eight felony counts of grand larceny and two misdemeanor counts of petit larceny. According to the press release issued by the Rockland County District Attorney on March 22, 1994, the ten count indictment charges Mr. Smith with stealing from the Company by charging personal expenses to the Company, including (i) approximately $7,300 to rent four vans and a panel truck that were used by Mr. Smith's son's film production company, including approximately $780 worth of parking summonses issued to the rental van and a Company car that was being used by Mr. Smith's son; (ii) approximately $3,037 in moving costs to have Mr. Smith's daughter's belongings moved to Westchester County on two separate occasions and to have other belongings moved to Mr. Smith's summer home in Kennebunkport, Maine; (iii) approximately $4,600 for assorted graphic printing, consisting of engagement invitations for both of his children, a hand-colored wedding program for his daughter, as well as printed directions to his Kennebunkport, Maine summer home; (iv) approximately $7,000 for holidays baskets for Mr. Smith's family members, friends and his Maine Realtor; (v) approximately $1,100 for assorted holiday plants delivered to Mr. Smith's home; (vi) approximately $1,760 to have Mr. Smith's home cleaned following a boiler replacement; (vii) approximately $1,098 for printed materials associated with Mr. Smith's wife's election campaign for village trustee (which Mr. Smith subsequently repaid to the Company after Ms. Winikow's arrest); (viii) approximately $2,000 for a surprise 50th birthday party for Mr. Smith's wife at the Company's conference center facilities; (ix) approximately $300 worth of auto repairs made to Mr. Smith's son-in-law's automobile; and (x) approximately $600 worth of watches given by Mr. Smith to his children and their spouses. Mr. Smith was arraigned in Rockland County Supreme Court on March 22, 1994, and entered a plea of not guilty. On November 3, 1993, the Company and the District Attorney executed a Joint Cooperation Agreement (the "Joint Cooperation Agreement"). As part of the Joint Cooperation Agreement, the District Attorney confirmed that, in light of the Company's cooperation, as reflected by its undertakings in the Joint Cooperation Agreement, and in light of the clear demonstration by the Company's Board of Directors of its determination to uncover all past improper activities of the types being investigated by the District Attorney and the NYPSC, no criminal charge of any kind will be filed by the District Attorney against the Company or any of its affiliates or subsidiaries in connection with the District Attorney's investigation. For its part, pursuant to the Joint Cooperation Agreement the Company has agreed to cooperate fully and completely with the District Attorney by undertaking to: (1) permit the District Attorney complete access to any Company documents, records or files relating to the District Attorney's investigation; (2) permit full access to all evidence and analyses collected and/or prepared by the attorneys hired by the Company's Board of Directors (the "Board's attorneys") in connection with its independent investigation of the misuse of Company assets; (3) provide the District Attorney with information uncovered by the Company separately from the Board of Directors' independent investigation of criminal conduct of any sort on the part of the Company's officers and employees; (4) provide the District Attorney with direct contact with the independent accountants currently involved in reviewing a certain Company account and furnish the District Attorney with a copy of the final report of such accountants regarding such account; (5) authorize the Board's attorneys to satisfy any request of the District Attorney for further investigation of matters related to the independent investigation, and to charge the costs of satisfying such requests (along with the cost of the independent investigation) to the Company's shareholders and not to its ratepayers; and (6) continue the Company's cooperation with the NYPSC, and cooperate on the same terms with other public agencies having jurisdiction over the Company's activities. In addition, the Company agreed to accept and implement the following remedial actions: (1) to refund to ratepayers, in a manner to be determined by the NYPSC and satisfactory to the District Attorney, all Company funds ascertained to have been misappropriated or found to have been improperly charged to ratepayers by Company officers and employees as determined by the independent investigation, by the District Attorney, or by the NYPSC, whichever is greater. Additionally, the Company agreed not to seek recovery from ratepayers of any of the outstanding direct or indirect costs of the investigations related to these matters; (2) to require that all Company expenditures be subject to proper internal accounting controls; (3) to prohibit the giving or receipt of gifts by Company officers or employees except as permitted by law and applicable corporate policies; (4) to discontinue for five years all political contributions or in kind service and the activities of all Political Action Committees associated with the Company; and (5) to establish, independent from the Company, the position of "Inspector General", for a period of seven years, to be assigned the authority and resources necessary, including staff, to investigate and report on improper or unethical conduct by Company officers or employees, the cost of such Inspector General to be borne by the shareholders of the Company and not by its ratepayers. The Joint Cooperation Agreement provides that the duration of the Inspector General's appointment may be modified by the parties as the circumstances may warrant. The Joint Cooperation Agreement is also discussed under the caption "Events Affecting the Company" in the "Review of the Company's Results of Operations and Financial Condition" on page 15 of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. On January 29, 1993, the Company filed an electric rate increase application with the NYPSC (Case 93-E-0082) requesting a $17.1 million (4.8%) annual increase in electric revenues to be effective January 1, 1994. Following Ms. Winikow's arrest and the commencement of the District Attorney's investigation, on August 26, 1993, the New York State Department of Law ("DOL") filed a motion (the "DOL Motion") with the NYPSC requesting that the NYPSC declare the Company's present electric and gas rates temporary to the extent necessary to assure refunds to ratepayers of any monies improperly collected from them. The DOL Motion would subject to refund any inappropriate expenditures which were collected in rates pursuant to the Company's previous electric (Case 89-E-175) and gas (Case 92-G-0050) rate cases. On August 31, 1993, the NYPSC Staff filed a similar motion (the "NYPSC Staff Motion") requesting that the Company's present electric rates remain temporary pending the conclusion of the NYPSC Staff's review of the Company's financial records to determine whether the Company expended funds for inappropriate purposes. The NYPSC Staff Motion also requested the NYPSC not to implement any increase in electric rates requested by the Company in Case 93-E-0082 until the NYPSC Staff's investigation is completed. Prior to the filing of the DOL and NYPSC Staff Motions, the Company announced that it would refund to ratepayers any charges related to illegal expenditures. The Company will also adjust its request for rate relief in Case 93-E-0082 to delete any such inappropriate expenditures. Citing these commitments and the fact that the amount associated with the wrongful acts committed by Ms. Winikow appears to be a small fraction of the rate relief sought by the Company, on September 7, 1993, the Company filed a response to the DOL and NYPSC Staff Motions opposing the extraordinary relief requested in both these Motions. On October 4, 1993, in response to the DOL and NYPSC Staff Motions, the NYPSC issued an Order stating that the Company's current electric rate case (Case 93-E-0082) would be terminated unless the Company agreed to an extension of the rate cases's statutory suspension period to and including June 30, 1994, and to (1) a two month rate reduction of $115,000 per month in November and December 1993 (the Company voluntarily extended this temporary rate reduction for a third month, through January 1994, bringing the total amount refunded to New York ratepayers to $345,000), (2) make $3 million of its existing annual revenues ($2.25 million of electric revenues and $.75 million of gas revenues) temporary and subject to refund, (3) continue to cooperate fully and in a timely fashion with the NYPSC Staff's investigation, (4) pre-file with the NYPSC a complete and detailed analysis of the results of the Company's own internal investigation, (5) agree that further hearings are appropriate for evaluation of the Company's analysis and evidence, as well as those of other parties, including the NYPSC Staff, (6) continue existing ratemaking mechanisms for the duration of the further suspension period, including the revenue decoupling mechanism, demand-side management and customer service incentives, the cap on earnings and sharing mechanism, and the reconciliations/reforecasts of expenses, and (7) agree that, if by June 30, 1994 the NYPSC Staff's investigation is not completed, then temporary rates may be set. On October 14, 1993, in response to the NYPSC's October 4, 1993 Order, the Company agreed to the six-month extension of the statutory suspension period in the Company's current electric rate case and accepted the NYPSC's other conditions. On December 16, 1993, the NYPSC issued an Order accepting the six-month extension period. On December 17, 1993, the Company reported to the Administrative Law Judge presiding over Case 93-E-0082 that the Company's analysis of the results of the Special Committee's investigation will be available no later than May 31, 1994, and proposed an additional six-month extension to December 31, 1994, (the "additional six-month extension") of both the statutory suspension period and the existing electric ratemaking mechanisms. On January 19, 1994, the NYPSC Staff filed its comments to the Company's December 17 extension proposal. The NYPSC Staff argued that the proposed additional six-month extension should be subject to certain conditions, including the setting of the authorized return on common equity for 1994 at 10.6%, with earnings in excess of that amount to be passed back to ratepayers. On January 28, 1994, the Company filed a motion with the NYPSC seeking approval of the additional six-month extension or, in the alternative, to establish an expedited procedural schedule in Case 93-E-0082. The Administrative Law Judge's ruling on the Company's proposal is expected shortly. On November 3, 1993, the NJBRC commenced its periodic management audit of RECO. As a result of the events and investigations described above, the NJBRC audit includes, in addition to a standard review of operating procedures, policies and practices, a review of the posture of RECO management regarding business ethics and a determination regarding the effect of such events on RECO ratepayers. In addition, under an agreement with the NJBRC to return to customers funds misappropriated by employees, RECO refunded to New Jersey ratepayers $94,100 through reductions in the applicable fuel adjustment charges in February and March 1994. The Company has also pledged to return any other funds that are discovered to have been misappropriated. On August 18, 1993, Feiner v. Orange and Rockland Utilities, Inc., et al. ("Feiner"), a purported ratepayer class action complaint against the Company, RECO, Ms. Winikow and others, was filed in the United States District Court, Southern District of New York. The complaint names a number of "John Does" who are described as officers and directors of the Company but does not identify any current or former officer or director by name except Ms. Winikow. The Feiner complaint alleges that the defendants violated RICO and New York common law by using false and misleading testimony to obtain rate increases from the NYPSC and used funds obtained from ratepayers in furtherance of an alleged scheme to make illegal campaign contributions and other illegal payments. Plaintiffs seek damages in the amount of $900 million (which they seek to treble pursuant to the RICO statute). The Company intends to vigorously contest these claims and filed a motion to dismiss them on February 18, 1994. On August 31, 1993, Patents Management Corporation v. Orange and Rockland Utilities, Inc., et al. ("Patents Management"), a purported shareholder derivative complaint, was filed in the Supreme Court of the State of New York, County of New York, against the Company, all but one of the Directors and several other named defendants by an alleged shareholder of the Company. Plaintiff claims that the named Directors breached their fiduciary duties by condoning the alleged wrongful acts of Ms. Winikow or failing to exercise appropriate supervisory control over Ms. Winikow. Plaintiff requests that the Court require each Director to indemnify the Company against all losses sustained by the Company as a result of these alleged wrongful acts of Ms. Winikow. The defendants intend to vigorously contest these claims. On November 23, 1993, Gross v. Orange and Rockland Utilities, Inc. ("Gross"), a purported shareholder class action complaint, was filed in the United States District Court, Southern District of New York. Plaintiff alleges that various Securities and Exchange Commission filings of the Company during the period between March 2, and November 4, 1993, contained false and misleading information, and thereby violated Sections 11 and 12(2) of the Securities Act of 1933, by failing to disclose what the plaintiff alleges was a "scheme" by the Company to make illegal political payments and campaign contributions to various public officials and politicians. As a result, plaintiff claims, during such period persons who purchased the Company's stock through the Company's Dividend Reinvestment and Stock Purchase Plan did so at artificially inflated prices. The complaint seeks unspecified money damages. The Company intends to vigorously contest these claims. On January 14, 1994, at a status conference held before Judge Brieant, April 8, 1994, was set as the date by which all answers and motions must be filed in the Feiner and Gross suits. Plaintiff's attorney in Patents Management has agreed to proceed in this litigation according to the schedule set forth by Judge Brieant with regard to the Feiner and Gross suits. Thus, all answers and motions with regard to the Patents Management suit must be filed by April 8, 1994. Other Litigation: On May 11, 1993, an action was commenced against the Company by Hudson Riverkeeper Fund, Inc. ("Riverkeeper") in the United States District Court for the Southern District of New York. In its complaint, Riverkeeper alleged that the Company has violated and continues to violate its SPDES Permit for its Lovett Generating Station ("Lovett") by failing to maintain cooling water intake structures that reflect the best technology available for minimizing adverse environmental impact. In addition, the complaint alleged that the Company failed to submit a scope of work for entrainment studies required by its SPDES permit (the "entrainment studies"). The original complaint requested that the Court assess civil penalties aggregating $22 million and order the Company to take steps to insure that the cooling water intake structures at Lovett reflect the best technology available for minimizing adverse environmental impact. On May 18, 1993, Riverkeeper amended its complaint against the Company by withdrawing its entrainment studies allegation and reducing the amount of civil penalties sought to approximately $11 million. On June 30, 1993, the Company filed its answer to Riverkeeper's amended complaint. In its answer the Company denied Riverkeeper's allegations and thereafter, reflecting the Company's belief that Riverkeeper's allegations have no legal merit, on July 20, 1993 the Company filed a Motion for Summary Judgment seeking the dismissal of this action. On October 21, 1993, the Court issued a Memorandum and Order denying the Company's Motion for Summary Judgment and ruling that the New York State Department of Environmental Conservation ("DEC") should be included as a party to this action. On January 14, 1994, a conference was held before Judge Brieant during which the DEC intervened in this litigation as a designated plaintiff. Discovery is proceeding in this matter. Additional information regarding the Company's SPDES Permits is contained under the caption "Water Quality" of "Environmental Matters" in Item 1 of this Form 10-K. On January 15, 1993, the Company was served with a complaint naming the Company as one of several defendants in Warwick Administrative Group, et al. v. Avon Products, Inc. et al., which case was filed in the United States District Court for the Southern District of New York. The allegations in this case stem from an Administrative Order for Remedial Design and Remedial Action issued on February 28, 1992 by the United States Environmental Protection Agency pursuant to Superfund laws which impose liability upon entities who are identified as having contributed hazardous wastes to a particular site requiring clean-up, including generators and transporters of such wastes. The Order directs certain members of the Warwick plaintiff group to implement a plan for the clean-up of the Warwick Landfill site in Greenwood Lake, New York. The Warwick plaintiff group now alleges that some defendants, including the Company, arranged to have hazardous substances disposed of at the Warwick site and thus seek to recover from the defendants costs incurred and damages suffered in connection with the clean-up of the Warwick Landfill site. An answer to the complaint, as amended, was filed by the Company on February 23, 1993, denying all of the allegations in the amended complaint and setting forth a number of affirmative defenses. On May 3, 1993, Judge Goettel of the United States District Court, Southern District of New York, dismissed the plaintiffs' amended complaint for failure to state a claim for which relief could be granted and granted plaintiffs leave to replead. Thereafter, the plaintiffs filed a second amended complaint which was superseded by a third amended complaint served on June 3, 1993. On June 23, 1993, the Company filed an answer to the third amended complaint, denying all of the plaintiffs' allegations and setting forth a number of affirmative defenses. As it is presently unclear if any hazardous waste generated by the Company was transported to the Warwick Landfill site, and because the nature and quantities of hazardous waste sent by others to such site are undetermined, the Company is unable to determine its liability, if any, with regard to this proceeding. 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 Dep't 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. Additional information concerning Superfund laws is contained under the subheading "Environmental Matters" in Item 1 of this Form 10-K Annual Report. While it is presently unclear if any hazardous waste generated by the Company was transported to the Helen Kramer Landfill site, the total cost of remediation and damages at the site, while not clearly established, is reportedly estimated at $100 million or more, and the Company is monitoring the situation. It appears reasonable to expect the Company's relative contribution to the Helen Kramer site, if any, to have been less than 1% of the total volume sent to the site, so that the Company's exposure to liability would appear at the present time to be an amount that is not material to the financial condition of the Company. On March 16, 1988, Hatzel and Buehler, Inc. v. Orange and Rockland Utilities, Inc., a complaint brought by one of several prime contractors employed by the Company as part of the Company's Lovett Coal Reconversion Project, was filed in the United States Bankruptcy Court, Wilmington, Delaware. Plaintiff claimed that the Company improperly terminated its contract and sought damages in excess of $15 million. On October 30, 1989, the United States District Court, Wilmington, Delaware, granted the Company's motion to withdraw the case from the United States Bankruptcy Court and to have the United States District Court assume jurisdiction. On December 14, 1992, the United States District Court issued a decision and order granting the Company's Motion for Summary Judgment dismissing the plaintiff's non-contract claims and punitive damage demands. On January 25, 1994, the parties settled the remaining claims pursuant to a settlement agreement under which the Company, without any admission of liability, paid to the plaintiff the sum of $660,000 and the plaintiff delivered to the Company a release of all outstanding claims against the Company. On July 31, 1992, State Line Power Associates Limited Partnership v. Orange and Rockland Utilities, Inc., a complaint brought by a New Jersey partnership, was filed in the United States District Court, Southern District of New York. The plaintiff had contracted, pursuant to a Power Sales Agreement dated October 11, 1990 (the "Agreement"), to build a gas-fired combined cycle generating facility in Ringwood, New Jersey and sell 100 Mw of capacity and associated energy to the Company. The Company terminated the Agreement following the plaintiff's failure to meet certain deadlines and cure its related defaults under such Agreement. In its complaint the plaintiff alleged that such termination was improper. Based on this assertion, the complaint sought compensatory damages in excess of $50 million and a declaratory judgment to the effect that the Company remained obligated to purchase 100 Mw of capacity and associated energy from the plaintiff. In its answer to the complaint, the Company denied the plaintiff's allegations of wrongdoing and asserted counterclaims against the plaintiff and various other entities affiliated with the plaintiff ("Additional Counterclaim Defendants") seeking damages in excess of $1.2 million. On October 22, 1992, the Additional Counterclaim Defendants filed a motion to dismiss the counterclaims against them and the plaintiff filed its answer to the counterclaims. Thereafter, on January 26, 1993, the Company submitted a Motion for Summary Judgment requesting that the Court rule as a matter of law that the plaintiff could not prevail on any of its causes of action. The plaintiff filed its brief opposing the Company's motion on March 10, 1993. On January 7, 1994, the parties entered into a settlement agreement pursuant to which the Company, without any admission of liability, paid to the plaintiff an amount that is not material to the financial condition of the Company and the plaintiff, the Additional Counterclaim Defendants and the Company delivered to each other releases from all outstanding claims. 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 business or financial condition of the Company. Regulatory Matters: 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 17 and 33, respectively, of the 1993 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. On November 1, 1990, the FERC issued Order No. 528 which set forth new guidelines for allocating and recovering take-or-pay costs. Pursuant to Order No. 528, the Company's interstate pipeline suppliers submitted rate and tariff filings for the allocation and recovery of take-or-pay costs from the Company and other local distribution companies. Based on these rate and tariff sheets, the Company had estimated its total take-or-pay liability to be approximately $17 to $18 million. However, on June 25, 1991, one of the Company's pipeline suppliers, Tennessee Gas Pipeline Company ("Tennessee"), filed, in proceedings under Docket Nos. RP86-119 et al., what has commonly become known as the Tennessee "cosmic settlement". This settlement covered virtually every major case pending on the Tennessee system, at that time, including those cases dealing with the allocation and recovery of take-or-pay costs. The cosmic settlement was approved by the FERC on June 25, 1992. Based on the amended cosmic settlement, as it relates to Tennessee's take-or-pay charges, as well as a revised estimate regarding the anticipated level of take-or-pay billings the Company expects to receive, the Company now estimates its total take-or-pay liability at approximately $13.9 million. At present the Company is a party to an ongoing proceeding (Case 88-G-062) commenced by the NYPSC in April 1988, examining the extent to which the Company will be permitted to recover from its customers the take-or-pay costs billed to it by its pipeline suppliers. Until a final order is rendered by the NYPSC in this Case, the Company has received interim authority, effective April 1, 1989, to recover, subject to refund, 65% of the take-or-pay charges actually billed to it by its pipeline suppliers and to defer the balance, with interest, until such order is issued. Hearings in Case 88-G-062 were held in two phases. Phase I addressed the proper allocation of take-or-pay liabilities to customers and the mechanisms for recovery of these costs. The NYPSC issued its Opinion (Opinion 89-41) with regard to Phase I on December 11, 1989, holding that allocations of direct-billed take-or-pay costs are to be made among firm sales, interdepartmental, interutility and transportation customers. Phase II of Case 88-G-062 involves an examination of the prudence of the activities of New York's local distribution companies with respect to their incurrence of take-or-pay liabilities and sharing of take-or-pay costs between these local distribution companies and their customers. Hearings on Phase II issues with respect to the Company were concluded on May 21, 1990. The Company and NYPSC Staff filed initial and reply briefs on generic and Company-specific issues during the summer of 1990. In its Company-specific initial brief, NYPSC Staff proposed an imprudence disallowance that would deny rate recovery of $2 million of take-or-pay costs billed to the Company by its suppliers. In response, on August 31, 1990, the Company filed a motion to strike that portion of NYPSC Staff's brief pertaining to its proposed disallowance on the ground that it was wholly lacking in record support. While this motion was denied by Administrative Law Judge Harrison ("ALJ Harrison"), he did defer substantive judgment on the NYPSC staff's proposed $2 million imprudence disallowance and ruled that the issue of such proposed disallowance will be given consideration in his Recommended Decision on Company-specific issues. The generic aspect of Phase II of Case 88-G-062 examined NYPSC Staff's proposal (called "equitable sharing") that would deny local distribution companies, including the Company, recovery through rates of between 25% and 50% of the take-or-pay costs billed to such companies by their suppliers. On December 21, 1990, ALJ Harrison issued a Recommended Decision on generic issues rejecting NYPSC Staff's proposal calling for the equitable sharing of take-or pay costs, and recommending instead that, with the exception of costs resulting from its own imprudence, each utility be permitted to recover from its customers the take-or-pay costs billed to such utility by its pipeline suppliers. ALJ Harrison's recommendation, if adopted by the NYPSC, would be favorable to the Company in that it would limit the Company's exposure solely to NYPSC Staff's proposed $2 million imprudence disallowance which disallowance the Company believes is not supported by the record evidence. Briefs on exceptions to the Recommended Decision were submitted on January 23, 1991 and reply briefs were filed on February 15, 1991. On November 24, 1992, a settlement conference was held addressing Phase II issues affecting the Company. The Company was unable to reach a settlement with NYPSC Staff with regard to these issues at that time. On April 8, 1992, 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. Information regarding the Company's involvement in, and effect on the Company of, Order 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 18 and 33, respectively, of the 1993 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 captions "Supply, Transportation and Storage" and "Take-or-Pay Surcharge Costs and FERC Order 636 Transition Costs" of "Gas Operations" in Item 1 of this Form 10-K Annual Report. On December 30, 1992, in connection with RECO's 1991 electric rate case (Docket No. ER910303565), the NJBRC issued a Decision and Order dealing with the appropriateness of additional tax liability placed on New Jersey utilities pursuant to New Jersey's June 1, 1991 tax legislation. Pursuant to this legislation, RECO will be required to pay a combined additional amount of approximately $16 million of gross receipts and franchise taxes in 1993 and 1994. In its Decision and Order the NJBRC allowed RECO to recover this amount over a ten year period with interest on the unamortized balance at an annual rate of 7.5%. On February 26, 1993, Rate Counsel filed a Notice of Appeal from the NJBRC Decision and Order with the Superior Court of New Jersey, Appellate Division, stating as grounds for the appeal that the Decision is arbitrary and capricious and would result in unjust and unreasonable rates. On August 9, 1993, Rate Counsel filed its initial brief with regard to its appeal. Thereafter, on October 12, 1993, RECO filed its initial brief and on October 27, 1993, Rate Counsel filed its reply brief with regard to this matter. Oral argument was held on March 7, 1994, and on March 21, 1994 the Superior Court affirmed the NJBRC's December 30, 1992 Decision and Order. The Company is a party to a number of administrative proceedings involving potential impact to the environment. Such proceedings arise out of 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 35 of the 1993 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. Such proceedings are not, in the aggregate, material to the business or financial condition of the Company. 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, 1993. EXECUTIVE OFFICERS OF THE REGISTRANT All of the executive officers of the Company are appointed on an annual basis at the first Board of Directors' meeting following the annual meeting. Officers, Age, and Title Business Experience Past Five Years Victor J. Blanchet, Jr., 52 Acting Chief Executive Officer since Acting Chief Executive October 7, 1993. President and Chief Officer, President and Operating Officer since January 1991. Chief Operating Officer Executive Vice President from April 1990 until January 1991. Vice President from 1977 to April 1990. Patrick J. Chambers, Jr., 59 Senior Vice President since 1978 Senior Vice President and and Chief Financial Officer Chief Financial Officer since 1979. Robert J. Biederman, Jr., 41 Vice President since April 1990. Vice President, Transmission Director of Operations from 1986 until and Distribution April 1990. Terry L. Dittrich, 48 Acting Controller since March 17, Acting Controller 1994. Director of Accounting since April 1990. Manager of Accounting from 1985 to April 1990. Frank E. Fischer, 60 Vice President since 1978. Vice President, Engineering and Production Gerard A. Maher, 59 Assistant Secretary since April 1989. Assistant Secretary and Assistant Treasurer since April 1990. Assistant Treasurer Assistant General Counsel from April 1989 to August 1991. Partner, Nixon Hargrave, Devans & Doyle from November 1986 to March 1989. Robert J. McBennett, 51 Treasurer since 1984. Treasurer Victor A. Roque, 47 General Counsel since April 1989. Vice President, General Counsel Vice President and Secretary since and Secretary January 1987. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Common Stock of the Company is listed on the New York Stock Exchange under the ticker symbol ORU. The stock is listed in published stock tables as "OranRk". At December 31 1993, there were 24,328 holders of record of the Company's common stock, $5.00 par value. During 1993 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 1993 1 $45 7/8 $40 1/4 $.615 2 47 1/2 43 3/8 .615 3 47 1/2 44 3/8 .63 4 45 3/8 38 5/8 .63 1992 1 39 5/8 32 3/8 .60 2 37 3/4 34 .60 3 40 37 1/4 .615 4 41 7/8 39 .615 Information regarding the restriction of retained earnings for dividend payment is contained in Note 4 of the Notes to Consolidated Financial Statements - "Retained Earnings" on page 28 of the 1993 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 40 of the 1993 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 14 through 20 of the 1993 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 21 through 37 of the 1993 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 On February 10, 1994, the Executive Committee of the Board of Directors of the Company appointed the accounting firm of Arthur Andersen & Co. to audit the books, records and accounts of the Company and its subsidiaries for the 1994 fiscal year. The appointment of Arthur Andersen & Co. is subject to the approval of the shareholders at the Annual Meeting to be held on May 11, 1994. The accounting firm of Grant Thornton audited the Company's consolidated financial statements for 1993 and prior years. Upon recommendation of the Audit Committee, the Board of Directors decided to solicit bids for the performance of auditing services for the Company for 1994. Bids were received from six public accounting firms, including Grant Thornton. Based on a review of the competing bids, the Audit Committee believed that the selection of Arthur Andersen & Co. would be in the best interests of the Company and recommended such selection to the Board of Directors. The reports of Grant Thornton on the Company's consolidated financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and the reports were not qualified or modified as to uncertainty, audit scope or accounting principles, except that the report for 1993 was modified by inclusion of an explanatory paragraph regarding the uncertainty of the pending investigations of the Company and related litigation described in the Company's Current Reports on Form 8-K dated August 16, October 6, November 23 and December 16, 1993 and Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. Since January 1, 1992, there have been no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of Grant Thornton, would have caused Grant Thornton to make reference to the subject matter of such disagreements in connection with its report. PART III The information required by Item 10 - Directors and Executive Officers of the Registrant is contained on page 40 of this Form 10-K Annual Report and in the Company's definitive Proxy Statement in connection with the 1994 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 21 through 37 of the 1993 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, 3, 5, 6, 7 and 8, herein, the 1993 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, 1993, 1992 and 1991. 21 Consolidated Balance Sheets as of December 31, 1993 and 1992. 22 Consolidated Cash Flow Statements for the years ended December 31, 1993, 1992 and 1991. 24 Notes to Consolidated Financial Statements. 25 Report of Independent Certified Public Accountants. 37 *Page number reference is to the 1993 Annual Report to Shareholders (a)(2) Financial Statement Schedules Page** Property, Plant and Equipment and Non-utility Property for the years ended December 31, 1993, 1992 and 1991 (Schedule V). 53 Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment and Non-utility Property for the years ended December 31, 1993, 1992 and 1991 (Schedule VI). 56 Valuation and Qualifying Accounts and Reserves for the years ended December 31, 1993, 1992 and 1991 (Schedule VIII). 59 **Page number reference is to this Form 10-K Annual Report The information required by Schedule IX - Short-Term Borrowings is included under the caption "Liquidity and Capital Resources" of the "Review of the Company's Results of Operations and Financial Condition" and in Note 8 of Notes to Consolidated Financial Statements, "Cash and Short-Term Debt" on pages 18 and 30, respectively of the 1993 Annual Report to Shareholders, which material is incorporated by reference in this Form 10-K Annual Report. All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. The information required by Rule 5-04, Schedule III - Condensed Financial Information of Registrant has been omitted since Consolidated Financial State- ments of the Registrant and its subsidiaries are contained in the Company's 1993 Annual Report to Shareholders and the test prescribed was not met. (a)(3) Exhibits * 3.1 Restated Certificate of Incorporation, as amended through April 14, 1988. (Exhibit 4.1 to Registration Statement 33-25359). * 3.2 By-Laws, as amended through April 11, 1990. (Exhibit 3.2 to Form 10-K for the fiscal year ended December 31, 1990, 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). * 4.6 Third Supplemental Indenture of Rockland Electric Company, dated as of August 15, 1965. (Exhibit 4.23 to Registration Statement No. 2-24682). * 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). *10.1 General Agreement: Bowline Point Generating Plant, dated as of October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156). *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 10.18 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. *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. (Exhibit 10.14 to Form 10-K for the fiscal year ended December 31, 1991, File No. 1-4315). *10.15 New York Power Authority Firm Purchase Contract, dated July 28, 1975. (Exhibit 10.15 to Form 10-K for the fiscal year ended December 31, 1992, 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). *10.18 Agreement between Orange and Rockland Utilities, Inc., and Pittston Coal Sales Company, dated March 14, 1984 as amended through December 1, 1986. (Exhibit 10.18 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). 10.18A Amendment to the Agreement between Orange and Rockland Utilities, Inc., and Pittston Coal Sales Company, dated July 1, 1991 and executed May 5, 1993. +*10.19 Employment contract between Orange and Rockland Utilities, Inc. and James F. Smith as amended December 1, 1990. (Exhibit 10.19 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). 10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer Continuation Program, as amended April 14, 1993. *10.21 Electric Contract for the Sale of Firm Power and Energy by the Power Authority of the State of New York to Orange and Rockland Utilities, Inc., dated April 26, 1989, including Application dated April 20, 1989. (Exhibit 10.21 to Form 10-K for the fiscal year ended December 31, 1989, File No. 1-4315). +*10.22 Form of Severance Agreement for Company Officers effective January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). +*10.23 Performance Unit Incentive Plan effective December 3, 1992. (Exhibit 10.23 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). +*10.24 Award Agreement under the Performance Unit Incentive Plan applicable to P. J. Chambers, Jr., dated December 3, 1992. (Exhibit 10.24 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). +*10.25 Award Agreement under the Performance Unit Incentive Plan applicable to J. F. Smith dated December 3, 1992. (Exhibit 10.25 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). 13 The Company's 1993 Annual Report to Shareholders to the extent identified in this Form 10-K Annual Report for the fiscal year ended December 31, 1993. *16 Letter from Grant Thornton (Exhibit 16 to Form 8-K/A dated February 22, 1994, File No. 1-4315). *21 Subsidiaries of the Company. (Exhibit 22 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). 24 Powers of Attorney. *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). 99.2 Complaint against James F. Smith dated March 16, 1994. 99.3 Form 11-K for the Company's Management Employees' Savings Plan for the year ended December 31, 1993. 99.4 Form 11-K for the Company's Hourly Group Savings Plan for the year ended December 31, 1993. + 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: - Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of July 1, 1982. - 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 July 1, 1982. - First Supplemental Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of October 1, 1984. - First Supplemental Indenture of Trust between NYSERDA and The Bank of New York, as Trustee, relating to the 10 1/4% Pollution Control Revenue Bonds (Orange and Rockland Utilities, Inc. Projects), 1984 Series. - Second Supplemental Indenture of Trust between NYSERDA and the Bank of New York, as Trustee, relating to the 9% Pollution Control Revenue Bonds (Orange and Rockland Utilities, Inc. Projects), 1985 Series. - Second Supplemental Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of August 1, 1985. - First Supplemental Indenture, dated August 15, 1990, to the Indenture of Mortgage and Deed of Trust of Pike County Light & Power Company. - Eighth Supplemental Indenture of Rockland Electric Company, dated as of August 15, 1990. (b) Reports on Form 8-K On February 18, 1993, the Company filed a Current Report on Form 8-K, dated February 18, 1993, pertaining to the Warwick suit and the fact that the Company was in receipt of a letter dated January 29, 1993, sent on behalf of the Riverkeeper, which purported to give a 60-day notice of intent to initiate a civil suit against the Company for alleged violations of its SPDES Permit for the Lovett Generating Station at Tomkins Cove, New York. Reference is made to Item 3, "Legal Proceedings" of this Form 10-K Annual Report for further descriptions of the aforementioned events. In addition, a press release dated January 21, 1993 which announced the Company's earnings for the year ended December 31, 1992 was filed under Item 5, "Other Events" of the Form 8-K dated February 18, 1993. On March 8, 1993, the Company filed a Current Report on Form 8-K, dated March 4, 1993, pertaining to the Series C and Series D Debentures which were issued by the Company on March 10, 1993. Through this Form 8-K, the Company filed, under Item 7 (Financial Statements and Exhibits), certain exhibits relating to the Company's Registration Statement No. 33-53256 registering up to $115 million in aggregate principal amount of unsecured debt securities, the related Prospectus dated October 21, 1992, and the Prospectus Supplement dated February 23, 1993, with respect to the Series C and Series D Debentures. On September 10, 1993, the Company filed a Current Report on Form 8-K, dated August 16, 1993, pertaining to (a) the arrest and termination of employment of former Company Vice President Linda Winikow; (b) the Feiner suit; (c) the creation by the Board of Directors of the Special Committee; (d) the Company's RICO suit against Ms. Winikow et al.; (e) the DOL and NYPSC Staff Motions; and (f) the Patents Management suit. Reference is made to information contained under the caption "Events Affecting the Company" in Item 1 and in Item 3, "Legal Proceedings" of this Form 10-K Annual Report for further descriptions of the aforementioned actions and events. On October 21, 1993, the Company filed a Current Report on Form 8-K, dated October 6, 1993, pertaining to (a) the delivery to James F. Smith of notice of termination of his employment for cause as Chief Executive Officer of the Company and the suspension of Mr. Smith from all duties and responsibilities as an officer of the Company and Chairman of the Board; (b) the investigation being conducted by the Special Committee; (c) Ms. Winikow pleading guilty to charges of grand larceny in the third degree, commercial bribe receiving in the second degree and making a campaign contribution other than in the true name of the contributor; and (d) the Order of the NYPSC issued in response to the DOL and NYPSC Staff Motions. Reference is made to Item 3, "Legal Proceedings" of this Form 10-K Annual Report for further descriptions of the aforementioned actions and events. On December 8, 1993, the Company filed a Current Report on Form 8-K, dated November 23, 1993, disclosing the filing of the Gross suit. Reference is made to Item 3, "Legal Proceedings" of this Form 10-K Annual Report for further description of this suit. On December 22, 1993, the Company filed a Current Report on Form 8-K, dated December 16, 1993, pertaining to (i) the NYPSC's December 16, 1993 Order accepting the six-month extension of the statutory suspension period in the Company's current electric rate case (Case 93-E-0082), and (ii) the Company's estimate that in connection with the ongoing investigations of the Company's operations which were commenced following the arrest of Ms. Winikow, the Company will incur $6.0 million of costs during 1993, of which $1.1 million was reflected in the Company's third quarter results. Reference is made to Item 3, "Legal Proceedings" of this Form 10-K Annual Report for further description of Case 93-E-0082. On February 17, 1994, the Company filed a Current Report on Form 8-K, dated February 10, 1994, reporting, under Item 4. "Changes in Registrant's Certifying Accountant", the appointment by the Executive Committee of the Board of Directors of the accounting firm of Arthur Andersen & Co. to audit the books, records and accounts of the Company and its subsidiaries for the 1994 fiscal year. On February 22, 1994, the Company filed a Form 8-K/A dated February 22, 1994, amending the February 10, 1994 Form 8-K to include as Exhibit 16, a letter from the accounting firm of Grant Thornton, which firm audited the Company's consolidated financial statements for the 1993 fiscal year and prior years. On March 15, 1994, the Company filed a Form 8-K dated March 14, 1994, reporting under Item 5, "Other Events", the dismissal of two officers from the Company's employ. 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 VICTOR J. BLANCHET, JR. (Victor J. Blanchet, Jr. Acting Chief Executive Officer, President, Chief Operating Officer and Director) Date: March 25, 1994 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 VICTOR J. BLANCHET, JR.* Acting Chief Executive (Victor J. Blanchet, Jr., Officer; Director Acting Chief Executive Officer, President and Chief Operating Officer) PATRICK J. CHAMBERS, JR.* Principal Financial (Patrick J. Chambers, Jr., Officer; Director Senior Vice President and Chief Financial Officer) TERRY L. DITTRICH* Acting Principal (Terry L. Dittrich, Acting Accounting Officer Controller) H. KENT VANDERHOEF* Acting 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) FRANK A. McDERMOTT, JR.* Director (Frank A. McDermott, Jr.) KENNETH D. McPHERSON* Director (Kenneth D. McPherson) JAMES F. O'GRADY, JR.* Director (James F. O'Grady, Jr.) Director (James F. Smith) LINDA C. TALIAFERRO* Director (Linda C. Taliaferro) JOHN F. WHITE* Director (John F. White) *By VICTOR A. ROQUE (Victor A. Roque, Attorney-in-fact) Date: March 25, 1994 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES Board of Directors and Shareholders of Orange and Rockland Utilities, Inc. In connection with our audit of the consolidated financial statements of Orange and Rockland Utilities, Inc. and Subsidiaries referred to in our report dated February 16, 1994, which report included an explanatory paragraph that described the investigations and litigation discussed in Note 12 (Legal Proceedings) of those statements, which is included in the 1993 Annual Report to Shareholders and incorporated by reference in this Form 10-K, we have also audited the schedules listed in the Index at Item 14(a)(2). In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON New York, New York February 16, 1994 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated February 16, 1994, accompanying the consolidated financial statements and schedules incorporated by reference or included in the Annual Report of Orange and Rockland Utilities, Inc. and Subsidiaries on Form 10-K for the year ended December 31, 1993. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Orange and Rockland Utilities, Inc. and Subsidiaries on Forms S-8 (No. 33-25358, No. 33-25359 and No. 33-22129) and on Forms S-3 (No. 33-22130 and No. 33-63872). GRANT THORNTON New York, New York March 25, 1994 SCHEDULE V ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Property, Plant and Equipment and Non-utility Property For the Year Ended December 31, 1993 (Thousands of Dollars)
Column A Column F Utility Plant Non-utility Electric Gas Common Property Total Plant in Service: Production $377,778 $ 4,066 $ - $ - $ 381,844 Transmission 132,483 - - - 132,483 Distribution 383,821 178,141 - - 561,962 General 29,999 6,674 52,153 - 88,826 Gas Production Properties - - - 9,781 9,781 Future Use 3,229 98 - - 3,327 Other 4,517 21 372 25,268 30,178 931,827 189,000 52,525 35,049 1,208,401 Construction Work in Progress 22,124 4,018 4,765 - 30,907 Total $953,951 $193,018 $ 57,290 $ 35,049 $1,239,308 Neither the total additions nor the total deductions during the year ended December 31, 1993 amounted to more than 10% of the closing balance of total Utility Plant and Non-utility Property. The information required by Columns B, C, D and E is, therefore, omitted. A summary of Columns C, D and E for the year ended December 31, 1993 is as follows: Column C - Additions at cost $54,308 Column D - Retirements 9,035 Column E - Other changes (3,124)* Net Change $42,149 *Other changes include the following: $(3,124) adjustment of prior years additions to correct vintage year records. For information concerning depreciation procedures, see Note 1 of Notes to Consolidated Financial Statements on page 26 of the 1993 Annual Report to Shareholders.
SCHEDULE V ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Property, Plant and Equipment and Non-utility Property For the Year Ended December 31, 1992 (Thousands of Dollars)
Column A Column F Utility Plant Non-utility Electric Gas Common Property Total Plant in Service: Production $368,958 $ 4,017 $ - $ - $ 372,975 Transmission 131,692 - - - 131,692 Distribution 370,544 167,059 - - 537,603 General 28,716 6,583 50,242 - 85,541 Gas Production Properties - - - 9,781 9,781 Future Use 3,594 98 - - 3,692 Other 4,517 21 21 24,377 28,936 908,021 177,778 50,263 34,158 1,170,220 Construction Work in Progress 19,689 3,944 3,306 - 26,939 Total $927,710 $181,722 $ 53,569 $ 34,158 $1,197,159 Neither the total additions nor the total deductions during the year ended December 31, 1992 amounted to more than 10% of the closing balance of total Utility Plant and Non-utility Property. The information required by Columns B, C, D and E is, therefore, omitted. A summary of Columns C, D and E for the year ended December 31, 1992 is as follows: Column C - Additions at cost $56,438 Column D - Retirements 10,791 Column E - Other changes (113)* Net Change $45,534 *Other changes include the following: $(113) adjustment of prior years additions to correct vintage year records. For information concerning depreciation procedures, see Note 1 of Notes to Consolidated Financial Statements on page 26 of the 1993 Annual Report to Shareholders. /TABLE SCHEDULE V ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Property, Plant and Equipment and Non-utility Property For the Year Ended December 31, 1991 (Thousands of Dollars)
Column A Column F Utility Plant Non-utility Electric Gas Common Property Total Plant in Service: Production $361,210 $ 4,235 $ - $ - $ 365,445 Transmission 127,954 - - - 127,954 Distribution 349,091 156,686 - - 505,777 General 28,960 6,704 46,879 - 82,543 Gas Production Properties - - - 9,781 9,781 Future Use 3,725 100 - - 3,825 Other 875 21 21 23,884 24,801 871,815 167,746 46,900 33,665 1,120,126 Construction Work in Progress 25,529 2,875 3,095 - 31,499 Total $897,344 $170,621 $ 49,995 $ 33,665 $1,151,625 Neither the total additions nor the total deductions during the year ended December 31, 1991 amounted to more than 10% of the closing balance of total Utility Plant and Non-utility Property. The information required by Columns B, C, D and E is, therefore, omitted. A summary of Columns C, D and E for the year ended December 31, 1991 is as follows: Column C - Additions at cost $70,726 Column D - Retirements 10,672 Column E - Other changes 153* Net Change $60,207 *Other changes include the following: $153 adjustment of prior years additions to correct vintage year records. For information concerning depreciation procedures, see Note 1 of Notes to Consolidated Financial Statements on page 26 of the 1993 Annual Report to Shareholders. /TABLE SCHEDULE VI ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment and Non-utility Property For the Year Ended December 31, 1993 (Thousands of Dollars)
Column A Column B Column C Column D Column E Column F Additions Other Balance Balance at charged to changes at beginning costs and - add end of Description of period expenses Retirements or (deduct) period Electric plant $266,902 $ 26,479 $ 6,864 $ (1,110) $285,407 Gas plant 63,667 4,348 812 93 67,296 Common plant 17,746 2,752 1,296 374 19,576 Total utility plant $348,315 $ 33,579 $ 8,972 $ (643)(A) $372,279 Gas Production Properties $ 9,055 $ - $ - $ 168 $ 9,223 Other physical property 3,014 - - 804 3,818 Total non-utility property $ 12,069 $ - $ - $ 972(B) $ 13,041 (A) Other changes include the following: Additions of $1,037 materials salvaged; $1,897 charged to other income and clearing accounts and net miscellaneous items of $(120); and deductions of $3,457 for removal costs. (B) Other changes include the following: Additions of $972 charged to non- operating expenses.
SCHEDULE VI ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment and Non-utility Property For the Year Ended December 31, 1992 (Thousands of Dollars)
Column A Column B Column C Column D Column E Column F Additions Other Balance Balance at charged to changes at beginning costs and - add end of Description of period expenses Retirements or (deduct) period Electric plant $250,562 $ 25,461 $ 9,247 $ 126 $266,902 Gas plant 59,772 5,484 1,445 (144) 63,667 Common plant 15,213 2,535 859 857 17,746 Total utility plant $325,547 $ 33,480 $ 11,551 $ 839 (A) $348,315 Gas Production Properties $ 8,912 $ - $ - $ 143 $ 9,055 Other physical property 2,342 - - 672 3,014 Total non-utility property $ 11,254 $ - $ - $ 815(B) $ 12,069 (A) Other changes include the following: Additions of $3,016 materials salvaged; $1,786 charged to other income and clearing accounts and net miscellaneous items of $277; and deductions of $4,240 for removal costs. (B) Other changes include the following: Additions of $815 charged to non- operating expenses. /TABLE SCHEDULE VI ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment and Non-utility Property For the Year Ended December 31, 1991 (Thousands of Dollars)
Column A Column B Column C Column D Column E Column F Additions Other Balance Balance at charged to changes at beginning costs and - add end of Description of period expenses Retirements or (deduct) period Electric plant $232,169 $ 24,462 $ 9,083 $ 3,014 $250,562 Gas plant 56,043 4,597 824 (44) 59,772 Common plant 13,238 2,344 602 233 15,213 Total utility plant $301,450 $ 31,403 $ 10,509 $ 3,203 (A) $325,547 Gas Production Properties $ 8,782 $ - $ - $ 130 $ 8,912 Other physical property 1,508 - - 834 2,342 Total non-utility property $ 10,290 $ - $ - $ 964(B) $ 11,254 (A) Other changes include the following: Additions of $5,539 materials salvaged; $1,731 charged to other income and clearing accounts and net miscellaneous items of $55; and deductions of $4,122 for removal costs. (B) Other changes include the following: Additions of $1,030 charged to non- operating expenses; $6 for materials salvaged and deductions for net miscellaneous items of $72.
SCHEDULE VIII ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years Ended December 31, 1993, 1992 and 1991 (Thousands of Dollars)
Column A Column B Column C Column D Column E 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, 1993 Allowance for Uncollect- ible accounts: Customer accounts $1,651 $2,428 $400 $2,453 $2,026 Other accounts 61 129 4 134 60 $1,712 $2,557 $404(A) $2,587(B) $2,086 Reserve for Claims and Damages $3,521 $1,895 $146 $1,732(C) $3,830 Gas Turbine Maintenance Reserve $(2,532) $1,367 $ - $ 210(C) $(1,375) December 31, 1992 Allowance for Uncollect- ible accounts: Customer accounts $1,670 $2,019 $393 $2,431 $ 1,651 Other accounts 61 56 1 57 61 $1,731 $2,075 $394(A) $2,488(B) $ 1,712 Reserve for Claims and Damages $3,427 $2,043 $523 $2,472(C) $ 3,521 Gas Turbine Maintenance Reserve $(2,889) $ 622 $ - $ 265(C) $(2,532) December 31, 1991 Allowance for Uncollect- ible accounts: Customer accounts $1,874 $2,162 $328 $2,694 $1,670 Other accounts 63 35 14 51 61 $1,937 $2,197 $342(A) $2,745(B) $1,731 Reserve for Claims and Damages $3,653 $1,631 $ - $1,857(C) $3,427 Gas Turbine Maintenance Reserve $(2,138) $ 621 $ - $1,372(C) $(2,889) (A) Includes collection of accounts previously written off of $404 in 1993, $394 in 1992, and $342 in 1991. (B) Accounts considered uncollectible and charged off of $2,587 in 1993, $2,488 in 1992 and $2,745 in 1991. (C) Payments of damage claims of $1,732 in 1993, $2,472 in 1992 and $1,857 in 1991 and maintenance expenses of $210 in 1993, $265 in 1992 and $1,372 in 1991. /TABLE 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 __________________________ Fiscal Year Ended December 31, 1993 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 1993 Form 10-K * 3.1 Restated Certificate of Incorporation, as amended through April 14, 1988. (Exhibit 4.1 to Registration Statement 33-25359). * 3.2 By-Laws, as amended through April 11, 1990. (Exhibit 3.2 to Form 10-K for the fiscal year ended December 31, 1990, 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). * 4.6 Third Supplemental Indenture of Rockland Electric Company, dated as of August 15, 1965. (Exhibit 4.23 to Registration Statement No. 2-24682). * 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). *10.1 General Agreement: Bowline Point Generating Plant, dated as of October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156). *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 10.18 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. *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. (Exhibit 10.14 to Form 10-K for the fiscal year ended December 31, 1991, File No. 1-4315). *10.15 New York Power Authority Firm Purchase Contract, dated July 28, 1975. (Exhibit 10.15 to Form 10-K for the fiscal year ended December 31, 1992, 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). *10.18 Agreement between Orange and Rockland Utilities, Inc., and Pittston Coal Sales Company, dated March 14, 1984 as amended through December 1, 1986. (Exhibit 10.18 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). 10.18A Amendment to the Agreement between Orange and Rockland Utilities, Inc., and Pittston Coal Sales Company, dated July 1, 1991 and executed May 5, 1993. +*10.19 Employment contract between Orange and Rockland Utilities, Inc. and James F. Smith as amended December 1, 1990. (Exhibit 10.19 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). 10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer Continuation Program, as amended April 14, 1993. *10.21 Electric Contract for the Sale of Firm Power and Energy by the Power Authority of the State of New York to Orange and Rockland Utilities, Inc., dated April 26, 1989, including Application dated April 20, 1989. (Exhibit 10.21 to Form 10-K for the fiscal year ended December 31, 1989, File No. 1-4315). +*10.22 Form of Severance Agreement for Company Officers effective January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year ended December 31, 1990, File No. 1-4315). +*10.23 Performance Unit Incentive Plan effective December 3, 1992. (Exhibit 10.23 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). +*10.24 Award Agreement under the Performance Unit Incentive Plan applicable to P. J. Chambers, Jr., dated December 3, 1992. (Exhibit 10.24 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). +*10.25 Award Agreement under the Performance Unit Incentive Plan applicable to J. F. Smith dated December 3, 1992. (Exhibit 10.25 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). 13 The Company's 1993 Annual Report to Shareholders to the extent identified in this Form 10-K Annual Report for the fiscal year ended December 31, 1993. *16 Letter from Grant Thornton (Exhibit 16 to Form 8-K/A dated February 22, 1994, File No. 1-4315). *21 Subsidiaries of the Company. (Exhibit 22 to Form 10-K for the fiscal year ended December 31, 1992, File No. 1-4315). 24 Powers of Attorney. *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). 99.2 Complaint against James F. Smith dated March 16, 1994. 99.3 Form 11-K for the Company's Management Employees' Savings Plan for the year ended December 31, 1993. 99.4 Form 11-K for the Company's Hourly Group Savings Plan for the year ended December 31, 1993. + 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: - Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of July 1, 1982. - 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 July 1, 1982. - First Supplemental Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of October 1, 1984. - First Supplemental Indenture of Trust between NYSERDA and The Bank of New York, as Trustee, relating to the 10 1/4% Pollution Control Revenue Bonds (Orange and Rockland Utilities, Inc. Projects), 1984 Series. - Second Supplemental Indenture of Trust between NYSERDA and the Bank of New York, as Trustee, relating to the 9% Pollution Control Revenue Bonds (Orange and Rockland Utilities, Inc. Projects), 1985 Series. - Second Supplemental Participation Agreement between NYSERDA and Orange and Rockland Utilities, Inc., dated as of August 1, 1985. - First Supplemental Indenture, dated August 15, 1990, to the Indenture of Mortgage and Deed of Trust of Pike County Light & Power Company. - Eighth Supplemental Indenture of Rockland Electric Company, dated as of August 15, 1990. EX-10.11 2 EXHIBIT 10.11 OFFICERS' SUPPLEMENTAL RETIREMENT PLAN OF ORANGE AND ROCKLAND UTILITIES, INC. AS AMENDED AND RESTATED EFFECTIVE NOVEMBER 3, 1988 AMENDED: JANUARY 3, 1991 DECEMBER 3, 1992 APRIL 1, 1993 OFFICERS' SUPPLEMENTAL RETIREMENT PLAN OF ORANGE AND ROCKLAND UTILITIES, INC. Section 1. PURPOSE The purpose of the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc. (the "Plan") is to provide additional retirement benefits to Orange and Rockland Officers above that which they might earn from the Employees' Retirement Plan of Orange and Rockland Utilities, Inc. (the "Qualified Plan"). The Plan has been intentionally structured to benefit those Officers whose careers at Orange and Rockland have been too short to accumulate appropriate retirement benefits from the Qualified Plan. Benefits payable from the Plan will be offset by payments from the Qualified Plan. The Plan as amended and restated herein shall apply to Officers terminating from service on or after November 3, 1988. Section 2. DEFINITIONS (1) "Affiliated Company" shall mean any corporation which is a member of a controlled group of corporations (within the meaning of Section 1563(a), determined without regard to Section 1563(a)(4) and (e)(3)(C) of the Internal Revenue Code of 1986, as amended) of which the Company is also a member. (2) "Allowance" shall mean a monthly benefit computed in accordance with Section 6. (3) "Beneficiary" shall mean the person or persons designated by the Member, in writing filed with the Committee, to receive any Allowance payable hereunder to a Beneficiary. Without the necessity of obtaining the consent of any person, including specifically the then designated Beneficiary, a designation of Beneficiary may be revoked or changed by filing a new designation of Beneficiary with the Committee prior to death. In the event of a failure to designate a Beneficiary or if the designated Beneficiary dies prior to receipt of payment, the Beneficiary shall be deemed to be the Member's spouse; or if none, the Member's then living issue, per stirpes; or if none, the estate of the Member or Contingent Annuitant, whoever is the last to die. With respect to any Allowance payable to a Contingent Annuitant which has a guaranteed payment period, the Member, in writing filed with the Committee, is permitted to authorize the Contingent Annuitant to designate, or change the designation of, the Beneficiary for the continued payments which would be made in the event of the death of the Contingent Annuitant prior to the expiration of the guaranteed payment period. (4) "Board" shall mean the Board of Directors of Orange and Rockland Utilities, Inc. (5) "Change in Control" shall mean: (A) either (A) receipt by the Company of a report on Schedule 13D, or an amendment to such a report, filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "1934 Act") disclosing that any person, group, corporation or other entity is the beneficial owner, directly or indirectly, of twenty (20) percent or more of the outstanding stock of the Company or (B) actual knowledge by the Company of facts, on the basis of which any Person is required to file such a report on Schedule 13D, or an amendment to make such a report, with the SEC (or would be required to file such a report or amendment upon the lapse of the applicable period of time specified in Section 13(d) of the 1934 Act) disclosing that such person is the beneficial owner, directly or indirectly, of twenty (20) percent or more of the outstanding stock of the Company; (B) purchase by any person (as defined in Section 13(d) of the 1934 Act), corporation or other entity, other than the Company or a wholly-owned subsidiary of the Company, of shares pursuant to a tender or exchange offer to acquire any stock of the Company (or securities convertible into stock) for cash, securities or any other consideration provided that, after consummation of the offer, such person, group, corporation or other entity is the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of twenty (20) percent or more of the outstanding stock of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the case of rights to acquire stock); (C) approval by the stockholders of the Company of (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of stock of the Company would be converted into cash, securities or other property, other than a consolidation or merger of the Company in which holders of its stock immediately prior to the consolidation or merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger as immediately before, or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company; or (D) a change in the majority of the members of the Board within a 24-month period unless the election or nomination for election by the Company's stockholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the 24-month period. (6) "Committee" shall mean the Retirement Committee of Orange and Rockland Utilities, Inc. (7) "Company" shall mean Orange and Rockland Utilities, Inc. and any successor to its business or assets; and any other company participating in the Plan as provided in Section 3 with respect to its Officers. (8) "Compensation" shall mean the regular rate of remuneration paid to an Officer by the Company, excluding any bonuses, overtime or other special pay, and excluding the Company's cost for any public or private employee benefit plan, including the Plan, but including any amount of Compensation reduction elected by the Officer and contributed or credited by the Company under any such plan. Provided, however, that for Officers who have completed at least 11 years of Service, Compensation shall also include a portion of their corporate performance based annual award declared under the Annual Incentive Plan provisions of the Orange and Rockland Utilities, Inc. Incentive Compensation Plan ("ICP"). For purposes of this Plan and inclusion in Compensation hereunder, such annual award for each calendar year shall be deemed to be declared for each Officer and to be equal to a percentage of that Officer's regular rate of remuneration included in Compensation for such calendar year under the first sentence of this definition. The percentage shall be determined in accordance with Table I of the ICP's Management Compensation Program Administration Guide, as amended from time to time, on the basis of the highest grade or percentage of the Officer for any part of such calendar year. Percentages as of November 3, 1988 are set forth in the following schedule for illustrative purposes only. Officer in Grade: Percentage 25-26 20% 22-24 15% 19-21 10% Such annual award will be deemed to have been paid ratably over the calendar year for which it is deemed declared (i.e., 1/12 for each month), and the portion includible in Compensation for purposes hereof shall be determined in accordance with the following schedule, on the basis of the years of Service the Officer has completed as of the end of the last month included in the period over which Final Average Compensation is determined: Percentage of Annual Years of Service Award Included 11 10% 12 20% 13 30% 14 40% 15 50% 16 60% 17 70% 18 80% 19 90% 20 or more 100% In all cases, Compensation shall be determined under rules uniformly applicable to all Officers similarly situated. (9) "Contingent Annuitant" shall mean the person designated by the Member, in writing filed with the Committee, to receive any Allowance payable hereunder to a Contingent Annuitant. Except as hereafter provided, without the necessity of obtaining the consent of any person, including specifically the then designated Contingent Annuitant, a designation of a Contingent Annuitant may be revoked or changed by filing a new written designation of a Contingent Annuitant with the Committee prior to the earlier of the Member's death or commencement of payment of the Member's Allowance. Notwithstanding the foregoing, in order for a Member who is married at the time of the designation of Contingent Annuitant or change in a designation of Contingent Annuitant to designate a Contingent Annuitant other than his or her spouse, such designation of Contingent Annuitant must include the signed, written consent of his or her spouse (including specific consent to the Contingent Annuitant designated). In the event of the failure to designate a Contingent Annuitant as herein provided, the Contingent Annuitant shall be deemed to be the Member's spouse, if any, at the earlier of the Member's death or commencement of payment of the Member's Allowance, if surviving. (10) "Disability Retirement Allowance" shall mean an Allowance computed in accordance with Section 6F. (11) "Early Retirement Allowance" shall mean an Allowance computed in accordance with Section 6E. (12) "Effective Date of the Plan" shall mean originally December 3, 1981, and with respect to this amended and restated Plan, November 3, 1988. (13) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. (14) "Final Average Compensation" shall be computed by taking the sum of a Member's Compensation on a monthly basis in each of the three years of highest Compensation during the 10 years immediately preceding the earliest of (a) his or her Retirement Date, (b) his or her termination date pursuant to Section 6G, or (c) the date the Member ceases to be an Officer, and dividing this sum by 36. For the purpose of determining the three years of highest Compensation, three years shall be 36 consecutive months. (15) "Member" shall mean any person included in the membership of the Plan as provided in Section 4. (16) "Normal Retirement Allowance" shall mean an Allowance computed in accordance with Section 6D. (17) "Normal Retirement Date" shall mean the first day of the calendar month coincident with or next following the 65th anniversary of a Member's birth. (18) "Plan" shall mean the Officers' Supplemental Retirement Plan of Orange and Rockland Utilities, Inc., as set forth herein and as may be amended from time to time. (19) "Plan Year" shall mean the calendar year. (20) "Qualified Plan" shall mean the Employees' Retirement Plan of Orange and Rockland Utilities, Inc. as in effect on January 1, 1988, but, except as specifically otherwise provided herein, as amended and as the actuarial equivalencies thereunder may be revised from time to time. (21) "Retired Member" shall mean a Member who has retired under the Plan with entitlement to a Normal Retirement Allowance, Early Retirement Allowance, or Disability Retirement Allowance. (22) "Service" shall mean service credited under the Plan as provided in Section 5. (23) "Vested Member" shall mean a Member whose employment with the Company or an Affiliated Company has been terminated for reasons other than retirement or death after he or she met the eligibility requirements for a Vested Retirement Allowance pursuant to Section 6G. (24) "Vested Retirement Allowance" shall mean an Allowance computed in accordance with Section 6G. Section 3. ELIGIBILITY Only Officers of Orange and Rockland Utilities, Inc. and/or its utility subsidiaries, Rockland Electric Company and Pike County Light & Power Company, may be Members of the Plan. Section 4. MEMBERSHIP A person shall become a Member of the Plan on the day he or she is elected an Officer by the Board, or by the board of the participating utility subsidiary of which he or she is an Officer. Section 5. SERVICE Except as hereafter provided, a year of Service under the Plan shall equal one year of Eligible Service under the Qualified Plan (see Section 4 of the Qualified Plan) as determined on the basis of the Plan Year measuring period only (i.e., 1,000 hours of service in a calendar year is a year of Service). Years of Service as an Officer shall only include those years of Service credited subsequent to a Member's election as an Officer and during which he or she serves as an Officer, and shall include the Plan Year in which the Officer is so elected. Notwithstanding anything to the contrary in the foregoing, service following the Member's ceasing to be an Officer shall not be considered as years of Service for any purpose under the Plan, (except as set forth in Section 15) and in particular shall not entitle a Member to become eligible for a Vested or other Retirement Allowance under the Plan even if as a result of such service the Member becomes eligible for a Vested or other Retirement Allowance from the Qualified Plan. The Board, at its sole discretion, may award a Member additional years of Service for purposes of determining Benefits under Section 6 and eligibility therefor. Section 6. BENEFITS (A) Amount and Payments of Allowance The Allowance determined under the Plan is equal to: (i) the Benefit Formula Percentage multiplied by the member's Final Average Compensation; less (ii) the Qualified Plan Allowance payable. The Allowance shall be payable for the life of the Member, except as hereafter provided, and shall commence and be paid in accordance with the provisions of the Plan describing the Allowance to be paid. If for any month for which the payment of any Allowance under the Plan is made to a Retired or Vested Member there is no Qualified Plan Allowance payable under the Qualified Plan to the Retired or Vested Member, the Allowance provided for under the Plan shall be paid without any offset by a Qualified Plan Allowance; provided, however, that when the Qualified Plan Allowance payable to or with respect to such Member commences, the Allowance then payable under the plan shall be adjusted to reflect the offset for the Qualified Plan Allowance then payable. (B) Benefit Formula Percentage The Benefit Formula Percentage shall be the sum of the percentages awarded for the Member's years of Service according to the following schedule: For each of the first ten years of Service: Four percent For each of the second ten years of Service: Two percent For each year of Service in excess of twenty: One-half percent Example: A Member with twenty-seven years of Service has a Benefit Formula Percentage of 63.5% computed as follows: First ten years of Service (10 x 4%) = 40% Second ten years of Service (10 x 2%) = 20% Remaining seven years of Service (7 x .5%) = 3.5% Total 63.5% (C) Qualified Plan Allowance For purposes of computing a Plan Allowance only, the Member's Qualified Plan Allowance shall be computed as if he or she had elected the Qualified Plan Section 6, Option 3 (Joint and 50% Survivor Annuity) and had named his or her Contingent Annuitant as contingent annuitant thereunder. (D) Normal Retirement Allowance A Normal Retirement Allowance shall be paid to a Member who has completed five years of Service as an Officer (or was an Officer at the time of a Change in Control as set forth in Section 15), and who retires on or after his or her Normal Retirement Date. The Normal Retirement Allowance shall be computed in accordance with 6A above and will commence as of the first day of the calendar month coincident with or next following the Member's retirement. (E) Early Retirement Allowance Any Early Retirement Allowance shall be paid to a Member who has completed five years of Service as an Officer (or was an Officer at the time of a Change in Control as set forth in Section 15), and retires from employment on or after attaining age 55. Such Early Retirement Allowance shall be computed in accordance with Section 6A on the basis of the Member's Final Average Compensation and years of Service at his or her retirement. Payment of the Early Retirement Allowance under the Plan will commence as of the first day of the calendar month coincident with or following the Member's retirement as is elected by the Member in writing and filed with the Committee prior to the first day of such calendar month. In the event payment of the Early Retirement Allowance commences prior to the first day of the calendar month coincident with or next following the 60th anniversary of the Member's birth, in calculating the Early Retirement Allowance the Section 6A(i) amount will be reduced by 1/3 of 1% for each complete month by which the commencement date precedes the first day of such calendar month. (F) Disability Retirement Allowance (a) Upon written application to the Committee made by the Member or by the Company, a Member in active service as an Officer who has not reached his or her Normal Retirement Date shall be retired on a Disability Retirement Allowance, in lieu of retirement under any other provision of the Plan, on the first day of a calendar month (not less than 30 nor more than 90 days next following the receipt by the Committee of such written application) as designated by the Committee; provided that one or more physicians designated by the Committee shall certify their opinion, and the Committee shall find, that such Member is totally incapacitated, mentally or physically, from the further performance of his or her regular duties or duties comparable thereto, and that such incapacity is likely to be permanent. (b) The Disability Retirement Allowance shall be computed in accordance with Section 6A on the basis of the Member's Final Average Compensation and years of Service at retirement. Payment of the Disability Retirement Allowance shall commence upon the Member's retirement and shall continue only so long as the Member remains totally incapacitated as determined by the Committee. Once each year the Committee may require any Member receiving a Disability Retirement Allowance who has not reached his or her Normal Retirement Date to undergo a medical examination by a physician or physicians designated by the Committee. Such examination, to the extent possible, will be made at the residence of the Member or other place mutually agreed upon or otherwise required under the circumstances. Should any Member refuse to submit to such an examination, payment of his or her Disability Retirement Allowance shall be discontinued until his or her withdrawal of such refusal. Should such refusal continue for a year, all rights in and to the Disability Retirement Allowance shall cease. If the Committee finds on the basis of a medical examination or otherwise that a Member who is receiving a Disability Retirement Allowance and who has not reached his or her Normal Retirement Date is no longer totally incapacitated and that the Member has regained his or her earning capacity, in whole or in part, the Member's Disability Retirement Allowance will be discontinued or reduced proportionately; provided that he or she shall be entitled to have the Disability Retirement Allowance restored in whole or in part prior to his or her Normal Retirement Date if, on the basis of the certification of one or more physicians designated by the Committee, the Committee finds the Member is again totally incapacitated. In the event the Member ceases to be totally and permanently incapacitated and he or she does not return to Service, his or her eligibility for any other Allowance under the Plan shall be determined under the relevant terms of the Plan. (G) Vested Retirement Allowance (a) A member who has completed five years of Service as an officer (or was an Officer at the time of a Change in Control as set forth in Section 15), and who, for reasons other than retirement, approved leave of absence, or death, ceases to be employed by the Company or an Affiliated Company, shall be eligible for a Vested Retirement Allowance on application therefor. (b) The Vested Retirement Allowance shall be a deferred allowance commencing on the Vested Member's Normal Retirement Date and shall be computed and payable in accordance with Section 6A on the basis of his or her Final Average Compensation and years of Service at his or her date of termination. The Vested Member may elect to have payment of his or her Vested Retirement Allowance commence as of the first day of any calendar month coincident with or following his or her attaining age 55 as is specified in his or her written election filed with the Committee prior to the first day of such calendar month. In the event payment of the Vested Retirement Allowance commences prior to the first day of the calendar month coincident with or next following the 60th anniversary of the Member's birth, the Vested Retirement Allowance shall be: (i) the Allowance computed in accordance with Section 6A(i) on the basis of his or her Final Average Compensation and years of Service at his or her date of termination; reduced by (ii) 1/3 of 1% for each complete month by which the commencement of payment of the Vested Retirement Allowance precedes the date 5 years prior to his or her Normal Retirement Date; less (iii) the Qualified Plan Allowance payable commencing at the same time. (H) Death of Retired Member or of Vested Member Receiving Payment of Allowance (a) In the event of the death of a Retired Member, an Allowance will be paid during the life of, and to, the Retired Member's Contingent Annuitant. The Allowance paid to the Contingent Annuitant will be equal to (i) the Retired Member's Allowance as calculated in accordance with Section 6A(i) at the time of the Retired Member's retirement, subject to the age differential reduction specified below, and subject to any reduction for early commencement of payment as was applied when payment of the Retired Member's Allowance had commenced, or if the Retired Member's Allowance had not commenced, as would have been applied to the Retired Member's Allowance if payment to the Retired Member had commenced when payment of the Allowance hereunder commences; reduced by (ii) the Qualified Plan Allowance then payable to the Contingent Annuitant (under the Qualified Plan Allowance form of payment specified in Section 6C). In the event the Retired Member is more than fifteen years older than his or her Contingent Annuitant, the Allowance to be paid hereunder, as calculated prior to reduction by the Qualified Plan Allowance, shall be reduced by three percent for each full year in excess of fifteen years by which the Retired Member's age exceeds the age of the Contingent Annuitant; provided, that the reduction percentage shall not exceed eighty-five percent. If payment of the Retired Member's Allowance had commenced prior to the Retired Member's death, payment to the Contingent Annuitant as provided herein shall commence with the payment for the month following the month in which the Retired Member's death occurred. If payment of the Retired Member's Allowance had not commenced prior to the Retired Member's death, payment to the Contingent Annuitant as provided herein shall commence with the payment for the month following prior election of commencement by the Contingent Annuitant. In the event that the Contingent Annuitant dies after the Retired Member and monthly payments of the Allowance to the Retired Member and Contingent Annuitant have not been made for a total period of at least 120 months at the time of the death of the Contingent Annuitant, the monthly payments being made to the Contingent Annuitant will continue to be made to the Beneficiary for the balance of the 120 monthly payment period. In the event the Retired Member has no Contingent Annuitant at the time of his or her death, and dies prior to having received 120 monthly payments of Allowance, monthly payments that would have been made hereunder to the Contingent Annuitant will be made to the Beneficiary for the balance of the 120 monthly payment period. In addition, in either case, if the Contingent Annuitant hereunder is also the Retired Member's contingent annuitant under the Qualified Plan, the benefit assumed to be paid to the contingent annuitant under the Qualified Plan Allowance form of payment specified in Section 6C shall be paid hereunder to the Beneficiary for the balance of the 120 monthly payment period. (b) In the event of the death of a Vested Member receiving payment of a Vested Retirement Allowance, an Allowance will be paid during the life of, and to, the Vested Member's Contingent Annuitant. The Allowance paid to the Contingent Annuitant will be equal to (i) the Vested Member's Vested Retirement Allowance computed in accordance with Section 6G(b)(i) at the time of the Vested Member's termination of employment, subject to the age differential reduction specified in Section 6H(a) above and subject to any reduction for early commencement under Section 6G(b)(ii) as was applied to the Vested Member's Vested Retirement Allowance when payment of that Vested Retirement Allowance commenced; reduced by (ii) the Qualified Plan Allowance then payable to the Contingent Annuitant (under the Qualified Plan Allowance form of payment specified in Section 6C. Payments to the Contingent Annuitant as provided herein shall commence with the payment for the month following the month in which the Vested Member's death occurred. (c) In any event where payments are to be made to the Contingent Annuitant or Beneficiary, the Company, in its sole discretion, may fully satisfy such payments by making a lump sum cash payment of the present value of the remaining payments to be made. In determining such present value, the actuarial assumptions used to calculate the Company's contributions under the Qualified Plan shall be used. (I) Death of Member in Active Service or of Vested Member Prior to Commencement of Vested Retirement Allowance (a) In the event of the death of a Member in active service prior to or after his or her Normal Retirement Date and after he or she has completed five years of Service as an Officer (or was an Officer at the time of a Change in Control as set forth in Section 15), an Allowance shall be payable during the life of, and to, his or her Contingent Annuitant. The Allowance payable to the Contingent Annuitant in accordance with this Section 6(I)(a) shall commence with the payment for the month following the month in which the Member's death occurred and shall be equal to (i) the Member's Allowance as calculated in accordance with Section 6(A)(i) as if the date of the Member's death had been the 65th anniversary of the Member's birth, but on the basis of the Member's Final Average Compensation and years of Service at death, and subject to the age differential reduction specified in Section 6H(a); reduced by (ii) the Qualified Plan Allowance that would then be payable to the Contingent Annuitant if the Contingent Annuitant were the Member's spouse. (b) In the event of the death of a Vested Member prior to the commencement of the Vested Retirement Allowance, an Allowance shall be payable during the life of, and to, his or her Contingent Annuitant. Payment of the Allowance in accordance with this Section 6(I)(b) shall commence as of the first day of the calendar month as is elected by the Vested Member's Contingent Annuitant in writing filed with the Committee prior to the first day of such calendar month, which shall be no sooner than the first day of the calendar month coincident with or next following the later of the Vested Member's death or the 55th anniversary of the Vested Member's birth and no later than the first day of the calendar month coincident with or next following the 65th anniversary of the Vested Member's birth. The Allowance payable hereunder shall be equal to the Vested Member's Vested Retirement Allowance computed in accordance with Section 6(G)(b)(i) at the time of the Vested Member's termination of employment, subject to the age differential reduction specified in Section 6(H)(a) and subject to any reduction for early commencement under Section 6(G)(b)(ii) as would have been applied to the Vested Member's Vested Retirement Allowance if payment of the Vested Retirement Allowance had commenced to the Vested Member when payment of the Allowance hereunder commences, reduced by the Qualified Plan Allowance that would then be payable to the Contingent Annuitant if the Contingent Annuitant were the Vested Member's spouse and had coverage by the Vested Member Spouse's Allowance under the Qualified Plan. (c) In any event where payments are to be made to the Contingent Annuitant, the Company, in its sole discretion, may fully satisfy such payments by making a lump sum cash payment of the present value of the remaining payments to be made. In determining such present value, the actuarial assumptions used to calculate the Company's contributions under the Qualified Plan shall be used. (J) Adjustments to Allowance as A Result of Increases in Cost of Living (a) Beginning as of July 1 of the year for which the cumulative percentage change in the CPI-U (as defined in (b) below) exceeds 20%, but not earlier than July 1, 1993, and as of each July 1 thereafter, the Allowance then being paid to or with respect to a Member (other than a Vested Member whose employment terminated prior to January 1, 1993) shall be increased by an adjustment amount, not less than zero, determined by multiplying (i) (1) in the case of an Allowance being paid to the Member, the amount of the Allowance originally paid to the Member which is then being paid, or (2) in the case of an Allowance being paid with respect to a Member: (A) and if an Allowance had previously been paid to that Member, the amount of the Allowance originally paid to the Member which is then being paid to the Contingent Annuitant or Beneficiary; or (B) and an Allowance had not previously been paid to that Member, the amount of the Allowance originally paid to the Contingent Annuitant or Beneficiary which is then being paid; by (ii) a percentage (rounded to the nearest 1/100 of 1%) equal to 75% of the cumulative percentage change in the CPI-U for the year in excess of 20%, but not more than the applicable cumulative maximum percentage as each is defined in (b) below). (b) The terms specified below which are used in (a) above shall have the meanings set forth below, unless the context clearly dictates another meaning. (i) "CPI-U" means the annual average figure under the Consumer Price Index for All Urban Consumers, U.S. City Average of All Items (1982-1984=100), or its successor, as published by the United States Bureau of Labor Statistics. (ii) "cumulative percentage change in the CPI-U" for a year is calculated by dividing the difference between the CPI-U for the prior year and the CPI-U for the year prior to the year in which the Allowance originally commenced by the CPI-U for the year prior to the year in which the Allowance originally commenced, and rounding to the nearest 1/100 of 1% (e.g., for purposes of determining the cumulative percentage change in the CPI-U for 1993 for a Member whose Allowance commenced in 1990, subtract the CPI-U for 1989 from the CPI-U for 1992, then divide the result by the CPI-U for 1989 and round to the nearest 1/100 of 1%). Notwithstanding any provisions herein to the contrary, in all cases when the Allowance commenced before January 1, 1989, the cumulative percentage change in the CPI-U for a year shall be calculated by dividing the difference between the CPI-U for the prior year and the CPI-U for 1991 by the CPI-U for 1991, rounding to the nearest 1/100 of 1%, and adding 20%. (iii) "cumulative maximum percentage" is 3% for the first year in which an adjustment is first made hereunder and for each succeeding year is 3% plus 103% of the prior year's cumulative maximum percentage, rounded to the nearest 1/100 of 1% (e.g., 3% for the first year adjustment, 6.09% for the second year, 9.27% for the third year and so on). (c) The provisions of this section 6(J) are intended to operate and apply in the same manner and fashion as the Pension Benefit Adjustments under the Qualified Plan. Section 7. ADMINISTRATION OF THE PLAN, POWER AND AUTHORITY The Committee shall have full power and authority to construe, interpret and administer the Plan. All decisions, actions, or interpretations of the Committee shall be final, conclusive, and binding upon all parties. If any person objects to any such decision, action or interpretation, formally or informally, the expenses of the Committee and its agents and counsel shall be chargeable against any amounts otherwise payable under the Plan to or on account of the Participant. Section 8. NO LIABILITY OF COMMITTEE MEMBERS No member of the Committee shall be personally liable by reason of any contract or other instrument executed by him or on his or her behalf in his or her capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other Officer, employee, or Director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated against any cost or expense (including counsel fees) or liability (including any sum paid with the approval of the Board in settlement of a claim) arising out of any act or omission to act in connection with the Plan, unless arising out of such person's own fraud or bad faith. Section 9. RIGHT TO AMEND, SUSPEND, OR TERMINATE PLAN The Board reserves the right at any time to amend, suspend, or terminate the Plan, in whole or in part and for any reason, and without the consent of any Member, Contingent Annuitant or Beneficiary; provided that no such amendment, suspension or termination shall adversely affect rights to receive any amount to which Members, Contingent Annuitants or Beneficiaries have become entitled prior to such amendment, suspension or termination; further provided, that upon any such amendment, suspension or termination after a Change in Control, any Member who has not completed five years of Service shall become fully vested in the Vested Retirement Benefit as though such Member had completed five years of Service pursuant to Section 15. Section 10. NO ALIENATION OF BENEFITS Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, or encumbrance of any kind nor in any manner be subject to the debts or liabilities of any person, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. If any person shall attempt to, or shall, alienate, sell, transfer, assign, pledge, attach, charge, or otherwise encumber any amount payable under the Plan, or any part thereof, or if by reason of his or her bankruptcy or other event happening at any such time such amount would be made subject to his or her debts or liabilities or would otherwise not be enjoyed by him, then the Committee, if it so elects, may direct that such amount be withheld and that the same or any part thereof be paid or applied to or for the benefit of such person, his or her spouse, children or other dependents, or any of them, in such manner and proportion as the Committee may deem proper. Any such payment or application shall be in complete satisfaction of the payment which otherwise would have been made to or with respect to the Member. Nothing in the foregoing procedure shall preclude the Committee's having the payment entitlement judicially settled. Section 11. PERIODIC REVIEW OF PLAN In order to assure the continued realization of the purposes of the Plan, the Board and the Committee shall review the Plan, and the Committee may suggest amendments to the Board, periodically. Section 12. GENERAL LIMITATIONS AND PROVISION Nothing contained in the Plan shall give any Officer the right to be retained in the employment of the Company or affect the right of the Company to dismiss any Officer. The adoption of the Plan shall not constitute a contract of employment between the Company and any Officer. No Officer shall receive any right to be granted an Allowance hereunder nor shall any such Allowance be considered as compensation under any employee benefit plan of the Company, except as otherwise determined by the Company. Section 13. SOURCE OF PAYMENTS All payments of Allowances provided for under the Plan shall be paid in cash from the general funds of the Company; provided, however, that such payments shall be reduced by the amount of any payments made to the Member or his or her spouse, dependents, Contingent Annuitant, Beneficiaries or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Member shall have no right, title, or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind between the Company and any Members. To the extent that any Member acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. Section 14. UNFUNDED PLAN; GOVERNING LAW The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated personnel and all rights hereunder shall be governed by and construed in accordance with the laws of New York. Section 15. CHANGE IN CONTROL Notwithstanding anything else herein to the contrary, if after a Change in Control (i) the employment of a Member is terminated (whether by the Company or for Good Reason), or (ii) a Member ceases to be an Officer, then any such Member who has no Vested Retirement Allowance shall be entitled to a Vested Retirement Allowance as though such Member had completed five years of Service as an Officer for purposes of Section 6(G). "Good Reason" shall mean a determination by the Member in good faith that there has been any (i) material change by the Company of the Member's functions, duties or responsibilities which change would cause the Member's position with the Company to become of less dignity, responsibility, importance, prestige or scope including, without limitation, the assignment to the Member of duties and responsibilities inconsistent with his or her positions; (ii) assignment or reassignment by the Company of the Member without the Member's consent, to another place of employment more than 50 miles from the Member's current place of employment; (iii) liquidation, dissolution, consolidation or merger of the Company which has not been approved by a majority of those members of the Board who were members of the Board prior to the Change in Control, or transfer of all or substantially all of its assets, other than a transaction or series of transactions in which the resulting or surviving transferee entity has, in the aggregate, a net worth at least equal to that of the Company and assumes this Plan and all obligations and undertakings of the Company hereunder; or (iv) reduction in the Member's total compensation or any component thereof, by written notice to the Company, specifying the event relied upon for such termination and given at any time within 6 months after the occurrence of such event. Section 16. PAYMENT OF ALLOWANCE If in the judgment of the Committee, any person entitled to the payment of an Allowance hereunder is incapable of receiving and legally receipting for such payment, payment of the Allowance may be made to such other person, persons or institutions as, in the judgment of the Committee, may then be maintaining or have custody or legal responsibility for such person or his or her property. The determination of the Committee as to the identity of the proper payee in such situation shall be conclusive, and payment in accordance with such determination shall be in complete satisfaction of all rights and entitlements with respect to the Allowance so paid. Section 17. SUCCESSORS Any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company shall be bound by the terms and conditions of the Plan. 3122H.doc EX-10.18A 3 EXHIBIT 10.18A THIRD AMENDMENT Executed on May 5, 1993 and dated as of July 1, 1991, by and between ORANGE AND ROCKLAND UTILITIES, INC., a New York corporation ("Buyer"), and PITTSTON COAL SALES CORP., a Virginia corporation ("Seller"). WHEREAS, Seller has succeeded to all the assets and business of Pittston Coal Sales Company, formerly a division of The Pittston Company, a Virginia corporation; and WHEREAS, Seller and Buyer are parties to an Agreement dated as of March 14, 1984, as amended by First Amendment dated as of July 29, 1986, and Second Amendment dated as of December 1, 1986 (as so amended, the "Agreement"), and desire further to amend the Agreement as provided below. Terms used herein are used with the meanings given to them in the Agreement. References to Sections and Articles are to Sections and Articles of the Agreement. NOW, THEREFORE, the parties agree as follows: 1. Section 1.2 is hereby amended to read in its entirety as follows: "1.2 The Delivery Date shall mean May 1, 1987." 2. Section 2.1 is hereby amended in its entirety to read as follows: "2.1 (a) Seller shall sell to Buyer and Buyer shall purchase from Seller during each Contract Year a minimum of 36 ninety- five car unit trains of the Product, or 300,000 tons of the Product, whichever is greater; except that during the Contract Year ending April 30, 1993, Seller shall sell to Buyer and Buyer shall buy from Seller a minimum of 30 ninety-five car unit trains of the Product or 250,000 tons of the Product, whichever is greater. Monthly deliveries of the Product shall be made in accordance with Buyer's required delivery dates in 3-ninety-five car unit trainload lots. Seller accepts the responsibility of assuring that train cars, once delivered to the Origins, are loaded to full capacity. To the extent unit trains are delivered to the Origins but, according to records maintained by Norfolk Southern, are not loaded to full capacity, Buyer's minimum volume commitment shall be deemed to have been met. To the extent sufficient trainload capacity is not delivered to the Origins in any Contract Year to permit the shipment of 341,521 tons of the Product (or in the Contract Year ending April 30, 1993, 284,600 tons of the Product) for a reason other than a force majeure event, Buyer agrees to make up any such deficit in the following Contract Year. The existence of a deficit from a prior Contract Year shall not affect Buyer's minimum volume commitment in any succeeding Contract Year." (b) Buyer's failure to establish delivery dates, other than due to a force majeure event, shall not reduce Buyer's minimum volume commitment. Article II of the Agreement is hereby amended by adding the following Section 2.3: "2.3 In the event that Buyer should wish to purchase coal under a contract having a term of more than twelve months ("Contract Coal"), and provided such coal is in addition to the volumes to which Buyer was contractually committed as of July 1, 1991 under this and any other contracts extending more than 12 months then in effect, then Buyer shall advise Seller and offer in writing to purchase the first 63,000 tons per year of such additional Contract Coal from Seller on the terms specified in such offer. Buyer may, but is not required to, solicit bids from others prior to making such offer to Seller. Within 20 days after receipt of such offer, Seller shall either (i) accept such offer by written notice to Buyer, or (ii) offer in writing to sell such Contract Coal to Buyer on other terms specified by Seller. If Seller does not accept Buyer's offer and Buyer does not accept Seller's offer, then Buyer may purchase such Contract Coal from others." 3. Subsection (d) of Section 3.5 is hereby amended in its entirety to read as follows: "(d) 'year' or 'Contract Year' means, unless otherwise specified or required by the context: the period of twelve months commencing on July 1, 1991, and ending on June 30, 1992; the period of ten months commencing on July 1, 1992, and ending on April 30, 1993; and the period of twelve months commencing on each May 1 thereafter." 4. Section 4.2 of Article IV of the Agreement is hereby amended to read in its entirety as follows: "4.2 (a) The typical quality of the Product delivered hereunder, at the Lovett Plant, shall be as follows: Typical Coal Specifications (as received basis) Moisture 7.0% Fixed Carbon 52.0% Approximate Volatile Matter 33.0% Min. Ash 7.0% Hardgrove Grind (HGI) See Section 4.2 (b) AST (Initial deformation in reducing atmosphere) 2650oF Sulfur (SO2) 1.0 lbs. S02 Mmbtu Max. Btu/Lb. 13,000 Min. Should Seller deliver product hereunder, at the Lovett Plant, which fails to meet the following coal specifications, then Buyer shall have the right to suspend shipments from Seller in accordance with Section 4.3 hereof. Individual Shipment Suspension Limits (as received basis) Volatile Matter 30.0% Min. AST (Initial deformation in reducing atmosphere) 2450oF Min. Sulfur (SO2) 1.0 lbs. S02 Mmbtu Max. Moisture 8.0% Max. Btu/Lb. 12,800 Min. Hardgrove Grind See Section 4.2 (b) 30-Day Suspension Limits (as received basis) Ash 10.0% Max. 90-Day Suspension Limits (as received basis) Moisture 7.0% Max. Btu/Lb. 12,800 Min. Hardgrove Grind See Section 4.2 (b) 5. New Section 4.2 (b) is hereby added to Article IV: "4.2 (b) Individual Shipment Suspension Limits (as received basis) Moisture Above 7% 7% and (Maximum 8%) Below 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 a HGI of 44 or above. 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. 90-Day Suspension Limits (as received basis) The following formula will apply: Btu/Lb. x HGI Index greater than or equal to 600 1000 No variation in the minimum standards for Hardgrove Grind are permitted due to error tolerances assumed by testing laboratories, however, all HGI analyses shall be performed in duplicate with the higher of the two results governing for contract administration purposes. However, if the standards used by ASTM for evaluating Hardgrove Grind 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." 6. Buyer agrees that coal produced at the Holston (formerly, GEX) preparation plant in Pike County, Kentucky, now operated by Holston Mining, Inc., an affiliate of Seller, and mined from such plant's feeder mines owned or controlled by affiliates of Seller is acceptable substitute coal for all purposes of the Agreement as hereby amended, provided that such coal shall be subject in all respects to ARTICLE IV, Product Quality. 7. Effective July 1, 1991 the Base Price under the Agreement as hereby amended shall be an amount per ton equal to (a) the Initial Base Price set forth in Section 5.1 as adjusted from time to time after March 31, 1983 to the end of such Pricing Period as provided in Article VI less (b) $7.398 per ton. Adjustments of the Initial Base Price from March 31, 1983 to July 1, 1991, in accordance with such Article VI, are summarized on Schedule 6.4-51 annexed hereto. The Base Price at July 1, 1991 is equal to $43.858 less $7.398 per ton, or $36.46 per ton F.O.B. railcar at the Preparation Plant. Such Base Price shall apply to coal produced at the Stone preparation plant and the Holston preparation plant and shall be adjusted from time to time in accordance with Article VI. 8. The parties hereby release all claims against each other arising under or relating to Article I, Term; Article II, Product Quantity, and Article IV, Product Quality, of this Agreement, as amended, with respect to the period before the effective date of this Third Amendment. 9. The Agreement, as hereby amended, represents the entire agreement of the parties and supersedes all prior agreements and understandings with respect to the same subject matter. 10. The Agreement, as hereby amended, is in all respects ratified and confirmed, and all of its terms, provisions and conditions, as so amended, shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective duly authorized representatives as of the day and year first above written. PITTSTON COAL SALES CORP. By /s/ Larry D. Miller Executive Vice President ORANGE AND ROCKLAND UTILITIES, INC. By /s/ Patrick J. Chambers, Jr. Senior Vice President and Chief Financial Officer Sch. 6.4-51 THE PITTSTON COMPANY ESCALATION OF ORANGE & ROCKLAND Summary of Price Components as of July 1, 1991 Cum. Adj. To Adjusted Base Base Price UMWA Labor $ 8.721 $ 2.779 $11.500 Salaried Labor & Benefits 2.873 .839 3.712 UMWA Pension & Benefit 3.100 .480 3.580 Supplies 10.161 1.685 11.846 Payroll Taxes .826 .460 1.286 Depreciation 1.898 .426 2.324 Administrative Expense 1.010 .330 1.340 Seller's Margin 1.567 .000 1.567 Workmen's Comp. & Coal Worker's Pneumoconiosis 1.807 .108 1.915 Excise Taxes and Reclamation Fees 1.150 .100 1.250 Sub-Total $33.113 $ 7.207 $40.320 Coal Royalty and KY Severance Taxes 2.887 .651 3.538 Sub-Total $36.000 $ 7.858 $43.858 Less: Price Adj. for First Pricing Period 7.398 Total $36.460 ======= EX-10.20 4 EXHIBIT 10.20 ORANGE AND ROCKLAND UTILITIES, INC. POST-DIRECTOR SERVICE RETAINER CONTINUATION PROGRAM Effective: April 8, 1987 Amended as of : April 12, 1989 June 1, 1989 April 5, 1990 April 14, 1993 ************** ORANGE AND ROCKLAND UTILITIES, INC. POST-DIRECTOR SERVICE RETAINER CONTINUATION PROGRAM In recognition of the added value of the continued service of directors who are experienced with the operations of Orange and Rockland Utilities, Inc. (the "Company") because of their length of service on the Board and to provide a benefit for such experience so as to encourage directors to continue to serve, the following Company Post-Director Service Retainer Continuation Program is hereby created: 1. Eligibility. Any director who is not otherwise covered by any retirement plan or program sponsored by the Company and who has served as a member of the Company's Board of Directors for a period of at least five continuous years shall be an "Eligible Director". 2. Retainer Continuation. Upon ceasing to be a member of the Board of Directors, an Eligible Director shall be entitled to the continuation of one hundred percent (100%) of the annual Board and Committee service retainers as in effect and being paid to such Eligible Director at the time the Eligible Director ceased to be a member of the Board of Directors, subject to the limitations contained in Paragraph 3 below. 3. Time and Manner of Payment. The retainer continuation payments shall commence (i) if the Eligible Director is living, as of the first day of the calendar month next following the later of the Eligible Director's attaining age 65 or ceasing to be a member of the Board of Directors or (ii) in the case of the death of an Eligible Director prior to commencement of payments, as of the first day of the calendar month next following the later of the 65th anniversary of the Eligible Director's birth or the Eligible Director's date of death; provided, however, if the Eligible Director has already received an installment of the annual retainer for a period extending beyond when the retainer continuation payments would otherwise begin as provided herein, the retainer continuation payments will not commence until the expiration of the period for which the retainer has been paid. The retainer continuation payments shall be made in nearly equal monthly installments equal to one-twelfth (1/12th) the annual retainer specified in Paragraph 2 above. Such payments shall be made as of the first day of each month and shall continue for a period equal to the lesser of (a) the Eligible Director's full years of service on the Board of Directors, or (b) 10 years. In the event an Eligible Director dies, either while serving on the Board or after retiring from the Board, and where payments remain to be made, the remaining payments shall be made to the beneficiary last designated by the Eligible Director in writing to the Retirement Committee, or if none, to the Eligible Director's estate. In the event of the death of a beneficiary to whom payments are due, the remaining payments shall be made to such beneficiary's estate. In the event payments are to be made to a beneficiary or to the estate of an Eligible Director or a beneficiary, the Retirement Committee, at its sole discretion and at any time, may provide for the lump-sum payment of the present value of the remaining payments, such present value to be determined by using a discount factor equal to the interest rate assumption used to calculate the Company's contribution under the Employees' Retirement Plan of Orange and Rockland Utilities, Inc. Beginning as of July 1 of the year for which the cumulative percentage change in the CPI-U (as defined below) exceeds 20%, but not earlier than July 1, 1993, and as of each July 1 thereafter, the retainer continuation payments then being paid to or with respect to an Eligible Director shall be increased by an adjustment amount, not less than zero, determined by multiplying the original retainer continuation payment amount, by a percentage (rounded to the nearest 1/100 of 1%) equal to 75% of the cumulative percentage change in the CPI-U for the year in excess of 20%, but not more than the applicable cumulative maximum percentage (as each is defined below). The terms specified below which are used above shall have the following meanings unless the context clearly dictates another meaning: (x) "CPI-U" means the annual average figure under the Consumer Price Index for All Urban Consumers, U.S. City Average of All Items (1982-1984=100), or its successor, as published by the United States Bureau of Labor Statistics. (y) "cumulative percentage change in the CPI-U" for a year is calculated by dividing the difference between the CPI-U for the prior year and the CPI-U for the year prior to the year in which the retainer continuation payment originally commenced by the CPI-U for the year prior to the year in which the retainer continuation payment originally commenced, and rounding to the nearest 1/100 of 1% (e.g., for purposes of determining the cumulative percentage change in the CPI-U for 1993 for an Eligible Director whose retainer continuation payment commenced in 1990, subtract the CPI-U for 1989 from the CPI-U for 1992, then divide the result by the CPI-U for 1989 and round to the nearest 1/100 of 1%). Notwithstanding any provisions herein to the contrary, in all cases when the retainer continuation payment commenced before January 1, 1989, the cumulative percentage change in the CPI-U for a year shall be calculated by dividing the difference between the CPI-U for the prior year and the CPI-U for 1991 by the CPI-U for 1991, rounding to the nearest 1/100 of 1%, and adding 20%. (z) "cumulative maximum percentage" is 3% for the first year in which an adjustment is first made hereunder and for each succeeding year is 3% plus 103% of the prior year's cumulative maximum percentage, rounded to the nearest 1/100 of 1% (e.g., 3% for the first year adjustment, 6.09% for the second year, 9.27% for the third year and so on). 4. Nature of Payment. The retainer continuation payments are purely personal to the Eligible Director and may not be assigned, alienated, anticipated or encumbered. Any attempt to assign, alienate, anticipate or encumber the payments shall result in the Eligible Director's forfeiture of all rights to any retainer continuation payments hereunder. 5. Source of Payments. All payments of awards provided for under the Program shall be paid in cash from the general funds of the Company; provided, however, that such payments shall be reduced by the amount of any payments made to the director or his or her dependents, beneficiaries or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the director shall have no right, title, or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Program and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind between the Company and any persons. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. 6. Administration. This Program shall be administered by the Retirement Committee of the Company which shall have the full power and authority to construe, interpret and administer the Program. All decisions, actions or interpretations of the Retirement Committee shall be final, conclusive and binding on all parties. 7. Amendment. The Board of Directors reserves the right to amend the Program in whole or in part at any time without the specific consent of any Eligible Director; provided, however, that no such amendment shall adversely affect retainer continuation payments then being made or the rights of any then Eligible Director to receive retainer continuation payments earned prior to the amendment, calculated on the basis of such Eligible Director's continuous service as a director at the time of the amendment and the annual retainer then in effect. 8. Termination. The Board of Directors reserves the right to terminate the Program at any time. Termination of the Program shall not affect the retainer continuation payments then being made. Such payments shall be continued in accordance with the terms hereof. In addition, termination of the Program shall not affect the right of any Eligible Director as of the date of termination to receive retainer continuation payments which shall be calculated on the basis of the continuous service of the Eligible Director as of the time of termination of the Program and the annual retainer then in effect. Such retainer continuation payments shall commence and be paid in accordance with the otherwise applicable provisions of the Program (Paragraph 3). 9. Change in Control. Notwithstanding anything else herein to the contrary, in the event of the occurrence of a Change in Control, if any, each Eligible Director shall have the right to receive and shall be paid, as soon as practicable after such occurrence becomes reasonably certain, a lump sum cash amount equal to the present value of the retainer continuation payments that would otherwise have been paid pursuant to Paragraph 3, on the assumption that, (a) payments (including any payments already made) would be made for a period equal to the lesser of the Eligible Director's full years of service on the Board of Directors or 10 years, and (b) that, with respect to Eligible Directors who were not yet receiving retainer continuation payments, such payments would commence on the later of the Eligible Director's attaining age 65 or the date of the Change in Control. Such present value shall be determined by using a discount factor equal to the interest rate assumption used to calculate the Company's contributions under the Employees' Retirement Plan of Orange and Rockland Utilities, Inc. as of the date of the Change in Control. As used in the Plan, "Change in Control" shall mean the happening of any of the following: (a) receipt by the Company of a report on Schedule l3D filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "1934 Act") disclosing that any person, group, corporation or other entity is the beneficial owner, directly or indirectly, of 20 percent or more of the outstanding stock of the Company; (b) purchase by any person (as defined in Section 13(d) of the 1934 Act), corporation or other entity, other than the Company or a wholly-owned subsidiary of the Company, of shares pursuant to a tender or exchange offer to acquire any stock of the Company (or securities convertible into stock) for cash, securities or any other consideration, provided that, after consummation of the offer, such person, group, corporation or other entity is the beneficial owner (as defined in Rule l3d-3 under the 1934 Act), directly or indirectly, of 20 percent or more of the outstanding stock of the Company (calculated as provided in paragraph (d) of Rule l3d-3 under the 1934 Act in the case of rights to acquire stock); (c) approval by the stockholders of the Company of any (i) consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of stock of the Company would be converted into cash, securities or other property, other than a consolidation or merger of the Company in which holders of its common stock immediately prior to the consolidation or merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger as immediately before, or (ii) sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company; or (d) a change in the majority of the members of the Board of Directors within a 12-month period unless the election or nomination for election by the Company's stockholders of each new director was approved by the vote of two-thirds of the directors then still in office who were in office at the beginning of the 12-month period. 10. Effective Date. This Program shall be effective on April 8, 1987. DIR-RET.PRG EX-13 5 EXHIBIT 13 Review of the Company's Results of Operations and Financial Condition Orange and Rockland Utilities, Inc. and Subsidiaries Financial Performance Earnings per average common share for 1993 were $3.06, compared to $3.15 in 1992 and $3.12 in 1991. The 1993 earnings were adversely affected by the cost of the independent investigation described below under "Events Affecting the Company". Despite the controversy surrounding the Company during the second half of 1993, the core utility business produced strong operating results for the year which allowed the company to maintain its sound financial condition. Dividends paid for the year increased to $2.49 per share from the $2.43 paid in 1992 and the $2.37 paid in 1991. The Company has maintained a stable capital structure of 47% long-term debt, 6% preferred stock and 47% common equity. Consolidated earnings available for common stock were $41.5 million in 1993, $42.3 million in 1992 and $41.3 million in 1991. Earnings per average common share are summarized as follows: 1993 1992 1991 Utility operations $3.37 $3.12 $3.00 Investigation costs (.29) - - Diversified activities (.02) .03 .12 Consolidated earnings per share $3.06 $3.15 $3.12 As a result of the positive effects of the electric and gas rate agreements in New York and New Jersey and the Company's successful cost containment programs, earnings from utility operations increased $.25 in 1993, as compared with 1992. This increase was more than offset by the cost of conducting the independent investigation described below. The earnings attributable to the diversified activities decreased $.05 and $.09 per share when comparing 1993 to 1992 and 1992 to 1991, respectively. The decline in non-utility earnings is primarily a result of continuing competitive pressure in the gas marketing business which substantially limited the subsidiary's gross profit margin, as well as by the disappointing results of operations by the communications subsidiary. The earned return on common equity was 11.2% in 1993, compared to 11.9% in 1992, and 12.1% in 1991. Book value per share at year-end 1993 was $27.79 compared to $27.22 and $26.33 in 1992 and 1991, respectively. The Company continued to provide a fair and equitable return on shareholders' investments by increasing the dividend paid on common stock by $.06 in 1993, 1992 and 1991. This marks the eighteenth consecutive year dividends paid to shareholders have been increased. Events Affecting the Company During the third quarter of 1993, the Rockland County (NY) District Attorney charged a then Vice President of the Company with grand larceny, commercial bribery and making illegal political contributions and commenced a related investigation of the Company. Two other former employees reporting to the Vice President were charged with grand larceny. The Board of directors promptly formed a Special Committee of outside directors (Special Committee), with authority to take any steps deemed necessary or desirable, to conduct an independent investigation into such matters, in order to determine to what extent there were any other improprieties and to make recommendations as to any necessary remedial measures. The Special Committee has retained investigative counsel and an accounting firm to assist its inquiry. The New York Public Service Commission (NYPSC) and New Jersey Board of Regulatory Commissioners (NJBRC) also began investigations to determine the impact of these events on the Company's ratepayers. The Company is cooperating fully in the inquiries and has pledged to return to customers any funds that are discovered to have been misappropriated. Under agreements reached with the NYPSC and the NJBRC, the Company agreed to refund $345,000 to its New York ratepayers during the period November 1993 through January 1994 and Rockland Electric Company (RECO) is refunding $94,100 to New Jersey ratepayers in February and March 1994 through reductions in the applicable fuel adjustment charges. Any misappropriated funds identified with Pike County Light & Power Company's (Pike) electric and gas operations in Pennsylvania will also be promptly refunded to ratepayers in that state. On November 4, 1993 the Company signed a Joint Cooperation Agreement with the Rockland County District Attorney's office which creates an Inspector General's office within the Company to monitor its efforts to implement and maintain programs to ensure the highest ethical standards of business conduct. The agreement also specified a number of other steps the Company will undertake to aid in the ongoing investigation and prevent any reoccurrence. As a result of the agreement and the Company's continued cooperation with the inquiry, the District Attorney has agreed not to file any criminal charges against the Company or any of its subsidiaries in connection with the current investigation. The former Company officer and two former employees charged by the District Attorney subsequently pleaded guilty to all counts. The District Attorney's Office has identified $374,124 as representing the amount of funds misappropriated by these individuals. As part of their plea, the two former employees agreed to a partial restitution agreement pursuant to which they will reimburse to the Company a sum of $199,709 prior to their sentencing, scheduled for May 4, 1994. The investigations being conducted by the Special Committee of the Board of Directors and the District Attorney, along with those of the NYPSC and the NJBRC, are still under way. The Company intends to take all appropriate actions to protect the interests of its customers and shareholders. It is not possible to predict at this time the extent of additional refunds that may be required by the NYPSC, if any. During 1993 the Company incurred expenses of $6.1 million for legal counsel, accountants, and other consultants in connection with the investigation and related matters. These activities are currently anticipated to continue through the first half of 1994. It is currently estimated that the Company will incur from $3.0 to $6.0 million of expenses in 1994 to conclude the investigation. These expenditures are not recoverable from ratepayers. The Company will attempt to offset these costs to the extent possible by achieving savings in the cost of operations during the year. During the fourth quarter, James F. Smith was terminated for cause as Chief Executive Officer and removed as Chairman of the Board of Directors, and Victor J. Blanchet, Jr. was appointed to serve as Acting Chief Executive Officer. In order to fully protect its interests, the Company has initiated lawsuits in federal and state courts to recover misappropriated funds. In related activities, two lawsuits have been brought by shareholders and another by ratepayers seeking damages resulting from these events. For more information on these legal proceedings, refer to Note 12 of Notes to Consolidated Financial Statements. Results of Operations The discussion which follows identifies the principal causes of the significant changes in the amounts of revenues and expenses affecting income available for common stock by comparing 1993 to 1992 and 1992 to 1991. 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. The following is a summary of the changes in earnings available for common stock: Increase (Decrease) From Prior Year 1993 1992 (Millions of Dollars) Utility Operations: Operating revenues $39.8 $24.6 Energy costs 15.5 .4 Net revenues from utility operations 24.3 24.2 Other utility operating expenses and taxes 20.4 21.1 Diversified revenues 87.4 88.5 Diversified operating expenses and taxes 88.0 88.8 Income from operations 3.3 2.8 Other income and deductions (5.6) (.6) Interest charges (1.3) 1.3 Net income (1.0) .9 Preferred dividends (.1) (.2) Earnings available for common stock $ (.9) $ 1.1 Electric Operating Revenues and Sales Electric operating revenues, net of fuel and purchased power costs, increased by 6.1% or $20.0 million and 5.2% or $16.4 million in 1993 and 1992, respectively. The components of these changes are attributable to the following factors: Increase (Decrease) From Prior Year 1993 1992 (Millions of Dollars) Change in rates, sales mix and other operating revenues $17.9 $14.3 Fuel cost recoveries 2.1 (3.7) Sales volume changes 3.8 (1.4) Subtotal 23.8 9.2 Sales for resale (.6) (2.6) Total electric revenues 23.2 6.6 Electric energy costs 3.2 (9.8) Net electric revenues $20.0 $16.4 The increase in electric revenue in 1993 was the result of rate agreements in New York and New Jersey as well as higher sales volumes. The increase in 1992 was the result of the rate agreements. Electric sales to customers for the last five years are shown in the accompanying table: [Graphics Chart; see Appendix A of Exhibit 13] The changes in electric sales by class of customer from the prior year are as follows: 1993 1992 Residential 5.1% (4.0%) Commercial (.1%) (.4%) Industrial 4.4% 3.7% Public street lighting .6% 2.8% Sales to public authorities 2.5% (4.4%) Warmer summer weather in 1993, and an increase in the number of customers compared to the previous year, resulted in increased electric retail sales of 3.5% compared to a decrease of .4% in 1992. The decrease during 1992 was principally the result of cooler summer weather which was partially offset by the increased number of customers when compared to 1991. The Company is committed to continuing to meet the energy needs of its customers by pursuing least-cost methods. Demand-Side Management (DSM) programs, which are designed to reduce peak load, encourage efficient energy usage and reduce the need for costly investments in new generating capacity, continue to be a priority. These efforts resulted in the Company fully achieving the DSM goals established by the NYPSC in the 1990 electric rate case, producing an energy- efficiency savings of approximately 126,400 Mwh in 1993 and 88,200 Mwh in 1992. As a result, the Company earned the maximum allowable incentive provided by the NYPSC approved rate agreement, an additional 100 basis points on the Company's return on equity applicable to New York electric operations in 1993 and 90 additional basis points in 1992. In addition to DSM, the Company continues to actively seek cost effective energy supply options, such as independent power producers and purchase power agreements with other utilities. An innovative rate-making procedure called Regulatory Decoupling Mechanism (RDM), which became effective January 1, 1991, required among other things, the reconciliation of actual electric sales revenue based on usage in the Company's New York franchise territory to the level allowed in rates, thereby minimizing the impact of future sales volume changes on earnings. The Company's earnings from New York electric operations under the RDM agreement are dependent on its success in achieving its DSM and customer service incentive goals, as well as controlling operation and maintenance costs within levels provided for in rates. Under the agreement, New York electric revenue targets, net of fuel and taxes, amounted to $223.2 and $213.5 million, compared to actual sales revenues based upon usage of $230.1 and $214.0 million, in 1993 and 1992, respectively, requiring the Company to record revenue reductions of $6.9 million in 1993 and $.5 million in 1992. The Company's success in achieving its DSM and customer service goals allowed it to earn incentives amounting to $3.1 million for DSM and $.5 million for customer service achievements in 1993, compared to $2.7 million for DSM and $.5 million for customer service achievements in 1992. The RDM agreement was scheduled to expire in 1993. However, the NYPSC has extended the agreement through June 30, 1994 and the Company has requested a further extension through December 31, 1994. The NYPSC has not as yet acted on the Company's request which would maintain the reconciliation of electric sales to the amount provided for in rates. If the RDM agreement is not extended past June 30, 1994 future electric earnings from the Company's New York operations, in addition to its New Jersey and Pennsylvania operations, will be affected by changes in sales volumes resulting from the strength of the economy, weather conditions and the conservation efforts of customers. Sales for resale decreased by 7.3% in 1993 after decreasing by 15.0% in 1992. Revenues from these sales are primarily a recovery of costs and, under the applicable tariff regulations, have a minimal impact on the Company's earnings. Electric Energy Costs The cost of fuel used in electric generation and purchased power increased 2.4% or $3.2 million in 1993 after decreasing 6.8% or $9.8 million in 1992. The components of these changes in electric energy costs are as follows: Increase (Decrease) From Prior Year 1993 1992 (Millions of Dollars) Prices paid for fuel and purchased power $(1.8) $(2.0) Changes in Kwh generated or purchased 4.7 (2.3) Deferred fuel charges .3 (5.5) Total $ 3.2 $(9.8) The price paid for fuel and purchased power per kilowatt hour over the last five years is shown in the following table: [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 provides for the sharing of up to a 20% variation between actual costs and forecast fuel targets, to a maximum of $1,762,000. In 1993, 1992, and 1991 pre-tax earnings were enhanced by $755,000, $800,000 and $364,000, respectively, as a result of this mechanism. The Company maintains an aggressive program of managing its sources of fuel and energy purchases to provide its customers with the lowest cost of energy available at any given time. The Company's ability to burn coal and natural gas has enabled it to reduce its use of fuel oil significantly. Energy is purchased from other utilities 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. The sources of electricity available for sale during the last three years are as follows: 1993 1992 1991 Source of Electricity Sold: Company generation: Oil 5% 10% 14% Natural gas 16 21 22 Coal 33 33 36 Hydro 4 3 3 Other supply: Purchased power 42 33 25 Total 100% 100% 100% Gas Operating Revenues and Sales Net gas revenues increased 6.8%, or $4.3 million, and 14.1%, or $7.8 million, for 1993 and 1992, respectively. These changes are attributable to the following factors: Increase (Decrease) From Prior Year 1993 1992 (Millions of Dollars) Change in rates, sales mix and other operating revenues $ 5.2 $ 5.7 Gas cost recoveries 13.8 8.2 Sales volume changes .2 6.3 Subtotal 19.2 20.2 Sales to interruptible customers (.8) (2.1) Sales for resale (1.8) (.1) Total gas revenues 16.6 18.0 Gas energy costs 12.3 10.2 Net gas revenues $ 4.3 $ 7.8 The increase in gas revenues in 1993 was due to the recovery of higher purchased gas costs than experienced in the previous year and increased gas rates as a result of a September 30, 1992 gas rate agreement. Under the 1992 rate agreement the level of firm gas sales in New York is subject to a weather normalization adjustment. As a result, fluctuations in future gas sales due to weather conditions will have a minimal impact on earnings. The increase in 1992, prior to the agreement, was primarily attributable to an increase in sales reflecting a colder winter than experienced in 1991. Gas sales to firm customers for the last five years are shown in the accompanying table: [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: 1993 1992 Residential 1.0% 12.4% Commercial and industrial (1.5%) 10.8% Firm gas sales increased by less than 1% in 1993 after increasing 11.9% in 1992. Sales in 1993 were affected by the increased number of customers, while 1992 was favorably affected by weather conditions which were cooler than the preceding heating season. Effective December 15, 1992, under the terms of a multi-year gas rate agreement extending through 1996, the level of firm sales in New York is subject to a weather normalization adjustment. The Company will adjust 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. Therefore, weather conditions will have a minimal impact on gas revenues through 1996. Revenues from interruptible gas customers (customers with alternative fuel sources) decreased 23.7% and 38.3% in 1993 and 1992, respectively. These sales are dependent upon the availability and price competitiveness of alternative fuel sources. As a result of applicable tariff regulations, these sales do not have a substantial impact on earnings. Gas Energy Costs Utility gas energy costs increased by 15.8%, or $12.3 million, and 15.2% or $10.2 million in 1993 and 1992, respectively. The changes in utility gas energy costs for the years 1993 and 1992 are a result of the following: Increase (Decrease) From Prior Year 1993 1992 (Millions of Dollars) Prices paid to gas suppliers* $ 2.7 $14.6 Firm and interruptible Mcf sendout (2.1) 3.3 Deferred fuel charges 11.7 (7.7) Total $12.3 $10.2 *Net of refunds received from gas suppliers. The increases in 1993 and 1992 were attributable to the increase in gas prices charged by the Company's pipeline suppliers and the deferred fuel charges. The Company continues its policy of the aggressive use of spot market purchases in order to provide price flexibility, while assuring an adequate supply of gas with a variety of long-term contracts with pipeline suppliers. The price paid for purchased gas per thousand cubic feet (Mcf) over the last five years is shown in the accompanying table: [Graphics Chart; see Appendix A of Exhibit 13] Gas costs from gas suppliers were adversely affected by the actions of the Federal Energy Regulatory Commission (FERC), which had authorized pipeline suppliers to pass through take-or-pay costs resulting from contract negotiations with gas producers to local distribution companies, including the Company. The Company is currently allowed by the NYPSC to pass through 65% of these costs while deferring the remaining dollars until the NYPSC completes a review of this matter. As of December 31, 1993, the Company had deferred $3.7 million of these costs. On April 8, 1992, the FERC issued Order No. 636. The rule requires significant changes to the structure of the natural gas industry, and more specifically, to the manner in which pipelines provide service. Order No. 636 has 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. The Company has assumed direct responsibility for its gas acquisition and transportation. The Company is well positioned to manage the new gas supply environment created by Order No. 636 due to its high load factors, geographic location and extensive gas procurement experience. 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 No. 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 during 1993 for approval of a portion of their restructuring transition costs and proposed allocation procedures to flow the approved costs through to their customers. The Company currently estimates that its obligation at December 31, 1993 for Order No. 636 transition costs will be approximately $21.5 million. The NYPSC has not as yet determined its policy with respect to recovery of transition costs. However, on October 28, 1993 the NYPSC instituted a generic proceeding to review the issues associated with Order No. 636 restructuring. Management believes that any transition costs resulting from the FERC Order should be fully recoverable in gas rates to the extent such costs were prudently incurred. 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 1993 1992 (Millions of Dollars) Other operation expenses $12.5 $10.4 Maintenance .4 2.2 Depreciation & amortization (.1) 2.1 Taxes 7.6 6.4 Total $20.4 $21.1 The cost of DSM programs increased other operation expenses in 1993 and 1992 by $8.0 million and $5.2 million, respectively. These costs are recovered in revenues on a current basis. The remaining increase in 1993, as well as the 1992 increase, was the result of higher operation expenses associated with inflationary increases in the cost of labor, material and services. Maintenance costs increased 1.0% and 5.5% in 1993 and 1992, respectively. The 1993 increase was the result of slightly higher maintenance costs in the production plants. The increase in 1992 was primarily the result of the Company's intensive program of maintaining its distribution facilities to ensure service reliability to its customers. Depreciation and amortization expenses decreased $.1 million in 1993 after increasing $2.1 million in 1992. The decrease in 1993 was the result of the amortization of certain excess depreciation reserves provided in the 1992 gas rate agreement. The increase in 1992 was the result of normal additions to plant. Taxes other than income taxes increased $3.5 million and $4.3 million in 1993 and 1992, respectively. The increase in each year was primarily the result of taxes associated with increased revenues and property taxes. Federal income tax expense increased $4.1 million in 1993 and $2.1 million in 1992. For a detailed analysis of income tax components, see Note 2 of Notes to Consolidated Financial Statements. Diversified Activities The Company's diversified activities consist of gas marketing, gas production, land development and communications businesses conducted by its wholly owned non-utility subsidiaries. Diversified revenues increased $87.4 million and $88.5 million in 1993 and 1992, respectively. The increase in revenues over the last two years are primarily the result of gas marketing revenues, which were favorably affected by increased customers and higher sales volumes. Operating expenses, including cost of gas marketing sales, depreciation and taxes, increased $88.0 million and $88.8 million in 1993 and 1992, respectively. These increases are directly related to gas marketing purchases which were $85.9 and $86.7 million higher in 1993 and 1992, respectively. Other expenses of operation, maintenance, depreciation and taxes increased $2.1 million in 1993 and 1992. Operating income from diversified activities decreased by $.6 million and $.3 million in 1993 and 1992, respectively. The decline was a result of lower gross profit margins realized by the gas marketing subsidiary and operating losses sustained by the communication subsidiary. The Company will continue to look to its gas marketing activities to make positive contributions to operating results in the future. The Company's investment in real estate and communication ventures is modest and not material to the consolidated operating results. The health of the economy will have a significant impact on future performance of these investments. Other Income and Deductions and Interest Charges Other income and other deductions decreased by $5.6 million in 1993 when compared to 1992. The most significant reason for the decrease was the cost of the investigation and related matters described under "Events Affecting the Company" which amounted to $6.1 million. Interest charges decreased $1.3 million or 3.6% in 1993 after increasing $1.3 million, or 3.7%, in 1992. The 1993 decrease is the result of refinancing certain of the Company's long-term issues, taking advantage of the lower interest rates available. The 1992 increase is the result of the additional interest on short-term debt and the change in allowance for borrowed funds used during construction. Liquidity and Capital Resources At December 31, 1993, the Company estimated the cost of its construction program and other capital requirements for 1994, 1995 and 1996 to be as follows: 1994 1995 1996 (Millions of Dollars) Construction expenditures $71.3 $79.1 $78.2 Retirement of long-term debt and preferred stock 1.4 20.4 1.4 Total $72.7 $99.5 $79.6 It is currently expected that the Company's capital requirements over the three-year period 1994 through 1996 will be met primarily with funds from operations. The Company does, however, anticipate that it may issue debentures during 1995, the amount, timing and terms of which would be determined by market conditions at the time of issuance. The proceeds of such debt issuance would be used to refinance the Company's First Mortgage Bonds, Series H, which mature during 1995 and to reduce short-term debt. In response to the favorable interest rate environment, the Company determined that it was economical to refinance certain series of its first mortgage bonds. On February 23, 1993, the Company sold at face value, $20 million of 6.14% Debentures due 2000 (Series C) and $35 million of 6.56% Debentures due 2003 (Series D), (together the "Debentures"). The net proceeds to the Company from the sale of the Debentures, together with cash provided by the Company, were used to refund, on April 3, 1993, an aggregate of $58 million principal amount of the Company's First Mortgage Bonds outstanding. The principal amount and series of First Mortgage Bonds refunded were: $21 million of 7 1/2% Bonds, Series K due 2001; $12 million of 8% Bonds, Series L due 2001; and $25 million of 8 1/8% Bonds, Series M due 2003. In addition, on February 25, 1993 RECO sold $20 million of First Mortgage 6% Bonds, Series I due 2000 (Series I Bonds). The Series I Bonds were sold at a discount to yield 6.11% to the public. The net proceeds to RECO from the sale of the Series I Bonds were used to pay the principal and redemption premium on an aggregate of $16,017,000 of RECO's outstanding First Mortgage Bonds and for other corporate purposes. The principal amount and series of First Mortgage Bonds refunded on March 27, 1993 were: $5,000,000 of 9 1/8% Bonds, Series D due 2000; $6,000,000 of 7 7/8% Bonds, Series E due 2001; $3,680,000 of 8.95% Bonds, Series F due 2004; and $1,337,000 of 10% Bonds, Series G due 1997. During 1992 the Company entered into a bond purchase agreement relating to the issuance of $55 million pollution control variable rate refunding revenue bonds in 1994 (the "1994 Bonds") through the New York State Energy Research and Development Authority (NYSERDA). The proceeds of the refunding will be utilized to redeem in 1994 the $55 million NYSERDA 10 1/4% Pollution Control Revenue Bonds (Orange and Rockland Utilities, Inc. Projects), 1984 Series (1984 Bonds) due October 1, 2014. The 1984 Bonds were issued and sold by NYSERDA on behalf of the Company in 1984 and can be called by the Company on or after October 1, 1994. Related to this action, the Company has entered into a forward interest rate swap agreement (Swap Agreement). The Swap Agreement anticipates the issuance of the 1994 Bonds by NYSERDA and the issuance by the Company of a related variable rate promissory note in a like amount to NYSERDA (1994 Company Note). Pursuant to the Swap Agreement, the Company will pay interest at a fixed rate of 6.09% to a swap counter party and will receive in return a variable rate of interest. This variable rate will be identical to the variable rate payment on the 1994 Company Note, resulting in the Company paying a fixed rate of 6.09%. The Company and its utility subsidiaries have available bank lines of credit of $59 million and O&R Energy, Inc., a non-utility subsidiary of RECO has a $15 million line of credit. Information regarding short-term borrowings during the past three years is as follows: Year Ended December 31, 1993 1992 1991 (Millions of Dollars) Weighted average interest rate at year-end 3.6% 3.7% 5.5% Amount outstanding at year-end $46.2 $41.5 $30.0 Average amount outstanding for year $35.3 $23.9 $11.3 Daily weighted average interest rate during year 3.3% 3.8% 6.0% Maximum amount outstanding at any month-end $46.2 $41.5 $30.0 The current designations by the rating services are as follows: Duff and Phelps Fitch Moody's Standard Credit Rating Investors Investors & Poor's Company Service, Inc. Service, Inc. Corp. Commercial paper D-1 F-1+ P-1 A-1 First mortgage bonds A+ AA- A2 A+ Unsecured debt A AA- A3 A+ Preferred stock A- AA- a2 A Rate Activities New York On August 29, 1990, the NYPSC approved an electric rate agreement which provided, among other things, for annual rate adjustments during the three years covered by the agreement (1991-1993) as determined through the application of the RDM procedures. These procedures provide for the reconciliation of revenue deviations between forecasted sales and actual sales. In addition, the RDM provides for the opportunity to recover changes in the cost of providing service such as wages, property taxes, inflation, capacity purchases, major maintenance costs, rate base additions and the cost of capital. On January 31, 1992, the Company filed with the NYPSC the first adjustment to rates pursuant to the RDM. The total increase in annual revenues of $7.4 million, or 2.4%, included the maximum allowable incentive award of 1.06% on common equity. The adjustment was approved by the NYPSC on April 22, 1992, with new rates effective May 1, 1992. On February 4, 1993 (revised April 8, 1993), the Company filed with the NYPSC the second adjustment to electric rates pursuant to the RDM which amounted to an increase in annual revenues of $11.3 million, or 3.5%, including the maximum allowable incentive award of 1.06% on common equity. The second adjustment was approved by the NYPSC on April 21, 1993, with new rates effective May 1, 1993. During the second quarter of 1992, the Company and the NYPSC Staff entered into a settlement agreement regarding an application the Company filed with the NYPSC on January 16, 1992, which requested an annual increase in gas revenues of $8.0 million, based on a rate of return on common equity of 12.75% and an overall rate of return of 10.68%. The agreement, approved by the NYPSC on September 30, 1992, provides for an annual increase in gas revenues of $3.8 million, or 2.6%. The agreement also contains a weather adjustment clause that automatically adjusts rates to offset the effects of variations in weather from that assumed for setting rates. The four-year agreement provides for an overall rate of return of 10.26%, with a base return on common equity of 12.15% including incentives of 50 basis points. On September 1, 1993, the Company filed with the NYPSC the first adjustment to rates pursuant to the settlement agreement. The total increase in annual revenues is $2.7 million or 1.8%. Although the settlement provides for an effective date of this adjustment of January 1, 1994, the Company has agreed to extend the effective date until June 30, 1994, in connection with the Order described below, which was issued in the Company's electric rate case on October 4, 1993. The Company has requested an additional extension until December 31, 1994. On January 29, 1993, the Company filed for an increase in electric rates of $17.1 million to be effective January 1, 1994. The rate application seeks a three-year (1994-1996) extension of the RDM revenue reconciliation and operating cost adjustment procedures currently in place. Continuation of a modified energy efficiency and customer service incentive programs are also requested. In addition, the Company is requesting implementation of a new power plant efficiency incentive. The rate increase request includes a 12.25% return on equity. On October 4, 1993, the NYPSC, as a result of the investigation into alleged financial improprieties described under "Events Affecting the Company", issued an Order in this case (the Order) which provided that, subject to certain conditions, the Company could agree to a six-month extension of the NYPSC's statutory suspension period to June 30, 1994. The Company has agreed to the extension of the suspension period and the associated conditions. A condition of the Order is that the Company continue existing rate- making mechanisms, prescribed under the RDM procedure, for the duration of the suspension period. In addition, the Order specified that up to $3.0 million of revenue be made subject to refund pending final resolution of the ongoing investigation. A request for further extension through December 31, 1994, under the same conditions, was made by the Company on December 17, 1993. The NYPSC staff has submitted comments opposing some of the terms of the Company's extension. At this time, the Company cannot predict the outcome of this action. The NYPSC has accepted the Company's proposal for a two-month temporary rate reduction of $115,000 per month related to the misappropriation of funds. The Company has voluntarily extended the temporary rate reduction for a third month, through January 1994, bringing the total amount refunded to New York ratepayers to $345,000. It is not possible to predict at this time the extent of additional refunds that may be required by the NYPSC, if any. New Jersey In January 1992, an increase in electric rates of $5.1 million was granted by the NJBRC in response to Rockland Electric Company's (RECO) March 18, 1991 petition requesting a $12.9 million increase in base rates. This increase includes a 12% rate of return on equity. In addition, the NJBRC initiated a Phase II proceeding in this case to address the effect of tax legislation adopted June 1, 1991. That legislation changed the procedure under which certain taxes are collected from the State's utilities. Previously, RECO had been subject to an effective gross receipts and franchise tax of 12.5%, which the utilities paid in lieu of property taxes. The new tax is based upon the number of units of energy (kwh or therms) delivered by a utility rather than revenues. The legislation also requires that utilities accelerate payment to the State of New Jersey of the taxes collected. As a result, RECO is required to make additional tax payments of approximately $16 million during the period 1993-1994. On November 12, 1992, the NJBRC approved the recovery of the additional tax over a ten-year period. A carrying charge of 7.5% on the unamortized balance was also approved. The amount of unamortized accelerated payments is included in Deferred Revenue Taxes in the accompanying financial statements. On February 26, 1993 the New Jersey Department of Public Advocate, Division of Rate Counsel ("Rate Counsel") filed a Notice of Appeal from the NJBRC Decision and Order with the Superior Court of New Jersey Appellate Division, stating as grounds for the appeal that the Decision is arbitrary and capricious and would result in unjust and unreasonable rates. Rate Counsel's brief and RECO's brief in response were filed in October 1993. The Company believes the suit is without merit and the NJBRC decision in this case will prevail. Under an agreement with the NJBRC to return to customers funds misappropriated by employees, RECO has agreed to refund to New Jersey ratepayers $94,100 through reductions in the applicable fuel adjustment charges in February and March 1994. The Company has also pledged to return any other funds that are discovered to have been misappropriated. Pennsylvania On November 19, 1992, the Company's Pennsylvania utility subsidiary, Pike, filed with the Pennsylvania Public Utilities Commission (PPUC) for a $497,000 increase in electric rates and a $36,300 increase in gas rates. The proposed rates apply to all commercial, industrial, municipal and residential customers. During April 1993, Pike and the other parties involved in this proceeding signed a stipulated agreement which provides for an increase of $270,000, or 6.6% for electric rates and $12,000, or 1.5% for gas rates. On June 10, 1993 the PPUC approved the electric rate settlement with rates effective June 11, 1993. On June 24, 1993 the PPUC approved the gas rate settlement with rates effective June 25, 1993. With regard to the ongoing investigation into alleged financial improprieties, Pike has pledged to return to ratepayers any funds discovered to have been misappropriated. Other Developments SFAS No. 112 In November 1992 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" (SFAS No. 112), which requires the recognition on an accrual basis of the cost of postemployment benefits, such as salary continuation, severance pay, and disability benefits, provided to former or inactive employees. The Company currently recognizes the cost of such benefits as they are paid. Adoption of SFAS No. 112 is mandatory for fiscal years beginning after December 15, 1993. The Company anticipates adopting this accounting standard in 1994; however, it does not expect adoption to have a material adverse effect on the Company's results of operations. 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 recognize the impact of inflation. Consolidated Statements of Income and Retained Earnings Orange and Rockland Utilities, Inc. and Subsidiaries CAPTION Year Ended December 31, 1993 1992 1991 (Thousands of Dollars) Operating Revenues: Electric (Note 1) $480,553 $456,768 $447,580 Gas (Note 1) 157,257 140,679 122,687 Electric sales to other utilities 6,414 6,965 9,575 Total Utility Revenues 644,224 604,412 579,842 Diversified activities (Note 1) 327,147 239,766 151,202 Total Operating Revenues 971,371 844,178 731,044 Operating Expenses: Operations: Fuel used in electric production 74,480 85,005 101,702 Electricity purchased for resale 62,969 49,245 42,402 Gas purchased for resale (Note 1) 89,984 77,700 67,470 Non-utility gas marketing purchases 310,467 224,579 137,848 Other expenses of operation (Note 1) 154,073 138,853 127,399 Maintenance 42,861 42,473 40,275 Depreciation and amortization (Note 1) 34,520 34,469 32,082 Taxes other than income tax(Note 14) 93,615 90,387 85,761 Federal income taxes (Notes 1 and 2) 25,869 22,232 19,717 Total Operating Expenses 888,838 764,943 654,656 Income from Operations 82,533 79,235 76,388 Other Income and Deductions: Allowance for other funds used during construction (Note 1) 40 350 677 Investigation costs (Note 12) (6,139) - - Other-net (Note 1) (937) 812 828 Taxes other than income taxes (Note 14) (94) (97) (105) Federal income taxes (Notes 1 and 2) 3,525 895 1,188 Total Other Income and Deductions (3,605) 1,960 2,588 Income Before Interest Charges 78,928 81,195 78,976 Interest Charges: Interest on long-term debt 30,384 32,238 32,518 Other interest 2,849 2,861 2,105 Amortization of debt premium and expense-net 1,116 364 320 Allowance for borrowed funds used during construction (Note 1) (236) (80) (835) Total Interest Charges 34,113 35,383 34,108 Net Income 44,815 45,812 44,868 Dividends on preferred and preference stock, at required rates 3,364 3,478 3,591 Earnings applicable to common stock 41,451 42,334 41,277 Cash dividends on common stock: $2.49, $2.43 and $2.37 33,694 32,589 31,308 Balance to retained earnings 7,757 9,745 9,969 Retained earnings, beginning of year 176,422 166,677 156,708 Retained earnings, end of year $184,179 $176,422 $166,677 Average number of common shares outstanding (000's) 13,532 13,438 13,238 Earnings per average common share outstanding $ 3.06 $ 3.15 $ 3.12 The accompanying notes are an integral part of these statements.
Consolidated Balance Sheets Orange and Rockland Utilities, Inc. and Subsidiaries CAPTION December 31, 1993 1992 (Thousands of Dollars) Assets: Utility Plant: Electric $ 931,827 $ 908,021 Gas 189,000 177,778 Common 52,525 50,263 Utility Plant in Service 1,173,352 1,136,062 Less accumulated depreciation 372,279 348,315 Net Utility Plant in Service 801,073 787,747 Construction work in progress 30,907 26,939 Net Utility Plant (Notes 1, 7, 11 and 12) 831,980 814,686 Non-utility Property: Non-utility property 35,049 34,158 Less accumulated depreciation, depletion and amortization 13,041 12,069 Net Non-utility Property (Notes 1 and 7) 22,008 22,089 Current Assets: Cash and cash equivalents (Notes 8 and 9) 14,256 15,378 Temporary cash investments (Note 9) 1,447 878 Customer accounts receivable, less allowance for uncollectible accounts of $2,026 and $1,651 (Note 1) 60,289 50,525 Accrued utility revenue (Note 1) 23,017 25,791 Other accounts receivable, less allowance for uncollectible accounts of $60 and $61 11,619 12,827 Gas marketing accounts receivable, less allowance for uncollectible accounts of $513 and $75 49,206 37,702 Materials and supplies (at average cost): Fuel for electric generation 8,951 10,865 Gas in storage 13,413 10,752 Construction and other supplies 16,698 16,708 Prepayments and other current assets 40,626 35,577 Total Current Assets 239,522 217,003 Deferred Debits: Income tax recoverable in future rates (Notes 1 & 2) 75,468 - Extraordinary property loss - Sterling Nuclear Project (Note 3) 15,481 19,879 Deferred Order No. 636 transition costs (Note 12) 21,500 - Deferred revenue taxes (Note 1) 17,588 5,135 Deferred pension and other postretirement benefits (Note 10) 7,277 2,603 Deferred fuel costs (Note 1) - 1,753 Unamortized debt expense (amortized over term of securities) 8,565 6,991 Other deferred debits 41,584 37,362 Total Deferred Debits 187,463 73,723 Total $1,280,973 $1,127,501 December 31, 1993 1992 Capitalization and Liabilities: (Thousands of Dollars) Capitalization: Common stock (Note 5) $ 67,660 $ 67,656 Premium on capital stock (Note 5) 130,313 130,298 Capital stock expense (6,108) (6,055) Retained earnings (Note 4) 184,179 176,422 Total Common Stock Equity 376,044 368,321 Non-redeemable preferred stock 42,844 42,844 Non-redeemable cumulative preference stock 443 462 Total Non-redeemable Stock (Note 5) 43,287 43,306 Redeemable preferred stock (Note 6) 4,158 5,542 Long-term debt (Notes 7 and 9) 380,266 380,202 Total Capitalization 803,755 797,371 Non-current Liabilities: Reserve for claims and damages (Note 1) 3,830 3,521 Postretirement benefits (Note 10) 6,719 - Pension costs (Note 10) 34,275 28,126 Obligation under capital leases (Note 11) 793 1,272 Total Non-current Liabilities 45,617 32,919 Current Liabilities: Lease obligation due within one year (Note 11) 479 443 Long-term debt due within one year (Notes 7 and 9) 984 1,341 Preferred stock to be redeemed within one year (Note 6) 1,384 1,384 Notes payable (Notes 8 and 9) 1,200 - Commercial paper (Notes 8 and 9) 45,000 41,500 Accounts payable 57,359 47,554 Gas marketing accounts payable 54,247 44,645 Dividends payable 752 780 Customer deposits 5,807 5,057 Accrued Federal income and other taxes 9,586 4,675 Accrued interest 9,877 9,098 Refundable gas costs 8,967 7,323 Other current liabilities 17,114 14,775 Total Current Liabilities 212,756 178,575 Deferred Taxes and Other: Deferred Federal income taxes (Notes 1 and 2) 172,672 97,124 Deferred investment tax credits (Notes 1 and 2) 18,004 18,967 Accrued Order No. 636 transition costs (Note 12) 21,500 - Refundable fuel costs (Note 1) 4,405 - Other deferred credits 2,264 2,545 Total Deferred Taxes and Other 218,845 118,636 Commitments and Contingencies (Notes 3 and 12) - - Total $1,280,973 $1,127,501 The accompanying notes are an integral part of these statements.
Consolidated Cash Flow Statements Orange and Rockland Utilities, Inc. and Subsidiaries CAPTION Year Ended December 31, 1993 1992 1991 (Thousands of Dollars) Cash Flow from Operations: Net Income $44,815 $45,812 $44,868 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 34,571 34,317 32,470 Deferred Federal income taxes 81 6,321 1,644 Deferred investment tax credit (963) (1,132) (1,172) Deferred and refundable fuel and gas costs 7,802 (6,388) 6,622 Allowance for funds used during construction (276) (430) (1,512) Changes in certain current assets and liabilities: Temporary cash investments (569) (878) - Accounts and gas marketing receivables, net and accrued utility revenue (17,286) (14,509) (14,663) Materials and supplies (737) 743 1,782 Prepayments and other current assets (5,049) 1,368 (6,830) Operating and gas marketing accounts payable 19,407 2,210 20,262 Accrued Federal and other taxes 4,911 1,506 (2,666) Accrued interest 779 (1,108) 211 Other current liabilities 3,089 1,598 1,166 Other-net (3,361) (1,560) 2,137 Net Cash Provided from Operations 87,214 67,870 84,319 Cash Flow from Investing Activities: Additions to plant (54,308) (56,438) (61,997) Allowance for funds used during construction 276 430 1,512 Net Cash Used in Investing Activities (54,032) (56,008) (60,485) Cash Flow from Financing Activities: Proceeds from: Issuance of common stock - 7,589 6,681 Issuance of long-term debt 75,000 55,000 719 Retirement of: Preference and preferred stock (1,384) (1,384) (1,385) Long-term debt (75,091) (51,159) (12,705) Capital lease obligations - net (Note 11) (443) (410) (379) Net borrowings (repayments) under short-term debt arrangements (Note 8) 4,700 11,500 17,250 Dividends on preferred and common stock (37,058) (36,067) (34,899) Change in dividends payable (28) (26) (28) Net Cash Used in Financing Activities (34,304) (14,957) (24,746) Net Change in Cash and Cash Equivalents (1,122) (3,095) (912) Cash and Cash Equivalents at Beginning of Year 15,378 18,473 19,385 Cash and Cash Equivalents at End of Year $14,256 $15,378 $18,473 Supplemental Disclosure of Cash Flow Information Cash paid during the year for: Interest, net of amounts capitalized $32,012 $35,497 $33,473 Federal income taxes $27,020 $14,450 $18,030 The accompanying notes are an integral part of these statements.
Notes to Consolidated Financial Statements Orange and Rockland Utilities, Inc. and Subsidiaries 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. 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 land development, communications, gas marketing and gas production companies. 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. Under the Company's Revenue Decoupling Mechanism agreement (the "Agreement"), New York's electric revenues are recognized in the accompanying financial statements based on targets which were established in its most recent New York electric base rate case. Any variation between actual revenues and the established targets are deferred until recovered from or returned to customers. Demand-side management and customer service performance incentives or penalties, as detailed in the Agreement, are recognized as earned. Effective December 1, 1992, the level of revenues from gas sales in New York is subject to a weather normalization adjustment that requires recovery from or refund to firm customers of 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 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 the customers during a subsequent twelve-month period. The New York Public Service Commission (NYPSC) provides for a modified electric fuel adjustment clause requiring a sharing of up to 20% of variations between actual and forecasted fuel costs annually. The sharing 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 twelve-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 overhead, allowance for funds used during construction and indirect charges for engineering and supervision. Replacement of minor items of property and the cost of repairs is 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 following composite rates based on the average depreciable plant balances at the beginning and end of the year: Year Ended December 31, 1993 1992 1991 Plant Classification: Electric 3.04% 3.04% 3.08% Gas 2.68% 3.59% 3.27% Common 6.07% 5.88% 5.80% The composite gas depreciation rate, excluding the effect of the amortization procedure as provided for in a 1992 gas rate agreement with the NYPSC, amounted to 3.01% in 1993. 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 Consolidated Edison Company of New York, Inc. The Company is the operator of the joint venture. Each participant is entitled to its proportionate share of the energy produced. The operation and maintenance expenses of the facility are shared proportionately, 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, 1993 1992 (Thousands of Dollars) Electric Utility Plant in Service $97,753 $96,712 Construction Work in Progress $ 1,124 $ 946 Federal Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return, and income taxes are allocated to its subsidiaries based on the taxable income or loss of each. 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 statement reporting purposes. The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS No. 109) "Accounting for Income Taxes" on January 1, 1993, which requires a change from the deferred method to 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 representing the probable future rate recoveries for additional deferred tax liabilities. The probable future rate recoveries (revenues) to be recorded take into consideration the additional future taxes which will be generated by that revenue. Deferred taxes are also provided on temporary differences of the Company's non-regulated subsidiaries, which are charged to expense rather than offset by regulatory assets. 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 New Jersey Board of Regulatory Commissioners (NJBRC) the expenditure has been deferred and is being recovered in rates, with a carrying charge of 7.5% on the unamortized balance, over a ten-year period. In addition, certain New York State revenue taxes included in rate base are deferred and amortized over a twelve-month period following payment in accordance with the requirements of the NYPSC. Allowance for Funds Used During Construction Allowance for funds used during construction (AFDC) is a non-cash income item and is defined in the Uniform System of Accounts as the net cost, during the period of construction, of borrowed funds used for construction purposes and a reasonable rate upon other funds, when so used. AFDC is considered a cost of utility plant. In accordance with an order issued by the FERC, AFDC is segregated in the accompanying financial statements into two components related to the source of funds from which the credits are derived. The annual rates used by Orange and Rockland Utilities, Inc. (ORU) and RECO to record AFDC are as follows: ORU RECO Year Ended Borrowed Other Borrowed Other Dec.31: Funds Funds Funds Funds 1993 3.23% -% 4.23% 5.55% 1992 3.92% .46% 4.42% 5.54% 1991 5.01% 3.29% 8.06% 3.17% AFDC amounted to .7%, 1.0% and 3.7% of earnings applicable to common stock for the years 1993, 1992 and 1991, respectively. 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. 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) concluded its audit of the Company's tax returns through 1987. Presently, the IRS is examining tax returns for 1988 and 1989. Notification of their findings for these years has not yet been received. The components of Federal income taxes are as follows: Year Ended December 31, 1993 1992 1991 (Thousands of Dollars) Charged to operations: Current $25,972 $16,069 $17,823 Deferred-net 90 6,435 2,037 Deferred investment tax credit (193) (272) (143) 25,869 22,232 19,717 Charged to other income: Current (2,630) (244) (198) Deferred-net (125) 209 39 Deferred investment tax credit (770) (860) (1,029) (3,525) (895) (1,188) Total $22,344 $21,337 $18,529 Effective January 1, 1993, the Company adopted the provisions of SFAS No. 109, which required the recording of an additional deferred tax liability of approximately $69.6 million. The adoption of SFAS No. 109 did not have a significant impact on the results of current operations because of the recording of offsetting regulatory assets for utility operations and the relatively minor impact from diversified operations. The resultant cumulative effect of a change in accounting principle of $(.1) million is included in current operations. The fiscal years 1992 and 1991 were not restated to apply the provisions of SFAS No. 109. The tax effect of temporary differences which gave rise to deferred tax assets and liabilities as of December 31, 1993 are as follows: (Thousands of Dollars) Liabilities: Accelerated depreciation $172,815 Other 30,216 Total liabilities 203,031 Assets: Employee benefits (14,417) Deferred fuel costs ( 2,707) Other (13,235) Total assets (30,359) Total $172,672 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, 1993 1992 1991 (% of Pre-tax Income) Statutory tax rate 35% 34% 34% Reduction in computed taxes resulting from: Allowance for funds used during construction - - (1) Amortization of investment tax credits (1) (2) (2) Cost of removal (2) (3) (3) Additional depreciation deducted for book purposes 4 3 3 Other (3) - (2) Effective Tax Rate 33% 32% 29% On August 10, 1993, the Budget Reconciliation Act of 1993 was signed into law. Among other things, the Act increased the corporate federal income tax rate to 35% from 34% retroactive to January 1, 1993. Pursuant to the provisions of SFAS No. 109, the Company adjusted its deferred tax and regulatory asset balances during 1993 to reflect the higher rate. The impact of this rate change was to increase the deferred tax liability by $7.6 million; however, because of the recording of offsetting regulatory assets, the increase in income tax expense was $.1 million. 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 been authorized by the NYPSC to recover all costs associated with the Sterling Nuclear Project. An annual amortization has been approved which includes a return on investment equal to the Company's current overall rate of return. Amortization of project costs applicable to New York operations will be completed in approximately two years. The NJBRC has approved a twenty-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, 1993 and 1992, the unamortized Sterling Project costs which have been approved for amortization and recovery, before reduction for deferred taxes, amounted to $16.5 million and $21.2 million, respectively. Approximately $5.6 million and $5.9 million of such recoverable costs at December 31, 1993 and December 31, 1992, respectively, 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, 1993 and 1992 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 1991, 1992 and 1993.
(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 1/1/91: 13,132,038 $65,660 428,443 $42,844 15,996 $521 $117,966 Sales 194,045 970 5,711 Conversions 1,387 7 (955) (31) 24 Balance 1/1/92: 13,327,470 66,637 428,443 42,844 15,041 490 123,701 Sales 202,488 1,013 6,575 Conversions 1,233 6 (852) (28) 22 Balance 1/1/93: 13,531,191 67,656 428,443 42,844 14,189 462 130,298 Conversions 864 4 (599) (19) 15 Balance 12/31/93: 13,532,055 $67,660 428,443 $42,844 13,590 $443 $130,313 Shares Authorized 15,000,000 820,000 1,500,000 *(in thousands) (A) At December 31, 1993, 19,977 shares of common stock were reserved for conversion of preference stock. (B) Non-Redeemable Preferred Stock (cumulative): /TABLE Par Value Callable Shares December 31, Redemption Series Outstanding 1991, 1992 and 1993 Price Per Share (Thousands of Dollars) A, 4.65% 50,000 $ 5,000 $104.25 at any time. B, 4.75% 40,000 4,000 $102.00 at any time. D, 4.00% 3,443 344 $100.00 at any time. F, 4.68% 75,000 7,500 $102.00 at any time. G, 7.10% 110,000 11,000 $101.00 at any time. H, 8.08% 150,000 15,000 $102.43 at any time. 428,443 $42,844 This stock is not subject to mandatory redemption, but rather is subject to redemption 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 ($100 par value), issued and outstanding, for the years 1991, 1992 and 1993. Shares Amount (Thousands of Dollars) Balance 12/31/90: 96,948 $ 9,695 Redemptions (13,842) (1,385) Balance 12/31/91: 83,106 8,310 Redemptions (13,842) (1,384) Balance 12/31/92: 69,264 6,926 Redemptions (13,842) (1,384) Balance 12/31/93: 55,422 $ 5,542 Shares Authorized 180,000 The Redeemable Cumulative Preferred Stock, Series I 8 1/8% is redeemable in whole or in part at the option of the Company on 30 days' minimum notice at the redemption price plus accrued and unpaid dividends to the date fixed for redemption. The redemption price per share is $101 through January 1, 1997, and $100 thereafter. The preferred stock is superior to the cumulative preference stock and common stock with respect to dividends and liquidation rights. A sinking fund provision requires that the Company, on each December 31, call for the redemption and retirement of 13,842 shares at $100 per share; provided, however, that the Company will call for redemption and retire on December 31, 1997, the remaining shares outstanding at the redemption price of $100 per share plus accrued and unpaid dividends to the date fixed for redemption. The redemption requirement for each of the four years following 1993 is as follows: $1,384,200 annually from 1994 through 1996 and $1,389,600 at maturity in 1997. 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, ORU 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. ORU has satisfied such requirements through the year 1993 by allocating an amount of additional property and expects to continue such practice in succeeding years. RECO was required under the terms of its Sixth Supplemental Indenture to make an annual sinking fund payment on June 14 of each year of $240,000 with respect to its Series "F" Bonds and, pursuant to its Seventh Supplemental Indenture, to make sinking fund payments of $333,000 on January 31 of each year with respect to its Series "G" Bonds. In March 1993 both the Series F and G Bonds were redeemed. Cash payments totaling $333,000 were made to satisfy the Series G sinking fund requirement of RECO in 1993. 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 1993 were satisfied by the allocation of an amount of additional property. During 1993, both ORU and RECO issued long-term debt and redeemed certain issues of First Mortgage Bonds. ORU issued $20 million of 6.14% Debentures due 2000 (Series C) and $35 million of 6.56% Debentures due 2003 (Series D). The net proceeds from the sale of the Series C and Series D Debentures, together with cash provided by ORU, were used to refund ORU's First Mortgage Bonds Series K, L and M in the aggregate principal amount of $58 million. RECO sold $20 million of First Mortgage 6% Bonds, Series I due 2000. The net proceeds to RECO from the sale of the Series I Bonds were used to refund RECO's First Mortgage Bonds Series D, E, F and G in the aggregate principal amount of $16,017,000, and for other corporate purposes. In addition ORU has entered into a bond purchase agreement and a forward interest rate swap agreement which anticipate the refunding of ORU's $55 million 10 1/4% Promissory Note due October 1, 2014 to the New York State Energy Research and Development Authority at its first call date in 1994. Pursuant to the swap agreement, ORU will pay interest at a fixed rate of 6.09% to a swap counter party and will receive a variable rate of interest in return. This variable rate will be identical to the variable rate payment made pursuant to the bond purchases agreement, resulting in ORU paying a fixed rate of 6.09%. Details of long-term debt at December 31, 1993 and 1992 are as follows: December 31, 1993 1992 (Thousands of Dollars) Orange and Rockland Utilities, Inc.: First Mortgage Bonds: Series H, 4 7/8% due Aug. 15, 1995 $ 17,000 $ 17,000 Series I, 6 1/2% due Oct. 1, 1997 23,000 23,000 Series K, 7 1/2% due Apr. 1, 2001 - 21,000 Series L, 8 % due Dec. 1, 2001 - 12,000 Series M, 8 1/8% due May 15, 2003 - 25,000 Promissory Notes (unsecured) 12.9% due through Feb. 15, 1996 42 68 10 1/4% due Oct. 1, 2014 55,000 55,000 9 % due Aug. 1, 2015 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 - Series D, 6.56% due Mar. 1, 2003 35,000 - Rockland Electric Company: First Mortgage Bonds: Series C, 4 5/8% due Aug. 15, 1995 2,000 2,000 Series D, 9 1/8% due Feb. 15, 2000 - 5,000 Series E, 7 7/8% due Apr. 15, 2001 - 6,000 Series F, 8.95 % due June 15, 2004 - 3,680 Series G, 10 % due Feb. 1, 1997 - 1,670 Series H, 9.59 % due July 1, 2020 20,000 20,000 Series I, 6 % due July 1, 2000 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 5,654 5,727 Secured Notes 6-7% due through Aug. 31, 1996 2,868 3,510 382,248 382,339 Less: Amount due within one year 984 1,341 381,264 380,998 Unamortized discount on long-term debt (998) (796) Total Long-Term Debt $380,266 $380,202 The aggregate amount of debt maturities-all of which will be satisfied by cash payments and the allocation of additional property, for each of the five years following 1993 is as follows: 1994- $1,397,000; 1995-$20,310,000; 1996-$1,432,000; 1997-$78,194,000; 1998- $203,000. 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 Statements of Cash Flows. At December 31, 1993, the Company and its utility subsidiaries had unsecured bank lines of credit with ten commercial banks aggregating $59.0 million. In most cases the annual fees equal to one-eighth of 1% are paid to the banks for such lines of credit. 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, O&R Energy, Inc., a non-utility subsidiary of RECO, maintains a $15.0 million line of credit with one commercial bank. There are no fees associated with this line, and borrowing, which is made at a rate of prime plus one-half percent, amounted to $1.2 million at December 31, 1993. There were no borrowings outstanding under this line at December 31, 1992 or 1991. All borrowings for 1993, 1992 and 1991 had maturity dates of three months or less. Information regarding short-term borrowings during the past three years is as follows: Year Ended December 31, 1993 1992 1991 (Millions of Dollars) Weighted average interest rate at year-end 3.6% 3.7% 5.5% Amount outstanding at year-end $46.2 $41.5 $30.0 Average amount outstanding for the year $35.3 $23.9 $11.3 Daily weighted average interest rate during the year 3.3% 3.8% 6.0% Maximum amount outstanding at any month-end $46.2 $41.5 $30.0 Note 9. Fair Value of Financial Instruments. Statement of Financial Accounting Standards No. 107 (SFAS No. 107), "Fair Value of Financial Instruments", requires disclosure of the estimated fair value of an entity's financial instrument assets and liabilities. For the Company, financial instruments consist principally of cash and cash equivalents, short-term debt, commercial paper and long-term debt. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and 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. Year Ended December 31, 1993 1992 Carrying Fair Carrying Fair Amount Amount Amount Amount (Thousands of Dollars) Cash and cash equivalents $ 14,256 $ 14,256 $ 15,378 $ 15,378 Temporary cash investments 1,447 1,447 878 878 Long-term debt 382,248 408,497 382,339 405,888 Notes Payable and Commercial paper 46,200 46,200 41,500 41,500 In addition, off balance sheet financial instruments, which consist of non-utility natural gas futures contracts used to hedge firm and anticipated gas sales commitments, had a fair value of $3,856,000 at December 31, 1993 compared to an acquisition cost of $3,944,000. 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 method, which makes no assumptions as to future compensation levels. In contrast, the projected unit of 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 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. Net periodic pension expense calculated pursuant to the requirements of SFAS No. 87 for the years 1993, 1992 and 1991 includes the following components: December 31, 1993 1992 1991 (Thousands of Dollars) Service cost-benefits earned during year $ 5,690 $ 5,896 $ 5,114 Interest cost on projected benefit obligation 12,915 10,301 9,396 Actual return on plan assets (19,383) (15,135) (32,839) Net deferred and capitalized 5,014 4,397 22,635 Net Pension Expense $ 4,236 $ 5,459 $ 4,306 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, 1993 and 1992. Plan assets are stated at fair market value and are composed primarily of common stocks and investment grade debt securities. December 31, 1993 1992 (Thousands of Dollars) Actuarial present value of benefit obligations: Vested $(153,730) $(128,611) Nonvested (9,758) (16,281) Accumulated benefit obligation $(163,488) $(144,892) Projected benefit obligation $(180,176) $(162,371) Plan assets at fair market value 182,810 169,842 Excess of plan assets over projected benefit obligation 2,634 7,471 Unamortized net transition asset at adoption of SFAS No. 87 being amortized over 15 years (8,909) (10,022) Unrecognized prior service costs 28,528 8,514 Unrecognized net gain (47,960) (27,434) Accrued Pension Cost $( 25,707) $ (21,471) 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 were 8%, 7.75% and 4%, respectively for 1993. For the year 1992, the expected long-term rate of return on plan assets, the discount rate and the annual rate of increase in future compensation assumed in determining the projected benefit obligation were 7.5%, 7% and 5%, 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 5 years of service are entitled to postretirement health care coverage. Prior to January 1, 1993 the Company recognized the cost of providing these benefits by expensing the annual insurance premiums, which amounted to $2.4 million and $1.9 million for retiree benefits during 1992 and 1991, respectively. Effective January 1, 1993 the Company adopted the provisions of Statement of Financial Accounting Standards No. 106 (SFAS No. 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions", which established revised accounting and financial reporting standards for postretirement benefits other than pensions. SFAS No. 106 requires the Company to accrue the estimated future cost of postretirement health and non-pension benefits during the years that the employee renders the necessary service, rather than recognizing the cost of such benefits after the employee has 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. A similar procedure has been adopted by the NJBRC for the operations in that state. The NYPSC has adopted a rate-making procedure for utilities under its jurisdiction whereby SFAS No. 106 costs will be fully reflected in rates over a period not to exceed five years. Any deferred costs in rates will accrue a carrying charge equal to the Company's authorized overall rate of return until recovery is completed. The Company has proposed that SFAS No. 106 costs begin to be reflected in the price of electric and gas service in New York effective with the NYPSC decisions in the Company's pending electric base rate increase and gas base rate adjustment requests. Rate recovery of SFAS No. 106 costs applicable to the Company's New Jersey operations will be addressed in the next rate filing in that state. The Emerging Issues Task Force (EITF) Committee of the FASB addressed implementation issues of SFAS No. 106 for regulated industries in EITF Issue No. 92-12. A consensus was reached that deferral of the difference between SFAS No. 106 costs and amounts allowed in rates was proper so long as the subsequent recovery period was within approximately 20 years. Accordingly, this change in accounting did not have a material impact on the Company's results of operations in that the Company was able to record a regulatory asset relating to the difference between SFAS No. 106 costs and amounts allowed in rates in each of its service jurisdictions. In order to provide funding for active employees' postretirement benefits as well as benefits paid to current retirees, 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. No contributions to the trusts have been made as of December 31, 1993. The Company's policy is to fund the SFAS 106 postretirement health and life insurance costs to the extent of rate recoveries realized for these costs. 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, 1993: (Thousands of Dollars) Accumulated postretirement benefit obligation: Fully eligible active employees $(18,386) Other active employees (27,073) Retirees (20,337) Total benefit obligation (65,796) Plan assets at fair value - Accumulated postretirement obligation in excess of plan asset (65,796) Unrecognized experience net (gain) loss 4,694 Unrecognized transition obligation 54,383 Accrued postretirement benefit cost $( 6,719) The components of net periodic postretirement benefit cost for the year ended December 31, 1993 are as follows: (Thousands of Dollars) Service Cost $ 1,535 Interest Cost 4,598 Return on plan assets - Amortization of transition obligation 2,861 Deferred and Capitalized (6,719) Net Expense $ 2,275 The calculation of the actuarial present value of benefit obligations at December 31, 1993 assumes a discount rate of 7.75% and health care cost trend rates of 9% for medical costs and 14% for prescription drugs in 1994, decreasing through 2003 to a rate of 5%. If the health care trend rate assumptions were increased by 1 percent, the accumulated postretirement benefit obligation would be increased by approximately $7.2 million. The effect of this change on the sum of the service cost and interest cost would be an increase of $.8 million. Other In addition to the plans described above, the Company sponsors a 401(k) savings plan (Savings Plan) for its employees. Eligible employees may contribute up to a combined 20% of their compensation, subject to IRS restrictions, on a before-tax and after-tax basis. The Company makes no contributions to the Savings Plan. The Company also has an unfunded non-contributory supplemental retirement plan covering certain management employees. As of December 31, 1993, the Company's obligation under this plan is fully provided for. The Company and two of its wholly owned non-utility subsidiaries have established a Subsidiary Equity Incentive Plan in which plan participants are entitled to certain rights measured as Performance Units. Each Performance Unit gives the plan participant the opportunity to receive an incentive award of up to 1% of the net gain, subject to certain restrictions, in the value of the Company's investment in the participating subsidiaries over its initial investment. As of December 31, 1993 no incentive awards have been granted under the plan. In November 1992, the FASB issued Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits", (SFAS No. 112), which requires the recognition of postemployment benefits, including health and welfare benefits, provided to former or inactive employees on an accrual basis. The Company currently recognizes the cost of such benefits as they are paid. As of December 31, 1993, the effect of adopting SFAS No. 112 will require the recognition of a liability of approximately $.8 million. SFAS No. 112 will not have a material adverse impact on the Company's results of operations because the Company expects to record an offsetting regulatory asset. The Company adopted SFAS No. 112 on January 1, 1994. Note 11. Leases. The Company maintains leases for certain property and equipment which meet the accounting criteria for capitalization. As required by Statement of Financial Accounting Standards No. 71 (SFAS No. 71), "Accounting for the Effects of Certain Types of Regulation", the Company has recorded such leases on its balance sheets. The amount of leased property included in the accompanying Consolidated Balance Sheets, and the obligation associated with such leases at December 31, 1993 and 1992 are as follows: December 31, 1993 1992 (Thousands of Dollars) Utility plant-Electric $4,245 $4,245 Less accumulated amortization 2,973 2,530 Net assets under capital lease $1,272 $1,715 Non-current liabilities $ 793 $1,272 Current liabilities 479 443 Total liabilities $1,272 $1,715 Although current rate-making practices treat all leases as operating leases, SFAS No. 71 provides that regulated utilities shall recognize as a charge against income an amount equal to the rental expense allowed for rate-making purposes. Therefore, the rental payments on these leases have no impact on the Company's Consolidated Statements of Income. The future minimum rental commitments under the Company's capital leases and noncancelable operating leases are as follows: Noncancelable Capital Operating Leases Leases (Thousands of Dollars) 1994 $ 571 $ 6,535 1995 572 4,362 1996 286 3,354 1997 - 3,187 1998 - 3,125 All years thereafter - 33,284 Total 1,429 $53,847 Less amount representing interest 157 Present value of net minimum lease payments $1,272 Rental expense for 1993, 1992 and 1991 was $6.0 million, $6.3 million and $5.6 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, gas marketing accounts receivables and the forward interest rate swap agreement. 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. As of December 31, 1993, 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 AFDC) of approximately $377,185,000 will be incurred during the years 1994 through 1998. The estimated amounts by year are: $71,325,000 in 1994; $79,085,000 in 1995; $78,160,000 in 1996; $73,295,000 in 1997; and $75,320,000 in 1998. As a requirement of the Clean Air Act of 1990, capital expenditures of $8.2 million, $12.0 million and $6.0 million for the years 1994, 1995 and 1996, respectively, are included in the amounts above. Gas Supply and Storage Contracts The Company currently has seven firm gas supply contracts. The Company has a long-term firm Canadian gas supply contract which represents 32% of the Company's annual supply. This contract is due to expire in 2002. Of the remaining domestic producer and gas marketing firm supply contracts, 8% are due to expire in 1994, 22% in 1995 and 38% in 2004. The Company also has four long-term storage and associated transportation agreements. The storage facilities are located on the pipelines of Tennessee Gas Pipeline, Columbia Gas Transmission and Texas Eastern Transmission. The earliest expiration date is 1995. The Company's gas purchase obligation for the five years following 1993 is as follows: 1994-$78,019,000; 1995-$70,870,000; 1996- $69,582,000; 1997-$71,500,000 and 1998-$73,242,000. All of the above gas supply transportation and storage contracts have provisions to extend the term of the contract. On August 7, 1987, the FERC issued an order authorizing pipeline suppliers to pass through to local distribution companies (LDC's) take-or-pay costs resulting from contract negotiations with gas producers. The Company estimates that its take-or-pay liability will total approximately $13.9 million. The Company has been allowed by the NYPSC to pass through 65% of these costs while deferring the remaining dollars until the NYPSC concludes its review of each company in its jurisdiction. As of December 31, 1993, the Company has deferred $3.7 million of these costs. On April 8, 1992, the FERC issued Order No. 636. The rule requires significant changes to the structure of the natural gas industry, and more specifically, to the manner in which pipelines provide service. Order No. 636 has 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. The Company has assumed direct responsibility for its gas acquisition and transportation. The Company is well positioned to manage the new gas supply environment created by Order No. 636 due to its high load factors, geographic location and extensive gas procurement experience. 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 No. 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 FERC during 1993 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, 1993 the Company has paid $1.5 million of transition costs. The Company currently estimates that its remaining obligation for Order No. 636 transition costs will be approximately $21.5 million. This estimate was determined from information provided in Order No. 636 FERC compliance filings by the Company's pipeline suppliers. This estimate is subject to adjustment by FERC in their deliberations on these filings and any future filings by the suppliers and the outcome of bankruptcy proceedings involving one of the Company's suppliers. The Company has provided for the unpaid liability as of December 31, 1993 with an offsetting charge to Deferred Transition Costs. The NYPSC has not as yet determined its policy with respect to recovery of transition costs. However, on October 28, 1993 the NYPSC instituted a generic proceeding to review the issues associated with Order No. 636 restructuring. Management believes that any transition costs resulting from the FERC order should be fully recoverable in gas rates to the extent such costs were prudently incurred. In addition, O&R Energy, Inc., a non-utility subsidiary of RECO, has entered into futures contracts that have been designated as hedges against firm fixed-price, fixed-quantity and anticipated sales commitments. The gain and losses on futures contracts are included in the cost of gas sold when the physical delivery of the gas occurs. The aggregate amount of these commitments is approximately $4.7 million. Coal Supply Contracts With the completion of the Lovett Coal Reconversion Project in 1987, the Company entered into two long-term contracts for the supply of coal and two long-term contracts for the transportation of coal. The Company has the right under the coal purchase contracts to suspend the purchase of coal if an alternative fuel source becomes less expensive. On January 7, 1994, the Company suspended the contract with one of the suppliers. Under the terms of the agreement the vendor has 30 days to respond. At this time a response has not been received from the vendor. The Company's aggregate contract obligation for the four vendors, for each of the five years following 1993 is as follows: 1994-$34,787,000; 1995-$35,396,000; 1996-$35,390,000; 1997- $37,891,000; 1998-$38,332,000. Power Purchase Agreements The Company has three long-term contracts with other utilities for the purchase of electric generating capacity and energy. The contracts expire in 1995, 1998 and 2015, respectively. Total payments under these contracts were $20.8 million, $14.9 million and $9.2 million during 1993, 1992 and 1991, respectively. At December 31, 1993, the estimated future payments for capacity that the Company is obligated to buy under these contracts for the five years following 1993 are as follows: Capacity Year (Mw) Dollars 1994 250 $4,591,000 1995 300 3,915,000 1996 300 4,453,000 1997 325 5,048,000 1998 300 2,050,000 The purchase capacities shown in the above table are based on contracts currently in effect and are exclusive of applicable energy charges. Additionally, the Company has entered into two long-term contracts with proposed Independent Power Producers (IPP) for the purchase of a total of 152 Mw of capacity, of which the earliest expiration date is 2016. The IPP facilities are scheduled for operation in 1996 and 1997, respectively. Neither of the proposed IPP facilities has yet been constructed. The developers have, or are in the process of applying for, the required construction permits. The final outcome of their efforts cannot be determined at this time. The contracts can be cancelled for failure to meet specific contract terms. Should the facilities become operational, the estimated fixed payments for these contracts are $20.4 million in 1996, $42.1 million in 1997 and $42.7 million in 1998. In January 1994, the Company entered into an agreement with State Line Power Associates, Limited Partnership to terminate a long-term power purchase agreement for 100 Mw of capacity and associated energy. Changes in the Company's energy supply requirements and market conditions for purchased energy made the agreement not economical. The Company has requested NYPSC approval of deferred accounting of all associated termination costs pending recovery of those costs in rates. Legal Proceedings On August 18, 1993, Feiner v. Orange and Rockland Utilities, Inc., a purported ratepayer class action complaint against the Company, RECO, former Company Vice President Linda Winikow and others, was filed in the United States District Court, Southern District of New York. Plaintiffs allege that the defendants violated the Federal Racketeer Influenced and Corrupt Organizations Act (RICO) and New York common law by using false and misleading testimony to obtain rate increases from the NYPSC and used funds obtained from ratepayers in furtherance of an alleged scheme to make illegal campaign contributions and other illegal payments. Plaintiffs seek damages in the amount of $900 million (which they seek to treble pursuant to the RICO statute). The Company intends to vigorously contest these claims. On August 31, 1993, Patents Management Corp. v. Orange and Rockland Utilities, Inc., a purported shareholder derivative complaint, was filed in the Supreme Court of the State of New York, County of New York, against the Company, all but one of the Company's Directors and several other named defendants by an alleged shareholder of the Company. Plaintiff claims that the Company's Directors breached their fiduciary duties by condoning the alleged wrongful acts of Mrs. Winikow or failing to exercise appropriate supervisory control over Mrs. Winikow. Plaintiff requests that the Court require each Director to indemnify the Company against all losses sustained by the Company as a result of these alleged wrongful acts of Mrs. Winikow. The Company intends to vigorously contest these claims. On November 23, 1993, Gross v. Orange and Rockland Utilities, Inc., a purported shareholder class action complaint, was filed in the United States District Court, Southern District of New York. Plaintiff alleges that various Securities and Exchange Commission filings of the Company during the period between March 2, 1993 and November 4, 1993, contained false and misleading information, and thereby violated Sections 11 and 12(2) of the Securities Act of 1933, by failing to disclose what the plaintiff alleges was a "scheme" by the Company to make illegal political payments and campaign contributions to various public officials and politicians. As a result, plaintiff claims, during such period persons who purchased the Company's stock through the Company's Dividend Reinvestment Plan did so at artificially inflated prices. The complaint seeks unspecified money damages. The Company intends to vigorously contest these claims. The costs of outside professional and consultant firms associated with the investigation of the misuse of Company funds by former employees amounted to $6.1 million for the year ending December 31, 1993. These investigations are currently anticipated to continue through the first half of 1994. The Company currently estimates it will incur from $3.0 to $6.0 million of expenses in 1994 to conclude the investigation. These expenditures are not recoverable from ratepayers. The Company will attempt to offset these costs to the extent possible by achieving savings in the cost of operations during the year. On October 14, 1993, in response to an Order of the NYPSC, the Company agreed to a six-month extension of the NYPSC's statutory suspension period for its pending electric rate case (Case 93-E-0082) to and including June 30, 1994 and to (i) make $3 million of its existing annual revenues ($2.25 million of electric revenues and $.75 million of gas revenues) temporary and subject to refund, (ii) continue existing rate-making mechanisms, prescribed under the RDM procedure, for the duration of the suspension period, and (iii) agree to certain other procedural conditions. A request for further extension through December 31, 1994, under the same conditions, was made by the Company, on December 17, 1993. The NYPSC staff has submitted comments opposing some of the terms of the Company's extension. At this time, the Company cannot predict the outcome of this action. In addition, the NYPSC has accepted the Company's proposal for a two-month temporary rate reduction of $115,000 per month related to the misappropriation of funds. The Company has voluntarily extended the temporary rate reduction for a third month, through January 1994, bringing the total amount refunded to New York ratepayers to $345,000. It is not possible to predict at this time the extent of additional refunds that may be required by the NYPSC, if any. On March 16, 1988, Hatzel and Buehler, Inc. v. Orange and Rockland Utilities, Inc., a complaint brought by one of several prime contractors employed by the Company as part of the Company's Lovett Coal Reconversion Project, was filed in the United States Bankruptcy Court, Wilmington, Delaware. Plaintiff claimed that the Company improperly terminated its contract and sought damages in excess of $15 million. On October 30, 1989, the United States District Court, Wilmington, Delaware, granted the Company's motion to withdraw the case from the United States Bankruptcy Court and to have the United States District Court assume jurisdiction. On December 14, 1992, the United States District Court issued a decision and order granting the Company's Motion for Summary Judgment dismissing the plaintiff's non- contract claims and punitive damage demands. On January 25, 1994, the parties settled the remaining claims pursuant to a settlement agreement under which the Company, without any admission of liability, paid to the plaintiff the sum of $660,000 and the plaintiff delivered to the Company a release of all outstanding claims against the Company. On July 31, 1992, State Line Power Associates, Limited Partnership v. Orange and Rockland Utilities, Inc., a complaint brought by a New Jersey partnership, was filed in the United States District Court, Southern District of New York. The plaintiff had, pursuant to an Agreement dated October 11, 1990 (the Agreement), agreed to build a gas-fired combined cycle generating facility in Ringwood, New Jersey and sell 100 Mw of capacity and associated energy to the Company. The complaint, which alleged that the Company had improperly terminated the Agreement, sought compensatory damages in excess of $50 million and a declaratory judgment to the effect that the Company remained obligated to purchase 100 Mw of capacity and associated energy from the plaintiff pursuant to the terms of the Agreement. In its answer to the complaint, the Company denied the plaintiff's allegations. On January 7, 1994, the parties entered into a settlement agreement pursuant to which the Company, without any admission of liability, paid to the plaintiff an amount that is not material to the financial condition of the Company, and the plaintiff delivered to the Company a release of all outstanding claims against the Company. Environmental The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 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. The Company is a party to a number of administrative 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. Such proceedings are not, in the aggregate, material to the business or financial condition of the Company. 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 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 will be required at all affected facilities. The Company has two base load generating stations that burn fossil fuels that will be impacted by the legislation in the year 2000. These generating facilities already burn low sulfur fuels, so additional capital costs are not anticipated for compliance with the sulfur dioxide emission requirements. However, installation of low nitrogen oxide burners at Lovett Plant and operational modifications at Bowline Plant are expected to be required. Additional emission monitoring systems will be installed at both facilities. The Company's construction expenditures for this work is estimated to be approximately $28.2 million from 1993 to 1996. Beginning with calendar year 1994, Title V sources (Bowline Point and Lovett) will be required to pay an emission fee. Each facility's fee will be based upon actual air emissions reported to NYSDEC at a rate of approximately $25 per ton of air emissions. (If this fee was in effect in 1992, the Company's obligation would have been approximately $.5 million). The Company will continue to assess the impact of the Clean Air Act Amendments of 1990 on its power generating operations as the regulations implementing these Amendments are promulgated. The NYPSC has commenced a proceeding to consider the most economical method of compliance with the Clean Air Act Amendments of 1990 by electric utilities in New York State. Note 13. Segments of Business. The Company defines its principal business segments as utility (electric and gas) and diversified activities. The diversified segment includes the gas marketing, gas production, land development and communications businesses. Total utility revenue as reported in the Consolidated Statements of Income 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. Segments of Business Year Ended December 31, 1993 1992 1991 (Thousands of Dollars) Operating Information: Operating revenues: Sales to unaffiliated customers: Electric $ 486,836 $ 463,601 $ 457,019 Gas 157,185 140,630 122,627 Intersegment sales: Electric 131 132 136 Gas 72 49 60 Total Utility Operating Revenues 644,224 604,412 579,842 Diversified activities 327,147 239,766 151,202 Total Operating Revenues $ 971,371 $ 844,178 $ 731,044 Operating income before income taxes: Electric $ 89,243 $ 83,824 $ 81,664 Gas 19,147 16,539 13,564 Diversified activities 12 1,104 877 Total Operating Income Before Income Taxes 108,402 101,467 96,105 Income Taxes: Electric 21,380 18,596 17,384 Gas 4,679 3,403 2,585 Diversified activities (190) 233 (252) Total Income Taxes 25,869 22,232 19,717 Total Income From Operations $ 82,533 $ 79,235 $ 76,388 Other Information: Identifiable assets: Electric $ 944,903 $ 839,122 $ 818,679 Gas 219,508 182,943 166,849 Diversified activities 84,401 73,275 70,635 Total Identifiable Assets 1,248,812 1,095,340 1,056,163 Corporate assets 32,161 32,161 31,683 Total Assets $1,280,973 $1,127,501 $1,087,846 Depreciation expense: Electric $ 28,049 $ 27,076 $ 25,955 Gas 5,349 6,404 5,447 Diversified activities 1,122 989 680 Total $ 34,520 $ 34,469 $ 32,082 Capital expenditures: Electric $ 39,441 $ 42,133 $ 44,207 Gas 13,955 13,799 14,651 Diversified activities 912 506 3,139 Total $ 54,308 $ 56,438 $ 61,997 Note 14. Supplementary Income Statement Information. Year Ended December 31, 1993 1992 1991 (Thousands of Dollars) 1. Maintenance $ 42,861 $ 42,473 $ 40,275 2. Taxes other than income taxes: Miscellaneous Federal taxes $ 8,186 $ 8,190 $ 7,875 Municipal property taxes 41,171 38,066 37,387 Other Municipal taxes 1,639 1,404 1,334 State gross earnings (franchise) 10,819 10,233 9,988 State excess dividends 1,284 1,212 1,143 State utility gross receipts 31,792 30,164 27,076 State sales, use and other 2,547 2,393 2,057 New York State 15% Surtax 3,135 3,110 3,165 100,573 94,772 90,025 Less-Charged to deferred debits and work in progress accounts 6,864 4,288 4,159 Total $ 93,709 $ 90,484 $ 85,866 Note 15. Summary of Quarterly Results of Operations (Unaudited). Earnings Earnings Income Applicable Per Average Operating From Net To Common Common Revenues Operations Income Stock Share Quarter Ended (Thousands of Dollars) 1993 March 31 $264,030 $ 23,731 $ 15,084 $ 14,243 $1.05 June 30 215,113 14,976 6,601 5,760 .43 September 30 237,548 26,454 17,312 16,471 1.22 December 31 254,680 17,372 5,818 4,977 .36 1992 March 31 $240,112 $ 19,974 $ 12,046 $ 11,176 $ .84 June 30 183,919 15,371 7,055 6,186 .46 September 30 191,046 25,922 17,240 16,371 1.22 December 31 229,101 17,968 9,471 8,601 .63 Report of Independent Certified Public Accountants GRANT THORNTON To the Board of Directors and Shareholders of Orange and Rockland Utilities, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Orange and Rockland Utilities, Inc. and Subsidiaries as of December 31, 1993 and 1992, 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, 1993. 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, 1993 and 1992, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As more fully discussed in Note 12 (Legal Proceedings) to the Consolidated Financial Statements, the Company and various state regulatory authorities are currently investigating misappropriations of Company funds by certain former employees and the impact on ratepayers. As a result of these improprieties, several class action and derivative complaints have been filed against the Company and others. Although the Company has refunded certain amounts to ratepayers as of December 31, 1993, the ultimate outcome of the investigations and litigation cannot presently be determined. Accordingly, no provision for any additional liability that may result from these matters has been made in the accompanying financial statements. As discussed in Notes 2 and 10 of the Consolidated Financial Statements, the Company changed its method of accounting for income taxes and postretirement benefits in 1993. Grant Thornton New York, New York February 16, 1994 Operating Statistics: Electric Orange and Rockland Utilities, Inc. and Subsidiaries CAPTION Year Ended December 31, 1993 1992 1991 1990 1989 Source of Electricity (Mwh): Generation - net Steam 2,720,897 3,083,852 3,506,037 3,805,705 3,906,623 Hydro 164,378 143,871 172,752 201,115 145,457 Gas Turbine 7,557 3,938 15,217 23,446 15,846 Total Net Generation 2,892,832 3,231,661 3,694,006 4,030,266 4,067,926 Purchases 2,054,253 1,532,105 1,150,460 891,313 737,808 Company Use and Unaccounted For (354,806) (298,806) (316,748) (329,181) (344,803) Net Energy Sold 4,592,279 4,464,960 4,527,718 4,592,398 4,460,931 Sales (Mwh): Residential 1,611,602 1,532,915 1,597,571 1,496,284 1,483,007 Commercial 1,073,492 1,074,780 1,079,430 1,037,931 1,024,370 Industrial 1,572,692 1,506,180 1,452,467 1,421,746 1,386,017 Public Street Lighting 27,705 27,538 26,780 26,488 26,200 Public Authorities 72,037 70,257 73,455 71,221 68,094 Total Sales to Customers 4,357,528 4,211,670 4,229,703 4,053,670 3,987,688 Other Utilities for Resale 234,751 253,290 298,015 538,728 473,243 Total Sales of Electricity 4,592,279 4,464,960 4,527,718 4,592,398 4,460,931 Revenues (000's) Residential $ 211,082 $ 193,124 $ 196,031 $ 179,554 $ 169,478 Commercial 128,246 124,825 123,281 116,171 108,739 Industrial 134,977 124,826 117,852 115,086 105,027 Public Street Lighting 4,967 4,880 4,732 4,686 4,453 Public Authorities 4,344 4,212 4,419 4,242 3,986 Total Revenues from Sales to Customers 483,616 451,867 446,315 419,739 391,683 Other Utilities for Resale 6,414 6,965 9,575 19,292 16,349 Total Revenues from Sales of Electricity 490,030 458,832 455,890 439,031 408,032 Other Electric Operating Revenues (3,063) 4,901 1,265 2,506 379 Total Electric Operating Revenues $ 486,967 $ 463,733 $ 457,155 $ 441,537 $ 408,411 System Net Capacity and Peak (Kw): Net Installed Capability at Time of Peak 1,014,000 1,011,000 1,008,700 1,005,000 1,020,100 Firm Purchases - net 250,000 200,000 175,000 152,000 131,400 Total System Net Capacity 1,264,000 1,211,000 1,183,700 1,157,000 1,151,500 Net Peak Load 1,037,000 943,000 1,001,000 922,000 941,000 Load Factor .51 .53 .51 .54 .52 Heat Rate -- Btu of Fuel per Kwh Generated 10,683 10,600 10,441 10,486 10,362 Electric Customers -- Year End 256,897 254,192 251,724 248,758 245,685 Residential Customer Statistics: Average Annual Kwh Use 7,214 6,928 7,286 6,893 6,922 Average Annual Revenue per Kwh (cents) 13.10 12.60 12.27 12.00 11.43 Average Annual Bill Including Fuel $ 944.82 $ 872.77 $ 894.11 $ 827.20 $ 791.01 Average Annual Fuel Cost Recovery $ 194.90 $ 192.76 $ 207.01 $ 209.92 $ 166.90
Operating Statistics: Gas Orange and Rockland Utilities, Inc. and Subsidiaries CAPTION Year Ended December 31, 1993 1992 1991 1990 1989 Source of Gas (Mmcf): Purchased 41,983 47,070 46,438 52,013 51,299 Manufactured 21 22 15 14 76 Storage--net 1,077 (450) 1,490 (565) (2,960) Used in Electric Production (21,234) (24,141) (26,444) (30,741) (24,832) Company Use and Unaccounted For ( 630) (549) (1,176) (634) (1,809) Net Energy Sold 21,217 21,952 20,323 20,087 21,774 Sales (Mmcf): Residential 14,349 14,208 12,646 12,611 13,919 Commercial and Industrial 6,207 6,299 5,684 5,751 6,132 Total Firm Sales 20,556 20,507 18,330 18,362 20,051 Interruptible 653 889 1,325 889 1,032 Other Utilities for Resale 8 556 668 836 691 Total Sales of Gas 21,217 21,952 20,323 20,087 21,774 Revenues (000's) Residential $ 106,335 $ 91,538 $ 76,932 $ 76,739 $ 83,813 Commercial and Industrial 43,488 38,649 33,077 33,249 35,337 Total Revenues from Firm Sales 149,823 130,187 110,009 109,988 119,150 Interruptible 2,605 3,414 5,536 3,683 4,011 Other Utilities for Resale 105 1,950 1,999 2,404 2,207 Total Revenues from Sales of Gas 152,533 135,551 117,544 116,075 125,368 Other Gas Revenues 4,724 5,128 5,143 1,636 2,415 Total Gas Operating Revenues $ 157,257 $140,679 $122,687 $117,711 $127,783 Maximum Daily Capacity at Dec. 31 (Mmcf): Pipeline Suppliers 194.6 195.9 195.9 194.7 172.3 Propane Plants 30.6 30.6 30.6 30.6 30.6 Total Maximum Daily Capacity 225.2 226.5 226.5 225.3 202.9 Maximum 24-hour Sendout (Mmcf) 191.3 160.0 167.0 165.2 183.9 Heating Degree Days 5,791 5,771 5,106 4,918 5,733 Gas Customers -- Year End 109,464 108,168 106,854 105,528 104,189 Residential Customer Statistics: Average Annual Mcf Use 145.2 145.4 131.0 131.9 147.6 Average Annual Revenue per Mcf $ 7.41 $ 6.44 $ 6.08 $ 6.09 $ 6.02 Average Annual Bill Including Fuel $1,075.86 $ 936.63 $ 797.09 $ 802.61 $ 888.84 Average Annual Fuel Cost Recovery $ 595.94 $ 500.42 $ 446.11 $ 458.11 $ 515.34 /TABLE
Financial Statistics Orange and Rockland Utilities, Inc. and Subsidiaries CAPTION Year Ended December 31, 1993 1992 1991 1990 1989 1988 Common Stock Data: Earnings Per Average Common Share $ 3.06 $ 3.15 $ 3.12 $ 3.54* $ 3.14 $ 3.18 Dividends Declared Per Share $ 2.49 $ 2.43 $ 2.37 $ 2.32 $ 2.28 $ 2.24 Book Value Per Share (Year End) $ 27.79 $ 27.22 $ 26.33 $ 25.46 $ 24.17 $ 23.23 Market Price Range Per Share: High $ 47 1/2 $ 41 7/8 $ 39 $ 32 3/8 $ 32 $ 33 1/2 Low $ 38 5/8 $ 32 3/8 $ 30 7/8 $ 26 1/8 $ 27 1/4 $ 27 7/8 Year End $ 40 5/8 $ 41 5/8 $ 38 5/8 $ 31 3/8 $ 31 7/8 $ 29 1/4 Price Earnings Ratio 13.28 13.21 12.38 8.86 10.15 9.20 Dividend Payout Ratio 81.37% 77.14% 75.96% 65.54% 72.61% 70.44% Common Shareholders at Year-End 24,328 25,696 25,989 26,424 27,233 28,025 Average Number of Common Shares Outstanding (000's) 13,532 13,438 13,238 13,040 12,840 12,659 Total Common Shares Outstanding at Year-End (000's) 13,532 13,531 13,327 13,132 12,932 12,728 Return on Average Common Equity 11.16% 11.88% 12.13% 14.49% 13.43% 14.06% Capitalization Data (000's): Common Stock Equity $ 376,044 $ 368,321 $ 350,947 $ 334,317 $312,548 $295,634 Non-Redeemable Preferred Stock 43,287 43,306 43,334 43,365 43,389 43,582 Redeemable Preferred Stock 4,158 5,542 6,926 8,311 13,715 15,279 Long-Term Debt 380,266 380,202 376,839 371,660 290,230 287,563 Total Capitalization $ 803,755 $ 797,371 $ 778,046 $ 757,653 $659,882 $642,058 Capitalization Ratios: Common Equity 46.79% 46.19% 45.11% 44.13% 47.36% 46.04% Non-Redeemable Preferred Stock 5.38% 5.43% 5.57% 5.72% 6.58% 6.79% Redeemable Preferred Stock 0.52% 0.70% 0.89% 1.10% 2.08% 2.38% Long-Term Debt 47.31% 47.68% 48.43% 49.05% 43.98% 44.79% Selected Financial Data (000's): Operating Revenues $ 971,371 $ 844,178 $ 731,044 $ 656,252 $576,180 $506,966 Operating Expenses $ 888,838 $ 764,943 $ 654,656 $ 574,846 $501,496 $434,823 Operating Income $ 82,533 $ 79,235 $ 76,388 $ 81,406 $ 74,684 $ 72,144 Net Income $ 44,815 $ 45,812 $ 44,868 $ 49,839 $ 44,144 $ 44,238 Earnings Applicable to Common Stock $ 41,451 $ 42,334 $ 41,277 $ 46,133 $ 40,321 $ 40,298 Net Utility Plant $ 831,980 $ 814,686 $ 792,413 $ 765,287 $721,891 $693,978 Total Assets $1,280,973 $1,127,501 $1,087,846 $1,039,006 $979,338 $922,242 Long-Term Debt Including Redeemable Preferred Stock $ 384,424 $ 385,744 $ 383,765 $ 379,971 $303,945 $302,842 Ratio of Long-Term Debt to Net Plant 46.0% 47.0% 48.0% 51.3% 40.7% 42.1% Ratio of Accumulated Depreciation to Utility Plant in Service 31.7% 30.7% 30.0% 29.3% 29.8% 29.8% *Includes non-recurring gain on sale of non-utility land of $0.55 per share. /TABLE ORANGE AND ROCKLAND UTILITIES, INC. APPENDIX A TO EXHIBIT 13 FORM 10-K - DECEMBER 31, 1993 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 Millions of Mwh 1989 399 1990 405 1991 423 1992 421 1993 436 2) - Graph entitled "Costs per Kwh" shows the price paid for fuel and purchased power on a per-kwh basis as follows: Cost per Kwh of Fuel Year and Purchased Power 1989 2.78 cents 1990 2.87 cents 1991 2.74 cents 1992 2.70 cents 1993 2.67 cents 3) - Graph entitled "Gas Firm Sales" shows gas firm sales to customers as follows: Year Millions of Mcf's 1989 20.1 1990 18.4 1991 18.3 1992 20.5 1993 20.6 4) - Graph entitled "Cost per Mcf" shows the price paid for purchased gas as follows: Cost per Mcf of Year Gas Purchased 1989 $3.15 1990 $3.17 1991 $2.90 1992 $3.52 1993 $3.63 EX-24 6 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, her true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ Linda C. Taliaferro Linda C. Taliaferro Office Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ Victor J. Blanchet, Jr. Victor J. Blanchet, Jr. Office Director, President, Chief Operating Officer and Acting Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ Patrick J. Chambers, Jr. Patrick J. Chambers, Jr. Office Director, Senior Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 28th day of March 1994. Signature /s/ Terry L. Dittrich Terry L. Dittrich Office Acting Controller POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ Ralph M. Baruch Ralph M. Baruch Office Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ Kenneth D. McPherson Kenneth D. McPherson Office Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ Frank A. McDermott, Jr. Frank A. McDermott, Jr. Office Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ James F. O'Grady, Jr. James F. O'Grady, Jr. Office Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ H. Kent Vanderhoef H. Kent Vanderhoef Office Director, Acting Chairman of the Board of Directors POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ John F. White John F. White Office Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ J. Fletcher Creamer J. Fletcher Creamer Office Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or 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, 1993 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful attorneys, 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 H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of them, 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 said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of them as said attorneys, 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 3rd day of March 1994. Signature /s/ Michael J. Del Giudice Michael J. Del Giudice Office Director EX-99.2 7 EXHIBIT 99.2 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF ROCKLAND - - - - - - - - - - - - - - - - - - - - - -x ORANGE AND ROCKLAND UTILITIES, INC. : Plaintiff, : : Index No. 0623/94 -against- : : COMPLAINT JAMES F. SMITH, : : Defendant. : : - - - - - - - - - - - - - - - - - - - - - -x Plaintiff, complaining of defendant, by and through its attorneys, states the following upon knowledge with respect to itself and its own acts, and upon information and belief as to all other matters. The Parties 1. Plaintiff Orange and Rockland Utilities, Inc. ("O&R" or the "Company") is a New York corporation with its principal place of business at One Blue Hill Plaza, Pearl River, New York. O&R is an investor-owned utility serving over 254,200 electric customers and 108,200 natural gas customers in southern New York State, as well as in\adjacent sections of northern New Jersey and northern Pennsylvania. 2. Defendant James F. Smith ("Smith") maintains his principal residence in Tuxedo Park, New York. From 1979 until 1993, Smith was Chairman of the Board of Directors (the "Board") and Chief Executive Officer of O&R. 3. At all relevant times, Smith owed to O&R fiduciary duties, including the duty of loyalty, the duty of care, and the duty of candor. 4. As described below, some of Smith's actions that are the subject of this complaint took place within the State of New York and County of Rockland, and all such acts caused injury to property within the State of New York and County of Rockland. Summary of Claims 5. In April 1979, Smith was appointed Chairman of the Board and Chief Executive Officer of O&R. In 1978, Thomas A. Griffin, Jr. ("Griffin"), now retired, had been appointed President of the Company. 6. Upon assuming his new position and continuing throughout his tenure as Chief Executive Officer, Smith engaged in a continuing course of fraudulent and disloyal conduct designed to advance his own pecuniary and personal interests, in breach of his fiduciary duties to the Company, by systematically misappropriating Company funds, assets, and services for the personal benefit of himself, his family, his friends, and other persons and organizations with which he had a private relationship. 7. Smith, aided by Griffin and others, carried out an ongoing scheme to defraud the Company by, inter alia, submitting or authorizing the submission of expense-related documents that failed to adequately document the use of Company funds or falsely represented the true purpose of expenditures, by causing services rendered on personal projects for himself, his children, or his wife to be processed as business projects, by causing or permitting false representations concerning officer expense audits to be made to the Audit Committee of the Board, by purporting to establish perquisites and policies for the benefit of officers without authorization or knowledge of the independent members of the Board, and by subverting the proper operation of the Company's accounting controls and internal auditing procedures. 8. In order to facilitate and conceal his illegal activities, and to deter disclosure of them by others, Smith knowingly permitted, induced, and authorized the personal use of Company funds, assets, and services by other Company officers, including but not limited to Griffin and former Vice President Linda Winikow ("Winikow"), and used, or authorized the use of, Company funds to provide gifts, entertainment, and cash payments to certain lower-level employees who were in a position to know of these activities. 9. In 1984, Smith recruited Winikow to join O&R in a specially-created position of Vice President for Corporate Policy and External Affairs, with responsibilities for corporate contributions, public relations, and political activities. Winikow was nominally assigned to report to the President of O&R, but in practice was answerable directly to Smith. 10. Through Smith's acquiescence, or gross negligence in supervising Winikow's activities, Winikow was permitted to engage in illegal activities, including systematic abuse of her expense budget and misappropriation of O&R funds and resources for her own benefit, and violations of election and commercial bribery laws. 11. On August 16, 1993, Winikow was arrested on charges of grand larceny, commercial bribery, and election law violations. On August\26, 1993, her employment was terminated for cause. 12. Winikow was subsequently indicted, and on October 6, 1993, pleaded guilty to felony and other charges arising from her activities at O&R. Two former subordinates in O&R's Corporate Communications Department, headed by Winikow, were also arrested and charged, and pleaded guilty to certain illegal activities involving misuse or theft of O&R funds. 13. On August 20, 1993, the Board created a Special Committee of the Board (the "Special Committee") to conduct an independent investigation of improprieties by Winikow, the Corporate Communications Department, and other officers or employees. 14. As a result of that investigation, the Board discovered Smith's pervasive pattern of misconduct and fiduciary breaches described herein, which had been fraudulently concealed from the Board. On October\7, 1993, the Board delivered to Smith a Notice of Termination for Cause, which became fully effective on December\6, 1993. Subversion of Internal Controls 15. In 1976, O&R established a restricted disbursements account (the "Restricted Account") for the purpose of maintaining the confidentiality of certain corporate expenditures. 16. As Chief Executive Officer, Smith permitted and fostered a practice of using the Restricted Account for confidential processing and payment of officers' travel, entertainment, and other expenditures which were claimed to be business expenses, many of which were not allowable expenditures under the Company's expense policies. 17. From at least 1979 until 1993, Smith routinely submitted or caused to be submitted in his behalf, and knowingly authorized the submission by Griffin and other officers of, check requests, credit card approval sheets, petty cash reimbursement vouchers and other corporate records for reimbursement or payment of purported business expenses (hereinafter "expense reports") that failed to identify individuals who benefited from such expenditures, and failed to state, or falsely stated, a business purpose for such expenditures. 18. In 1979, the Company's Manager of Internal Auditing, William Hallinan, was assigned responsibility for auditing expenditures that were processed through the Restricted Account, including officers' expenses. In reports to the Company Controller on his audits for the years 1979, 1980 and 1981, Hallinan noted an escalating pattern of deficiencies in the reporting and documentation of officer travel and entertainment expenses. 19. Hallinan's report for 1981 specifically noted a lack of compliance with proper expense reporting procedures, including failures to submit receipts or to identify individuals entertained or the business purpose of travel and entertainment. 20. In May 1982, Hallinan notified Griffin and Smith that he intended to send a copy of his 1981 audit report to the Audit Committee of the Board of Directors (the "Audit Committee"). Shortly thereafter Griffin informed Hallinan that he was being summarily removed as Manager of Internal Auditing. 21. With Hallinan's removal from that position, Smith and Griffin were able to prevent, and did prevent, the communication to the Audit Committee of information about improper officer expense account practices, and deterred others in the Internal Audit Department, including Hallinan's successor, from investigating and reporting such improprieties in officers' expense accounts. 22. In late 1988, the Board decided that the Audit Committee would review officer expenses at least annually. 23. By this time, unknown to the Board, Smith had established a practice of charging and permitting other officers to charge expenses that were not allowable under existing Company policy and concealing and permitting others to conceal the true nature of such expenses by improper or inadequate documentation. 24. In February 1989, Smith caused to be submitted to the Board for approval a new Company policy, which purported to define allowable business expenses incurred by officers, and to establish specific procedures for the reporting, authorization, and payment of such expenses (the "Officer Expense Policy"). The Officer Expense Policy required, inter alia, that all expenses be reasonable and necessary, and that they be described in reasonable detail, with a statement of business purpose and identity of each person entertained and accompanying receipts or other appropriate proof of the expenditure. The Officer Expense Policy also required the Internal Auditor to review officers' expenses and report on them annually to the Audit Committee. 25. In February 1989, the Board approved the new Officer Expense Policy. 26. Thereafter, in June 1989, a purported "supplement", or exception, to the Officer Expense Policy was issued at the direction of Smith. This purported supplement allowed officers to be reimbursed for entertainment expenses without submitting proper documentation of the persons entertained or the business purpose of such expenditures. Smith intentionally concealed from the independent members of the Board and the Audit Committee the issuance of this purported "supplement". 27. The purpose of this purported supplement, issued at the direction of Smith, was to facilitate misleading representations to the Audit Committee that officer expenses were "properly recorded," when in fact such recording was not in compliance with the Officer Expense Policy that the Board had recently approved, and believed to be in effect. In particular, this purported supplement was intended to permit Winikow to continue to conceal the identities of political figures and others upon whom she expended Company funds, without disclosing to the Board that such information was being concealed. 28. Facilitated by this purported supplement and with Smith's knowledge and approval, or through Smith's gross negligence in failing to supervise Winikow, Winikow engaged in a pattern of illegal contributions and political activities, and fraudulent misappropriation of O&R funds and services, until her arrest in August 1993. 29. From 1989 until 1993, Smith permitted deceptive reports to be submitted to the Audit Committee, which stated that officers' expenses, including his own, Griffin's and Winikow's, were properly submitted, approved, recorded and supported, knowing such reports to be false and misleading. Improper Conference and Travel Expenses 30. Throughout his tenure as Chief Executive officer, in violation of his fiduciary duties and Company policy, Smith engaged in a pattern of extravagant and excessive expenditures of Company funds in connection with outside business conferences and Company-sponsored events, including, but not limited to, expenditures for first-class airfare, luxurious hotel accommodations, gift purchases, car rentals, and extravagant dining and entertainment, for Smith, his wife, and other officers and their spouses. Such lavish expenditures of Company funds in connection with business conferences and Company-sponsored events were neither necessary nor reasonable, conferred little or no benefit to O&R's business, and constituted waste of corporate assets. 31. Such expenditures included, for example, approximately $20,000 paid by O&R in connection with costs for a "People to People" tour of Russia and Eastern Europe by Smith and his wife in November 1992 that had little or no relationship to O&R's business. 32. Such expenditures also included, for example, extravagant amounts expended to sponsor functions at annual meetings for local officials, called the Association of Towns, including at least $10,300 paid by O&R between 1990 and 1993 alone for Smith's own hotel, meal, and entertainment charges, purportedly in connection with these meetings. 33. On numerous occasions, Smith failed to account adequately for such expenses by failing to identify the specific business purpose for expenses incurred in connection with business conferences or the beneficiaries of such expenditures, or by failing to submit receipts or proper supporting documentation for such expenses. 34. In addition, on numerous occasions, Smith intentionally misappropriated and converted Company funds to his own use by causing O&R to pay personal expenses incurred during vacations with his wife or other family members, or during unnecessary travel preceding or following purported business conferences. 35. Smith concealed the personal purpose of such expenditures and caused them to be paid by O&R by intentionally submitting, or causing to be submitted, expense reports that falsely reported such expenses as business expenses incurred in connection with his attendance at a business conference, when in fact, they were incurred for the personal benefit of Smith, his family, or their personal friends. The transactions set forth in paragraphs 36 through 39 are examples of such misconduct. 36. Smith caused O&R to pay personal expenses, including first-class airfare, car rental, hotel and meal expenses, incurred by him and his wife while on vacation in France in October 1989, by falsely claiming on his expense reports that such expenses, totaling over $9,000, were incurred in connection with his attendance at a business conference. 37. Smith caused O&R to pay personal expenses incurred by him and his wife during a three-day stay in Boston, Massachusetts in May\1991, including hotel and meal expenses, by falsely claiming on his expense reports that such expenses, totaling over $2,800, were incurred in connection with his attendance at a half-day financial conference. 38. Smith caused O&R to pay personal expenses incurred by him and his wife, including airfare, car rental, hotel and meal expenses, incurred during a vacation in Canada in September and October of 1991, by falsely claiming on his expense reports that such expenses, totaling approximately $5,000, were incurred in connection with his attendance at the Canadian Energy Research Institute's International Oil and Gas Markets Conference in Calgary. 39. Smith caused O&R to pay personal expenses incurred by him and members of his family during a 7 day trip to Paris from February\18-24, 1993, including first-class airfare, hotel and meal expenses, by falsely claiming on his expense reports that such expenses, totaling over $15,000, were incurred in connection with his attendance at a Liquified Natural Gas Conference held in Paris on February\16-19, 1993. 40. As a result of Smith's fraudulent concealments and misrepresentations, the full extent of personal expenditures falsely claimed as conference-related business expenses and charged to O&R is peculiarly within the knowledge of Smith and known only to him at this time. Personal Entertainment 41. Throughout his tenure as Chief Executive Officer, in violation of his fiduciary duties and Company policy, Smith engaged in, and authorized other officers to engage in, a pattern of excessive and extravagant spending in connection with purported business entertainment, including but not limited to, hotel charges, dining expenses, theater and concert tickets, and parties. Such lavish expenditures of Company funds for "business" entertainment were neither reasonable nor necessary, conferred little or no benefit on O&R, and constituted waste of corporate assets. 42. On numerous occasions, Smith failed to account adequately for his entertainment expenses, by failing to identify the specific business purpose or the persons entertained, or by failing to submit receipts or proper supporting documentation for the expense. 43. In addition, on numerous occasions, Smith intentionally misappropriated and converted Company funds to his own use by causing O&R to pay entertainment expenses which had no legitimate business purpose but were incurred for the personal benefit of Smith, his family, friends, neighbors, and associates. 44. Smith routinely concealed the personal nature of such expenditures by intentionally submitting, or causing to be submitted, expense reports that falsely reported that such expenses were business-related, in many instances characterizing such personal affairs as "business meetings," "community relations," or "community affairs." The transactions set forth in paragraphs 45 through 69 are examples of such misconduct. 45. On at least nineteen occasions between 1988 and 1992, Smith caused O&R to pay his cost of entertaining friends during his month-long vacations in Maine, totaling at least $4,000, by falsely describing such restaurant meals and overnight accommodations for guests as "business meetings" on his expense reports. 46. Throughout Smith's tenure as Chief Executive Officer, Smith caused O&R to pay personal expenses for the entertainment of Smith, his family, and friends at the Tuxedo Club and the Metropolitan Club, including charges for meals, bar bills, and recreation, by falsely representing such expenditures as "business expenses." For the years 1988 through 1993, Smith caused O&R to pay at least $20,000 for personal expenses incurred at his clubs. 47. On numerous occasions, Smith caused O&R to pay for theater tickets for himself, his family, and friends, by concealing the personal nature of such entertainment. For the years 1990 through 1993, Smith caused O&R to pay at least $6,800 for theater tickets for the personal benefit of himself, his family, and personal friends. 48. On numerous other occasions throughout his tenure as Chief Executive Officer, Smith caused O&R to pay for lavish social outings with his wife and friends, by falsely describing such social outings as "Business Meeting[s]" or otherwise intentionally concealing the personal nature of such expenses, as exemplified by the occasions described in paragraphs 49 through 62. 49. On December 13-14, 1989, Smith caused O&R to pay $629.68 for hotel accommodations at the Mayfair Regent and $949.45 for a dinner at Le Cirque in New York City with friends, including Smith's personal physician, by falsely describing this occasion as a "Business Meeting" on his expense reports. 50. On December 12-13, 1991, Smith caused O&R to pay $690.42 for hotel accommodations at the Mayfair Regent and $1,012.91 for a dinner at Bouley in New York City with friends, by falsely describing this occasion as a "Business Meeting" on his expense reports. 51. Smith caused O&R to pay $547.46 for hotel accommodations for himself and his wife in New York City on December\1, 1992, and a meal, totaling $125.52, in New York City the following day, by falsely claiming on his expense reports that such expenses were incurred in connection with his attendance at the Environmental Summit\'92, an event that took place outside of New York City. 52. On December\18, 1987, Smith caused O&R to pay $1,273.30 for a meal with friends at the "21 Club" in New York City, by falsely representing the occasion as a "Business Meeting." 53. On October\14, 1988, Smith caused O&R to pay $649.40 for a meal at Le Cirque in New York City with friends and fellow Tuxedo Club members, by falsely representing the occasion as a "Business Meeting." 54. On December\15, 1988, Smith caused O&R to pay $512.00 for a meal with friends and fellow Tuxedo Club members at Montrachet in New York City, by falsely representing the occasion as a "Business Meeting." 55. On April 8, 1989, Smith caused O&R to pay $2,217.91 for a meal at the Rainbow Room in New York City with friends and fellow Tuxedo Club members, by falsely representing the occasion as a "Business Meeting." 56. On May 19, 1990, Smith caused O&R to pay $734.35 for a meal with friends and fellow Tuxedo Club members at Aureole in New York City, by falsely representing the occasion as a "Business Meeting." 57. On October\11, 1990, Smith caused O&R to pay $974.05 for a meal with friends and fellow Tuxedo Club members at Le Cirque in New York City, by falsely representing the occasion as a business expense. 58. On April\20, 1991, Smith caused O&R to pay $725.30 for a meal with friends and fellow Tuxedo Club members at Aureole in New York City, by falsely representing the occasion as a "Business Meeting." 59. On July\11, 1991, Smith caused O&R to pay $666.36 for a meal with friends and fellow Tuxedo Club members, who were also members of Smith's wine club, at the 21 Club in New York City, by falsely representing the occasion as a "Business Meeting." 60. On May\8, 1992, Smith caused O&R to pay $728.25 for a meal with friends and fellow Tuxedo Club members at the Buffet de la Gare in Hastings-on-Hudson, New York, by falsely representing the occasion as a "Business Meeting." 61. On June\15, 1992, Smith caused O&R to pay $592.55 for a meal with friends and fellow Tuxedo Club members at Les Bons Copains in Suffern, New York, by falsely representing the occasion as a "Business Meeting." 62. On April\21, 1993, Smith caused O&R to pay $416.28 for a meal with friends and fellow Tuxedo Club members at the Gotham Bar & Grill in New York City, by falsely representing the occasion as a "Business Meeting." 63. On various occasions, Smith caused O&R to pay for purely social meals with an O&R employee and or his wife, who were both personal friends of Smith and his wife, by falsely describing such meals as a "Business Meeting". Examples of such meals during 1990 alone included, but were not limited to, the following: (a) On April 23, 1990, Smith caused O&R to pay $124.40 for a meal at Hana Restaurant, and an additional $35 in drinks, by falsely representing the occasion as a "Business Meeting"; (b) On June 6, 1990, Smith caused O&R to pay $974.60 for a meal at Le Cirque in New York City, and an additional $100 in drinks, to celebrate his friends' wedding anniversary, by falsely describing the occasion as a "Business Meeting"; (c) On June 15, 1990, Smith caused O&R to pay $395.26 for a meal at Michael's in New York City, by falsely describing the occasion as a "Business Meeting"; and (d) On October 12, 1990, Smith caused O&R to pay $473.00 for a meal at Chateau Hathorn in Warwick, New York, by falsely describing the occasion as a "Business Meeting". 64. On numerous occasions, as exemplified in paragraphs 65 through 69 below, Smith caused O&R to pay his costs of entertaining friends and neighbors at private dinner or cocktail parties, by falsely representing such occasions as "Community Affairs" or otherwise concealing the personal nature of such expenses. 65. For example, on or about June\11, 1988, Smith caused O&R to pay at least $5,500.00 for hors d'oeuvres, equipment rentals, flowers, and waiting staff, for a cocktail party for friends, neighbors and fellow Tuxedo Club members, by falsely representing this event as a reimbursable "Community Affairs Gathering" on his expense reports. 66. On or about November\10, 1989, Smith caused O&R to pay at least $1,012.56 for food, equipment rentals, and flowers for a luncheon on a holiday weekend with friends and fellow Tuxedo Club members, by falsely describing the occasion as a "Business Meeting" on his expense reports. 67. On or about October\1, 1988 Smith caused O&R to pay at least $325.00 for food and equipment rentals for a tail-gate party at an Army football game at West Point, New York, with friends and fellow Tuxedo Club members, by falsely representing the occasion as a reimbursable "gathering" on his expense reports. 68. On or about October 10, 1992, Smith caused O&R to pay at least $735.50 for a Saturday party at his home for friends and fellow Tuxedo Club members, by falsely representing the occasion as a "Business Dinner Party" or a "Business Dinner Meeting." 69. On or about May\17, 1993, Smith caused O&R to pay at least $750.00 for food and waiting services for a party at his home with friends and fellow Tuxedo Club members, by falsely representing the occasion as a "Business Dinner." 70. As a result of Smith's fraudulent concealments and misrepresentations, the full extent of personal expenditures falsely claimed as business entertainment and charged to O&R is peculiarly within the knowledge of Smith and known only to him at this time. Conference Center 71. O&R owns and maintains a lodge in Sullivan County, New York for the purpose of providing facilities for training sessions, seminars, business conferences and other business meetings (the "Conference Center"). Officers of O&R were permitted occasional use of the Conference Center facilities on weekends for personal recreation at their own expense. 72. On numerous occasions, Smith intentionally misappropriated and converted Company funds to his own use by causing the Company to pay expenses associated with his personal use of the Conference Center to entertain family, friends, and other personal associates, including members of his wine club, and failed properly to account for such expenses. 73. Smith intentionally concealed the personal nature of such usage by submitting, or causing to be submitted, expense reports and Conference Center reservation forms that failed to report that the use was for personal purposes, or by affirmatively misrepresenting such use as a "Business meeting", or by omitting the identities of guests. 74. Smith used the Conference Center for personal entertainment of friends or relatives on the weekends of January 21-22, 1989; January 19-21, 1990; February 9-11, 1990; July 13-15, 1990; July 20-22, 1990; January 18-20, 1991; February 8-10, 1991; July 12-14, 1991; October 11-13, 1991; January 24-25, 1992; February 21-23; 1992; February 27-28, 1992; July 10-12, 1992; February 5-7, 1993; and July 9-11, 1993. On each such occasion, Smith failed to reimburse O&R for the costs it incurred and caused O&R to bear such costs, including a total of approximately $25,000 in food purchased for the above-listed weekends, in addition to the costs of wine and beverages consumed by guests and of staff to serve them. 75. For example, Smith's use of the Conference Center on July 13-15, 1990, which was designated as a "Business meeting" on his expense report, was in fact a fiftieth birthday celebration for his wife, attended by friends and relatives. Smith caused O&R to pay $2,375.46 in food costs, including $1,060 in caviar, for this weekend birthday party, in addition to the costs of wine, beverages, and staff. 76. Smith's use of the Conference Center the following weekend of July 20-22, 1990, which was not designated as personal on the Conference Center reservation form, was also to celebrate his wife's birthday with additional friends and relatives. Smith again caused O&R to pay $1,319.94 for food, in addition to the costs of wine, beverages, and staff, for this birthday party. 77. Company policy explicitly states that an officer who sponsors and permits the use of the Conference Center by an organizational group unaffiliated with the Company shall be responsible for collection of a fee, set at $150 per day per person as of 1992, for such usage. Smith violated this policy and his fiduciary duties, by arranging for and authorizing the free use of the Conference Center and its staff on a number of occasions, including but not limited to August 24-27, 1990, August 23-25, 1991, August 28-31, 1992, and August 27-30, 1993, by a drama group with which Smith's son was or had been affiliated, without requiring payment of approximately $20,000 in fees owing under Company policy. 78. As a result of Smith's fraudulent concealments and misrepresentations, the full extent of his improper Conference Center usage and associated expenditures is peculiarly within the knowledge of Smith and known only to him at this time. Gifts and Purchases of Merchandise 79. Throughout his tenure as Chief Executive Officer, in violation of his fiduciary duties and Company policy, Smith regularly used and permitted others to use Company funds to purchase excessive and extravagant gifts and merchandise for outsiders, Company executives, and employees. 80. On numerous occasions, Smith failed to properly account for such purchases, causing O&R to pay for such purchases without indicating the business purpose for the purchase, the quantity or unit price of such merchandise, the recipient of the gift, or without submitting a receipt or documentation supporting the purported purchase. 81. For example, from 1988 through 1993, Smith made over 40 purchases, totaling at least $11,000, from such establishments as Tiffany & Co., Waterford Crystal, Ferragamo and D. Sokolin & Co., the business purpose of which was described only as "Employee Welfare." 82. Smith violated his fiduciary duties and Company policy by regularly using O&R funds to reward his secretaries, drivers, and other employees who performed personal services for him and his family with lavish gifts, theater tickets, and other entertainment, and by making cash payments to such employees totaling in excess of $1,000 in each of the years 1989 through 1992, and by authorizing Griffin to do the same. 83. In addition, on numerous occasions, Smith intentionally misappropriated and converted Company funds to his own use by causing O&R to pay for merchandise, including watches, holiday baskets, fine china, flowers, clothing, books, tapes, and electronic devices, which were purchased for the personal use and benefit of Smith, his family, and their personal associates. 84. Smith intentionally concealed the personal nature of such expenses by submitting or causing to be submitted expense reports that falsely represented that such merchandise was purchased for business related reasons, when, in fact, the merchandise was received by Smith, his family, or his personal friends and associates. 85. In each of the years 1988 through 1992, during the Christmas season, Smith caused O&R to pay for approximately $500 worth of plants and flowers for the decoration of his and his secretaries' homes, by falsely claiming that such purchases were a business expense. 86. In 1991, Smith caused the Company to purchase numerous sets of Wedgewood china for the stated purpose of giving gifts to invitees to an annual Company-sponsored affair for select executives, employees, and outsiders, commonly referred to as the Tie Club. Smith distributed sets of such china as personal gifts to family, friends, and other persons who were not invited to the Tie Club affair, and numerous other sets remain unaccounted for. 87. In 1992, Smith caused the Company to purchase Movado watches for the stated purpose of giving them as gifts to invitees to the annual Tie Club affair in that year. Smith distributed at least five such Movado watches as personal gifts to family members, and caused other Movado watches to be given to other non-invitees. Numerous other watches remain unaccounted for. 88. In each of the years 1985 through 1992, Smith caused the Company to purchase numerous holiday gift baskets, for the stated purpose of giving them as Company Christmas gifts to officers, directors, and others with business affiliations to O&R. During these years, Smith distributed many of these baskets, worth approximately $30,000, as personal gifts to family, friends, and other associates. 89. In September 1990, Smith caused the Company to reimburse him for $1,750 assertedly spent to purchase paintings from a gallery in Maine to be given as wedding presents by him and his wife. Smith intentionally concealed the true purpose of such purchases and failed to submit any receipt verifying or identifying such purchases. 90. Smith misappropriated and converted to his own use furniture owned by O&R, by causing O&R furniture stored in a Company warehouse to be delivered to Smith's vacation home in Kennebunkport, Maine, and to his son's home in New York City. 91. As a result of Smith's fraudulent concealments and misrepresentations, the full extent of such improper use of merchandise purchased with Company funds is peculiarly within Smith's knowledge and known only to him at this time. Personal Use of Company Vendors, Employees, Assets, and Services 92. Throughout his tenure as Chief Executive Officer, in violation of his fiduciary duties and Company policy, Smith used O&R's employees, facilities, and outside vendors for the personal benefit of himself, his wife and family, personal associates, and organizations with which Smith had a personal or private business relationship. 93. Smith intentionally caused O&R employees, including Smith's secretaries and employees in the Corporate Communications and Facilities Services Departments, as well as non-employee drivers, to spend hundreds of hours processing and carrying out numerous personal requests from Smith. O&R has expended a substantial amount of money in compensation payments to Company personnel and drivers, both for time during regular business hours and for overtime work, for the handling of personal work and errands on behalf of Smith and Smith's family, or for services provided to organizations with which Smith had a personal or private business relationship. 94. Smith knowingly authorized or permitted the issuance of corporate credit cards to his secretary and drivers, and improperly approved payment of any and all expenditures incurred by them using such cards, including expenses for the personal benefit of the card-holder, or for the personal benefit of Smith, his family, and his personal associates. 95. On numerous occasions, Smith intentionally misappropriated and converted O&R funds to his own use by causing O&R to contract with and pay outside vendors and other third parties to provide goods and services for a variety of personal purposes unrelated to legitimate O&R business. 96. Smith intentionally concealed the personal nature of such expenditures, in many instances directing or knowingly permitting invoices for such goods and services to be directed to O&R for payment. The transactions set forth in paragraphs 97 through 108 are examples of such misconduct. 97. In or around February and March of 1991, Smith caused O&R to pay approximately $1,000 to an outside vendor for video reproduction work on a film produced by his son, for the purpose of advancing his son's film-making and acting career. 98. In or around April 1993, for the same purpose, Smith caused O&R employees to rent and transport vehicles used by his son for the filming of a second movie, and caused O&R to pay approximately $4,500 in rental costs for the vehicles, approximately $2,000 for repair work for damages done to one of the vehicles while in the possession of his son, and additional amounts in parking violations incurred by his son while using such vehicles. When confronted by an O&R officer with the rental and repair charges, Smith reimbursed the Company for approximately $2,500 in additional charges, but denied responsibility for the remaining $6,500. 99. Smith also permitted his son to use O&R's executive offices on a weekend in or around April 1993, for filming parts of his movie, and caused the Company to pay expenses associated with such use, including $1,317.57 for special weekend security and freight elevator usage, and approximately $350.00 to a vendor for supervising the filming. 100. In 1983, Smith directed an employee in the Corporate Communications Department to arrange a summer job for his daughter at one of the Company's outside printing vendors, and caused O&R to reimburse the vendor for her salary. 101. On several occasions, between 1987 and 1989, Smith caused O&R to pay an outside vendor for the printing of personal social stationery for himself and his wife, at a cost of at least $900. 102. In or around June of 1992, Smith caused O&R to pay $1277.60 to an outside vendor for printing invitations to his son's engagement party. 103. During 1990 and 1991, Smith caused O&R to pay over $2,500 to two outside printing vendors for printing services in connection with Smith's daughter's engagement and wedding celebrations. 104. During 1991 and 1992, Smith caused O&R to pay outside vendors almost $400 for printing services in connection with events at the Tuxedo Park School with which Smith's wife was affiliated. 105. Since at least as early as 1991, Smith has regularly caused O&R to pay for photography services, including film processing and development, for the personal benefit of Smith, his family, and his personal associates. 106. From November 1992 until June 1993, Smith caused O&R to provide a Company-owned automobile for personal use by his son, and to pay $670 in New York City parking violations incurred by Smith's son while in possession of this automobile, and additional amounts for the use of the cellular phone in the car. 107. On several occasions, from at least 1988 to 1993, Smith caused O&R to pay thousands of dollars to outside law firms for legal work done for the personal benefit of Smith, his family, and associates, including legal work for a private real estate partnership in which he and his wife were partners, and authorized such personal legal work to be done for other officers, including Griffin and Winikow, at Company expense, without approval or authorization from the Board. 108. On several occasions, Smith made contributions of O&R cash, goods, or services to outside groups in which he and his family had personal or private business interests, without complying with Company policy requiring approval of corporate contributions, and in violation of legal and accounting requirements for reporting of corporate donations. Examples of outside groups to which Smith made such contributions included, but were not limited to, the Tuxedo Park School, with which Smith's wife was affiliated, the Drama League, with which Smith's son was or had been affiliated, and Carnegie Hall, which Smith and other O&R officers used primarily for personal entertainment. 109. As a result of Smith's concealments and misrepresentations, the full extent of Smith's use of Company employees, services, and vendors for such personal projects is peculiarly within Smith's knowledge and known only to him at this time. Wine 110. On numerous occasions, in violation of his fiduciary duties and Company policy, Smith made or authorized excessive and extravagant purchases of wine with Company funds, purportedly for use at the Conference Center or at Company-sponsored events. Such lavish expenditures for wine, which totaled approximately $100,000 in 1990 through 1993 alone, were neither reasonable nor necessary, conferred little or no benefit on O&R, and constituted waste of corporate assets. 111. Over $32,000 of such purchases made in the years 1990-1993 were made either without identifying the business purpose of such purchases or without submitting receipts or supporting documentation. 112. Despite the regularity and magnitude of such purchases, Smith failed to require the maintenance of adequate controls, including an inventory, of wine purchases and usage. In consequence, much of the wine so purchased remains unaccounted for. 113. On numerous occasions, Smith intentionally misappropriated and converted Company-owned wines to his personal use during personal outings at the Conference Centers or private entertainment of personal friends and neighbors at his home. Obstruction of the Special Committee's Investigation 114. After Winikow's arrest on August 16, 1993, in furtherance of his fraudulent scheme and in violation of his duty of candor, Smith engaged in a pattern of conduct which was intended to cover up his misappropriations from the Company and to mislead the Company's investigators regarding his actions. 115. In or around May 1993, Smith caused O&R to pay $1,298 for the printing of campaign literature for his wife and her running mates in connection with her campaign for election as a Trustee of Tuxedo Park. On or about August 20, 1993, in an effort to create a false record of contemporaneous reimbursement, Smith submitted a check, back-dated to July 29, 1993, for the cost of this literature. 116. In several instances, Smith sought to alter evidence of his personal use of Company vendors by causing such vendors to give credits to O&R on current bills for payments that had been made for his benefit through prior billings. The transactions set forth in paragraphs 117 through 119 are examples of such acts of concealment. 117. In or around July 1992, Smith had caused O&R to pay a vendor approximately $675 to transport furniture and other items to his vacation home in Kennebunkport, Maine. In or around May 1993, Smith had caused O&R to pay this vendor an additional $925 to transport furniture and other items to his vacation home in Maine. On or about September 30, 1993, Smith caused the moving company to issue a credit to O&R in the amount of $1,600, and to create and send a new bill to him. 118. In or around July 1992, Smith had caused O&R to pay a cleaning contractor $1,763.64 for cleaning his home. On or about September 30, 1993, Smith caused the cleaning contractor to issue a credit to O&R in the amount of $1,763.64. 119. In May 1993, Smith had caused O&R to pay an outside law firm $6,537.65 in legal fees for legal work done in connection with a private real estate venture in which Smith, his wife, and two personal friends were partners. In September 1993, Smith caused the law firm to be instructed to issue a credit in the amount of $6,537.65 on its September 1993 bill to O&R, and to prepare and send a new bill to Smith. 120. Smith also sought to conceal evidence of ongoing misappropriations by halting the issuance of invoices for personal work that were originally intended to be sent to O&R, and causing such invoices to be sent directly to him. The transactions set forth in paragraphs 121 through 123 are examples of such acts of concealment. 121. On or about August 9, 1993, Smith had caused the Company to order personal stationery for him and his wife from a Company vendor at a cost of $1,161.35, intending that the bill be sent to and paid by O&R. On or about August 25, 1993, Smith caused the vendor to be instructed not to send the invoice to O&R, as intended, but to direct it to Smith at his home. 122. In or around July 1993, Smith had caused the Company to order stationery design work at a cost of $115.00 for a Rockland County Garden Club in which his wife was a member, intending that the bill be sent to and paid by O&R. Shortly after Winikow's arrest on August 16, 1993, Smith caused the vendor to be instructed not to send the invoice to O&R, as intended, but to direct it to Smith's home. 123. In or around July 1993, Smith had caused the Company to order graphic design work at a cost of $175.00, for an event at the Tuxedo Park School, for the benefit of his wife, intending that the bill be sent to and paid for by O&R. Shortly after Winikow's arrest on August 16, 1993, Smith caused the vendor to be instructed not to send the invoice to O&R, as intended, but to direct it to Smith's home. 124. On or about July 13, 1993, Smith had caused the Company to order printing work at a cost of $500.00 for the benefit of his wife, for an event at the Tuxedo Park School, intending that the bill be sent to and paid by O&R. On or about September 1, 1993, Smith caused O&R employees to alter the accounting designation to a charitable contribution account number, and to reroute the invoice from the Corporate Communications Department, where it was originally sent, to the Corporate Contributions Department. 125. In or around July 1993, Smith had caused the Company to order paper at a cost of $322.70 for the benefit of his wife, for an event at the Tuxedo Park School, intending that the bill be sent to and paid by O&R. On or about August 26, 1993, Smith caused O&R employees to alter the accounting designation to a charitable contribution account number and to reroute the invoices through the Corporate Contributions Department. 126. In an interview on September 20, 1993 with independent investigators retained by the Special Committee, while Smith was still Chief Executive Officer of O&R, Smith made numerous false or misleading statements designed to obstruct the investigation. 127. In an effort to control the conduct of the investigations and the Company's response to inquiries by public authorities, Smith caused O&R to retain an outside law firm with which he and other O&R officers had long-standing personal and attorney-client relationships, to represent the Company in connection with the investigation. Smith intentionally misrepresented to the Board, and caused others to misrepresent, the extent of such relationships, and concealed and caused others to conceal potential conflicts of interest that could jeopardize an independent investigation of officer misconduct. 128. When these misrepresentations and concealments were discovered, the Board was required to replace that law firm, resulting in substantial costs, to insure the integrity of the Special Committee's investigation. Injury To Plaintiff 129. As a result of Smith's actions or failures to act described herein, Smith has caused, and will cause, O&R to suffer substantial losses and damages including but not limited to (i)\the amounts of Company funds, goods, and services wasted and misappropriated by Smith and other officers and employees; (ii) the costs incurred by O&R in responding to public authorities conducting civil and criminal investigations and proceedings; (iii) the costs of defending private lawsuits brought by shareholders and ratepayers and of any relief that may be awarded in such actions; (iv)\the Company's cost of investigating Smith's wrongdoing at O&R, including attorneys' fees and accountants' fees; (v)\the costs of any penalties or corrective action imposed or that may be imposed by the Public Service Commission or other regulatory and law enforcement authorities; and (vi)\the substantial adverse effect on O&R arising from adverse publicity, loss of credibility with regulatory authorities, loss of business reputation, and from adverse effects on employee morale. AS AND FOR A FIRST CAUSE OF ACTION (For Breach of the Fiduciary Duty of Loyalty) 130. Plaintiff repeats and realleges each and every allegation set forth in paragraphs\1 to 129 as though set forth here in full. 131. Smith violated his duty of loyalty to O&R by knowingly and wilfully misappropriating O&R funds and authorizing misappropriations by others, through the submission of false and inaccurate expense reports seeking reimbursement for non-business expenses, and by the use of O&R personnel, assets, and resources for the personal benefit of Smith, his family, and his personal associates. 132. Smith violated his duty of loyalty to O&R by knowingly and wilfully making, authorizing and approving excessive and extravagant expenditures of O&R funds. 133. Smith violated his duties of loyalty to O&R by knowingly and wilfully failing to institute and maintain proper accounting and management controls and interfering with the proper operation of existing accounting and management controls, by knowingly and wilfully concealing material information from the Board and its Committees, interfering with and obstructing the Company's investigation, and by knowingly and wilfully making or permitting others to make false or misleading representations to the Board or its Committees. AS AND FOR A SECOND CAUSE OF ACTION (For Breach of the Fiduciary Duty of Care) 134. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 to 129 and 131 through 133, as though set forth here in full. 135. Smith violated his duty of care to O&R by failing to institute and maintain proper controls over the Restricted Account, failing to institute and maintain adequate management and accounting controls, permitting the subversion of controls approved by the Board, and failing to supervise subordinate employees, including Winikow. AS AND FOR A THIRD CAUSE OF ACTION (For Breach of the Fiduciary Duty of Candor) 136. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 through 129, 131 through 133, and 135, as though set forth here in full. 137. Smith violated his duty of candor by knowingly and wilfully submitting, causing the submission of, and permitting or authorizing the submission of false and misleading expense reports, and by otherwise concealing the personal use by him and others of Company funds, goods, services, employees, vendors, and services. 138. Smith violated his duty of candor to O&R by knowingly and wilfully making, and causing or permitting to be made, false and misleading representations to, and by otherwise concealing or withholding accurate information from, the Board, its committees, and representatives. 139. Smith violated his duty of candor by knowingly and wilfully causing the alteration or creation of misleading records concerning his use of Company funds and assets. AS AND FOR A FOURTH CAUSE OF ACTION (For Inducing Breach of Fiduciary Duty) 140. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 through 129, 131 through 133, 135, and 137 through 139, as though set forth here in full. 141. Smith knowingly and wilfully induced officers and employees of O&R to violate their fiduciary duties of loyalty, candor, and care, by inducing and authorizing such officers and employees to engage in improper expenditures of O&R funds on behalf of themselves or Smith, to conceal such expenditures, and to fail to properly account for such expenditures, and by causing or permitting such officers and employees to make false and misleading representations to, or by otherwise concealing or withholding accurate information from, the Board, its committees, and representatives. AS AND FOR A FIFTH CAUSE OF ACTION (For Fraud) 142. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 to 129, 131 through 133, 135, 137 through 139, and 141, as though set forth here in full. 143. With intent to defraud O&R of money, services, and other things of value, Smith knowingly and willfully submitted, or caused to be submitted in his behalf, expense reports and work orders which contained false and inaccurate representations concerning the true nature and purpose of expenditures and work by O&R, or which otherwise concealed information necessary to make such reports accurate, as specifically set forth above. 144. In furtherance of his scheme to defraud O&R, Smith knowingly and willfully made and caused to be made to the Board false representations, and concealed and caused to be concealed from the Board truthful information concerning the fraudulent and illegal expenditures and activities of Smith and other officers, and the existence and efficacy of policies, procedures, and controls which might have led to the detection of such fraudulent and illegal activities, as also specifically set forth above. 145. By such affirmative misrepresentations and concealments, Smith was able to engage in a continuing pattern of fraudulent conduct until 1993, when some of his activities were discovered. Because of such affirmative misrepresentations and concealments, the full extent of Smith's fraudulent activities is peculiarly within his knowledge and is yet to be discovered. AS AND FOR A SIXTH CAUSE OF ACTION (For Waste of O&R Funds and Assets) 146. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 to 129, 131 through 133, 135, 137 through 139, 141, and 143 through 145, as though set forth here in full. 147. Throughout his tenure as Chief Executive Officer, Smith wasted Company funds and assets by knowingly engaging in, and knowingly authorizing other officers and employees to engage in, a pattern of excessive and extravagant spending, in connection with, inter alia, travel, dining, entertainment, gift purchases, wine purchases, and Company-sponsored events, which conferred little or no benefit to O&R. AS AND FOR A SEVENTH CAUSE OF ACTION (For Conversion of Property Belonging to O&R) 148. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 to 129, 131 through 133, 135, 137 through 139, 141, 143 through 145, and 147, as though set forth here in full. 149. By reason of the acts set forth above, Smith knowingly and wilfully diverted for his own use and benefit, monies, property, and services rightfully belonging to O&R, to the exclusion of O&R's exclusive rights of ownership to such monies, properties, and services, thereby converting O&R's property. AS AND FOR AN EIGHTH CAUSE OF ACTION (For an Accounting of O&R Property and Funds) 150. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 through 129, 131 through 133, 135, 137 through 139, 141, 143 through 145, 147 and 149, as though set forth here in full. 151. At all relevant times, Smith was an officer and director of O&R, and therefore had a duty to account for all O&R funds and property entrusted to his use and care. 152. On numerous occasions, from 1979 through October 7, 1993, Smith expended or caused the expenditure of O&R funds in connection with purchases of goods and services such as wines, merchandise, flowers, supplies, printed materials, books, electronic devices and equipment, airline tickets, hotel accommodations, food, beverages, furnishings, and other items, without adequately and properly accounting for the purchase, consumption, or use of such goods and services. 153. Smith is required to render an accounting for all such expenditures of Company funds, and use of Company property and services, and is responsible to O&R for all amounts and items which cannot be properly accounted for. AS AND FOR A NINTH CAUSE OF ACTION (For Unjust Enrichment) 154. Plaintiff repeats and realleges each and every allegation set forth in paragraphs 1 to 129, 131 through 133, 135, 137 through 139, 141, 143 through 145, 147, 149, and 151 through 153, as though set forth here in full. 155. By reason of the acts set forth above, Smith, through his fraudulent and improper conduct and breaches of fiduciary duty, was unjustly enriched at the expense of O&R, and equity and good conscience require that Smith make restitution to O&R for the amount of any unjust enrichment. WHEREFORE, O&R respectfully requests judgment against Smith for the following relief: (1) Compensatory damages in an amount not less than $5 million including, but not limited to, the following: (i) the amounts of Company funds, goods, and services that were misappropriated, wasted, converted, or obtained through fraudulent conduct by Smith; (ii) the amounts of Company funds, goods, and services that were misappropriated, wasted, converted, or obtained through fraudulent conduct by O&R officers or employees as a result of Smith's acts or failure to act; (iii) all costs incurred by O&R in responding to authorities conducting civil and criminal investigations and proceedings; (iv) all costs of defending private lawsuits brought by shareholders or ratepayers as a result of Smith's acts or failures to act and any relief that may be awarded in such actions; (v) all costs of investigating Smith's wrongdoing at O&R, including attorneys' fees and accountants' fees; and (vi) the costs of any penalties or corrective action imposed or that may be imposed by the Public Service Commission or other regulatory and law enforcement authorities as a result of Smith's acts or failures to act; (2) Punitive damages; (3) Forfeiture of Smith's compensation during the period or periods of his disloyalty; (4) An accounting by Smith; (5) Restitution; (6) The costs of this suit, including reasonable attorneys' fees; and (7) Such further and additional relief as this Court shall deem just and proper. Dated: March 16, 1994 HUGHES HUBBARD & REED One Battery Park Plaza New York, New York 10004 (212) 837-6000 Attorneys for Plaintiff Orange and Rockland Utilities, Inc. EX-99.3 8 EXHIBIT 99.3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the Fiscal Year ended December 31, 1993 OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from _____________ to _________________ Commission file number __________________________________________________ ORANGE AND ROCKLAND UTILITIES, INC. MANAGEMENT EMPLOYEES' SAVINGS PLAN (Full title of the plan) ORANGE AND ROCKLAND UTILITIES, INC. (Name of issuer of the securities held pursuant to the plan) ONE BLUE HILL PLAZA PEARL RIVER, NEW YORK 10965 (Address of principal executive office) TABLE OF CONTENTS Financial Statements and Schedules Page Report of Independent Certified Public Accountants. F-1 Statements of Net Assets Available for Plan Benefits as of December 31, 1993 and 1992. F-2 Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 1993 and 1992. F-4 Notes to Financial Statements. F-6 Report of Independent Certified Public Accountants on Supplementary Information. F-12 Schedules of Investments as of December 31, 1993 and 1992. F-13 Schedule of Investments - Master Trust Investment Account. F-15 Schedule of Transactions or Series of Transactions in Excess of 5% of Prior Year's Total Market Value for the year ended December 31, 1993. F-16 Exhibit 24 Consent of Independent Certified Public Accountants to incorporation by reference in the Prospectus of Registration Statement No. 33-25359 of their report dated March 25, 1994. -1- FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ORANGE AND ROCKLAND UTILITIES, INC. MANAGEMENT EMPLOYEES' SAVINGS PLAN DECEMBER 31, 1993 AND 1992 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Orange and Rockland Utilities, Inc. Retirement Committee We have audited the statements of net assets available for plan benefits of the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan as of December 31, 1993 and 1992, and the related statements of changes in net assets available for plan benefits for each of the two years in the period ended December 31, 1993. 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 that 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 net assets available for plan benefits of the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan as of December 31, 1993 and 1992, and the changes in net assets available for plan benefits for each of the two years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. GRANT THORNTON New York, New York March 25, 1994 F-1
Orange and Rockland Utilities, Inc. Management Employees' Savings Plan STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, 1993
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Assets: Interest-bearing cash $ 95 $ 91,951 $ - $ 1,982 $ 313 $ 493 $ 94,834 Loans to participants - - 1,012,576 - - - 1,012,576 Value of interest in master trust - 20,643,126 - - - - 20,643,126 Common stock - Orange and Rockland Utilities, Inc. 5,353,156 - - - - - 5,353,156 Value of interest in registered investment companies - - - 6,275,510 1,143,753 1,097,464 8,516,727 Other assets 161,191 - - - - - 161,191 Total assets 5,514,442 20,735,077 1,012,576 6,277,492 1,144,066 1,097,957 35,781,610 Net assets available for plan benefits $ 5,514,442 $20,735,077 $1,012,576 $6,277,492 $1,144,066 $1,097,957 $35,781,610 The accompanying notes are an integral part of this financial statement.
Orange and Rockland Utilities, Inc. Management Employees' Savings Plan STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, 1992
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Assets: Interest-bearing cash $ 418 $ 43 $ - $ 9 $ 389 $ 1,021 $ 1,880 Loans to participants - - 960,715 - - - 960,715 Value of interest in master trust - 18,353,054 - - - - 18,353,054 Common stock - Orange and Rockland Utilities, Inc. 6,468,816 - - - - - 6,468,816 Value of interest in registered investment companies - - - 3,616,495 850,310 758,660 5,225,465 Other assets 142,642 - - - - - 142,642 Total assets 6,611,876 18,353,097 960,715 3,616,504 850,699 759,681 31,152,572 Liabilities: Other liabilities (375) - - - (388) (1,019) (1,782) Total liabilities (375) - - - (388) (1,019) (1,782) Net assets available for plan benefits $6,611,501 $18,353,097 $960,715 $3,616,504 $ 850,311 $ 758,662 $31,150,790 The accompanying notes are an integral part of this financial statement.
Orange and Rockland Utilities, Inc. Management Employees' Savings Plan STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS For the Year Ended December 31, 1993
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Additions: Contributions: Before-tax $ 156,249 $ 1,541,664 $ - $ 698,037 $ 163,239 $ 194,261 $ 2,753,450 After-tax 1,163 31,395 - 25,764 6,486 2,776 67,584 Rollovers - 56,954 - 1,001 - - 57,955 Total contributions 157,412 1,630,013 - 724,802 169,725 197,037 2,878,989 Earnings on investments: Interest on interest-bearing cash 1,252 245 - 895 242 111 2,745 Interest on loans to participants - - 84,195 - - - 84,195 Interest on master trust - 1,309,424 - - - - 1,309,424 Dividend income 364,541 - - - - - 364,541 Gain on sale of assets 55,158 - - - - - 55,158 Unrealized depreciation of assets (162,908) - - - - - (162,908) Gain from registered investment companies - - - 838,067 73,271 89,549 1,000,887 Total earnings on investments 258,043 1,309,669 84,195 838,962 73,513 89,660 2,654,042 415,455 2,939,682 84,195 1,563,764 243,238 286,697 5,533,031 Deductions: Benefit payments to participants (259,472) (650,000) (8,701) (9,978) (2,147) - (930,298) (259,472) (650,000) (8,701) (9,978) (2,147) - (930,298) Increase in net assets 155,983 2,289,682 75,494 1,553,786 241,091 286,697 4,602,733 Net transfers from other Company plan 18,970 4,871 - 3,463 311 472 28,087 Fund transfers (1,272,012) 87,427 (23,633) 1,103,739 52,353 52,126 - Changes in net assets (1,097,059) 2,381,980 51,861 2,660,988 293,755 339,295 4,630,820 Net assets available for plan benefits at beginning of year 6,611,501 18,353,097 960,715 3,616,504 850,311 758,662 31,150,790 Net assets available for plan benefits at end of year $ 5,514,442 $20,735,077 $1,012,576 $6,277,492 $1,144,066 $1,097,957 $35,781,610 The accompanying notes are an integral part of this financial statement.
F-4 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS For the Year Ended December 31, 1992
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Additions: Contributions: Before-tax $ 128,048 $ 1,673,579 $ - $ 417,727 $128,928 $166,110 $ 2,514,392 After-tax 666 12,826 - 13,479 2,962 2,269 32,202 Rollovers 1,144 6,715 - - - - 7,859 Total contributions 129,858 1,693,120 - 431,206 131,890 168,379 2,554,453 Earnings on investments: Interest on interest-bearing cash 883 155 - 1,150 369 398 2,955 Interest on loans to participants - - 81,382 - - - 81,382 Interest on unallocated insurance contract - 213,112 - - - - 213,112 Interest on master trust - 1,109,720 - - - - 1,109,720 Dividend income 423,131 - - - - - 423,131 Gain on sale of assets 17,096 - - - - - 17,096 Unrealized appreciation of assets 479,699 - - - - - 479,699 Gain from registered investment companies - - - 481,973 73,400 71,733 627,106 Total earnings on investments 920,809 1,322,987 81,382 483,123 73,769 72,131 2,954,201 1,050,667 3,016,107 81,382 914,329 205,659 240,510 5,508,654 Deductions: Benefit payments to participants (346,474) (638,660) (1,766) (34,955) (33,631) (1,512) (1,056,998) (346,474) (638,660) (1,766) (34,955) (33,631) (1,512) (1,056,998) Increase in net assets 704,193 2,377,447 79,616 879,374 172,028 238,998 4,451,656 Net transfers from other Company plan 6,696 137,358 - - - - 144,054 Fund transfers (870,024) 492,896 168,302 (9,165) 73,207 144,784 - Changes in net assets (159,135) 3,007,701 247,918 870,209 245,235 383,782 4,595,710 Net assets available for plan benefits at beginning of year 6,770,636 15,345,396 712,797 2,746,295 605,076 374,880 26,555,080 Net assets available for plan benefits at end of year $6,611,501 $18,353,097 $960,715 $3,616,504 $850,311 $758,662 $31,150,790 The accompanying notes are an integral part of this financial statement.
F-5 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan NOTES TO FINANCIAL STATEMENTS December 31, 1993 and 1992 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan (the "Plan") have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles as applied to employee benefit plans and in accordance with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). The investments in the Orange and Rockland Utilities, Inc. (the Company") common stock and the registered investment companies are valued at quoted market value. The investments in the Guaranteed Fund are valued at contract value. NOTE B - DESCRIPTION OF PLAN The following is a brief description of the Plan and is provided for general information purposes only. PARTICIPANTS SHOULD REFER TO THE PLAN AND THE PLAN PROSPECTUS FOR MORE COMPLETE INFORMATION. General The Plan is a qualified defined contribution employee profit-sharing plan, effective January 1, 1985, for eligible management employees of the Company (the "Participants"). Participating Employees At December 31, 1993 and 1992, there were approximately 635 and 617 Participants in the Plan, respectively. The number of Participants in each of the Plan's funds were as follows: December 31, 1993 December 31, 1992 Stock Fund 329 342 Equity Funds: Vanguard/Windsor Fund 377 303 Vanguard/Morgan Growth Fund 163 144 Calvert-Ariel Growth Fund 151 135 Guaranteed Fund 549 535 F-6 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE B (Continued) The total number of Participants in the Plan is less than the sum of the number of Participants shown above because Participants may participate in more than one fund. Contributions No contributions to the Plan are made by the Company. Participants may elect to make before-tax or after-tax contributions in accordance with the terms of the Plan. Transferred Hourly Plan Contributions Any amounts held on behalf of Hourly Plan Participants who join Management will be transferred to the Plan in accordance with the terms of the Plan. The transferred Hourly Plan contributions will be treated in the same manner as before-tax contributions except where otherwise specifically provided in the Plan. Rollover Contributions Employees may elect to roll over into the Plan any cash received in any distribution from a pension, profit sharing or stock bonus plan meeting the requirements of Section 401(a) of the Internal Revenue Code of 1986, or from any qualifying individual retirement account or annuity. Rollover contributions are invested and otherwise treated in the same manner as other contributions except where otherwise specifically provided in the Plan. Participant Accounts and Vesting Separate accounts are maintained for each Participant's interest in the Plan. Participant accounts are at all times fully vested and nonforfeitable. Withdrawals and Distributions Upon Termination of Employment A Participant may elect to withdraw, according to the Plan's rules governing withdrawals, all or a portion of the Participant's after-tax contributions and earnings, in accordance with the terms of the Plan. The earnings portion of the withdrawal may be subject to an excise tax. A Participant, in general, may withdraw before-tax contributions and earnings only in the case of hardship and in accordance with the terms of the Plan. The Participant may be subject to an excise tax on the taxable portion of such withdrawal. F-7 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE B (Continued) Upon termination of employment for any reason, a Participant's account balance, if less than or equal to $3,500, will be distributed to the Participant or designated beneficiary as soon as practicable, unless the Participant elects to defer such distribution in accordance with the terms of the Plan. However, if the value of a Participant's account is greater than $3,500, the Participant's account will not be distributed until the Participant elects in writing to receive such distribution, subject to certain limitations, and in accordance with the terms of the Plan. In addition, the taxable portion of the distribution may be subject to an excise tax. Administration of Plan The Plan is administered by the Company's Retirement Committee, whose members are appointed by the Company's Board of Directors. The Plan's investments are held by Mellon Bank, N.A. (the "Trustee") in accordance with the terms of a master trust agreement (the "Trust Agreement") between the Trustee and the Company. Amendment or Discontinuance of Plan While the Company expects to continue the Plan indefinitely, it reserves the right to amend or terminate the Plan at any time, in whole or in part, pro- vided that no amendment may retroactively reduce the rights of Participants. NOTE C - INVESTMENT OF FUNDS All contributions are invested, at the election of the Participant, in one or a combination of funds. The following is a brief description of the funds available: Stock Fund Contributions to the Stock Fund are invested exclusively in common stock of the Company purchased by the Trustee on the open market, through the method of purchase and sales which is used by the Trustee in the normal course of its security transactions, or through enrollment in the Company's Dividend Reinvestment and Stock Purchase Plan. The purchase price of such stock includes brokerage commissions and any transfer taxes, if applicable. The Stock Fund is valued at quoted market value. F-8 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE C (Continued) Guaranteed Fund Contributions to the Guaranteed Fund are invested primarily in fixed-income assets issued by high-quality insurance companies and banks that have been approved for investment by Morley Capital Management, the investment manager selected to manage the fund by the Retirement Committee in January 1992. Prior to March 1992, the assets of the Guaranteed Fund consisted of one guaranteed investment contract issued by Connecticut General Life Insurance Company. In March 1992, this contract and a similar contract held by the Orange and Rockland Utilities, Inc. Hourly Group Savings Plan's Guaranteed Fund were placed in a commingled master trust investment account, the Orange and Rockland Savings GIC Trust. The investment experience of the master trust investment account is allocated monthly based on a weighted average of the account's assets based upon the prior month-end contract value, plus contributions and transfers in and less benefit payments and transfers out for the current month. At December 31, 1993, the master trust investment account consisted of 12 individual guaranteed investment contracts maturing through May 1998, a pooled fund investment and cash which were allocated as follows: Guaranteed Fund - Management Plan $20,643,126 Guaranteed Fund - Hourly Plan 14,739,740 Total Master Trust $35,382,866 The "guarantee" of the Guaranteed Fund relates to the guarantee of an interest rate for specified periods and the return of principal value upon maturity by the issuing insurance companies. The guaranteed investment contracts are included in the financial statements at contract value as reported to the Trust by the insurance companies. Certain guaranteed investment contracts are subject to withdrawal penalties upon a plan termination or contract termination prior to the expiration date of the contract. The amounts remitted to insurance companies for guaranteed investment contracts generally become the assets of these companies, which in turn assume an obligation to fulfill the contract terms. The ultimate ability to repay principal and interest is dependent upon the financial stability of these insurance companies. Equity Funds Contributions may be invested in one or more registered investment company mutual funds ("Equity Funds") selected by the Company's Retirement F-9 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE C (Continued) Committee. The following three Equity Funds have been selected: Vanguard/Windsor Fund, Vanguard/Morgan Growth Fund and Calvert-Ariel Growth Fund. Vanguard/Windsor and Vanguard/Morgan Growth Funds are members of the Vanguard Group of Investment Companies. Vanguard/Windsor Fund is managed by Wellington Management Company while Vanguard/Morgan Growth Fund is managed by Wellington Management Company, Franklin Portfolio Associates, Inc., Husic Capital Management and Vanguard's Core Management Group. Calvert-Ariel Growth Fund is a member of the Calvert Group of Funds and is managed by Ariel Capital Management. Interests in each Equity Fund are represented by "units" of participation. The quoted market value of a unit is determined by the terms and conditions of each Equity Fund. NOTE D - LOANS TO PARTICIPANTS A Participant may obtain a loan under the Plan in a minimum amount of $500 and subject to a maximum amount as provided in the Plan. The interest rate on loans granted prior to October 19, 1989 was the effective interest rate paid on the Guaranteed Fund, plus one percent. The interest rate on loans granted after October 18, 1989 is determined by the Retirement Committee on at least a quarterly basis. The interest rate established for a loan will not be changed during the term of the loan. Each loan will be evidenced by a promissory note payable to the Trustee for the loan amount, including interest, and secured by a lien on the Participant's account. The terms of the loan generally require repayment within five years. NOTE E - FEDERAL INCOME TAX STATUS The Company has received a determination letter from the Internal Revenue Service, dated March 19, 1986, that the Plan meets the requirements of Section 401(a) and 401(k) of the Internal Revenue Code of 1954, as amended (the "Code"), and that the Trust is exempt from federal income tax under Code Section 501(a). The Company will file, as necessary, applications with the Internal Revenue Service, in order to maintain the qualified status of the Plan. The following is intended only as a brief, general description of the federal income tax consequences to Participants participating in the Plan. Participants should refer to the prospectus for the Plan and consult a tax advisor to determine the specific federal, state and local tax consequences of participation in the Plan. 1. A Participant's after-tax contributions are fully taxable to the Participant in the year contributed to the Plan; and, therefore, they are not taxed again when distributed or withdrawn from the Plan. 2. A Participant's before-tax contributions are not taxable to the Participant in the year contributed to the Plan; and, therefore, they are taxable to the Participant when distributed or withdrawn from the Plan. F-10 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE E (Continued) 3. Dividends, interest, profits from the sale of securities by the Plan's Trustee, and other investment earnings on after-tax or before-tax contributions are not taxable to the Participant while held in the Plan's Trust; and, therefore, they are taxable to the Participant when distributed or withdrawn from the Plan. 4. Upon withdrawal from the Plan, a Participant will be subject to income taxes on amounts deferred and may be subject to excise taxes on the taxable portion of such withdrawals and distributions. However, the Parti- cipant may be eligible for certain favorable tax treatment on such amounts. NOTE F - EXPENSES OF THE PLAN The costs of general administration of the Plan and Trustee fees are paid by the Company. The expenses of the investment funds, including management fees of the investment managers of the Equity Funds and the Guaranteed Fund, are deducted from the earnings of those funds. F-11 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTARY INFORMATION Orange and Rockland Utilities, Inc. Retirement Committee Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole of the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan for each of the two years in the period ended December 31, 1993. The supplementary Schedule of Transactions or Series of Transactions in Excess of 5% of Prior Year's Total Market Value and the Schedules of Investments are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 and are not a required part of the basic financial statements. Such supplementary schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. GRANT THORNTON New York, New York March 25, 1994 F-12 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan SCHEDULE OF INVESTMENTS December 31, 1993 Quoted Market Common Stock Cost Value Orange and Rockland Utilities, Inc. 131,770 shares $ 3,524,808 $ 5,353,156 Contract Value of Interest in Master Trust Cost Value Orange and Rockland Savings GIC Trust $20,643,126 $20,643,126 Quoted Value of Interest in Registered Market Investment Companies Cost Value Vanguard/Windsor Fund 451,151 mutual fund shares $ 5,943,897 $ 6,275,510 Vanguard/Morgan Growth Fund 95,233 mutual fund shares 1,152,422 1,143,753 Calvert-Ariel Growth Fund 36,352 mutual fund shares 1,041,832 1,097,464 $ 8,138,151 $ 8,516,727 Cost Loan Value Loans to Participants $ 1,012,576 $ 1,012,576 F-13 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan SCHEDULE OF INVESTMENTS December 31, 1992 Quoted Market Common Stock Cost Value Orange and Rockland Utilities, Inc. 155,407 shares $ 3,908,589 $ 6,468,816 Contract Value of Interest in Master Trust Cost Value Orange and Rockland Savings GIC Trust $18,353,054 $18,353,054 Quoted Value of Interest in Registered Market Investment Companies Cost Value Vanguard/Windsor Fund 283,869 mutual fund shares $ 3,603,891 $ 3,616,495 Vanguard/Morgan Growth Fund 67,218 mutual fund shares 797,271 850,310 Calvert-Ariel Growth Fund 25,510 mutual fund shares 718,564 758,660 $ 5,119,726 $ 5,225,465 Cost Loan Value Loans to Participants $ 960,715 $ 960,715 F-14 Orange and Rockland Utilities, Inc. Management Employees' Savings Plan SCHEDULE OF INVESTMENTS MASTER TRUST INVESTMENT ACCOUNT December 31, 1993
Amount Allocated to Orange and Rockland Savings Guaranteed Guaranteed GIC Trust Fund - Fund - Contract Interest Maturity Contract / Management Hourly Asset Type & Issue Number Rate Date Cost Fair Value Plan Plan Guaranteed Investment Contracts Allstate Life Insurance Co. GA-5367 6.17% 9/30/97 $ 1,078,020 $ 1,078,020 $ 628,940 $ 449,080 Business Men's Life Assurance Co. 1097 6.05% 5/25/98 1,345,118 1,345,118 784,771 560,347 Connecticut General Life Insurance Co. IN-15498 8.00% - 10,033,402 10,033,402 5,853,703 4,179,699 Connecticut General Life Insurance Co. IN-15608 8.00% - 7,221,381 7,221,381 4,213,109 3,008,272 John Hancock Life Insurance Co. GAC-7032 5.23% 12/31/96 2,603,701 2,603,701 1,519,055 1,084,646 Metropolitan Life Insurance Co. GAC-14401 6.05% 12/01/97 800,769 800,769 467,186 333,583 Nationwide Insurance Group GAP-6062 7.20% 11/28/96 1,127,716 1,127,716 657,934 469,782 New York Life Insurance Co. GA-06710 6.48% 8/29/97 2,657,425 2,657,425 1,550,399 1,107,026 Ohio National Life Insurance Co. GA-5439 7.87% 3/31/97 570,319 570,319 332,736 237,583 Principal Mutual Life Insurance Co. GA4-2959-1 7.30% 3/31/97 1,130,408 1,130,408 659,504 470,904 Principal Mutual Life Insurance Co. GA4-2959-2 6.05% 4/23/98 1,051,493 1,051,493 613,464 438,029 Provident Mutual Life Insurance Co. GR-8194 6.70% 3/31/95 525,037 525,037 306,318 218,719 30,144,789 30,144,789 17,587,119 12,557,670 Pooled Fund Investment Firstar Institutional Investors GIC Fun - 6.38% - 3,481,166 3,481,166 2,030,987 1,450,179 Cash Equivalent EB Temporary Investment Fund - 3.33% - 1,756,911 1,756,911 1,025,020 731,891 $35,382,866 $35,382,866 $20,643,126 $14,739,740
Orange and Rockland Utilities, Inc. Management Employees' Savings Plan SCHEDULE OF TRANSACTIONS OR SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PRIOR YEAR'S TOTAL MARKET VALUE Year Ended December 31, 1993
Total Number Total Number Total Value Total Value Description of Asset of Purchases of Sales of Purchases of Sales Series of Transactions Attributable to All Funds (Excluding the Guaranteed Fund): EB Temporary Investment Fund 286 128 $ 2,537,481 $2,536,429 Orange and Rockland Utilities, Inc. Common Stock 26 34 610,751 1,569,600 Vanguard/Windsor Fund 34 20 1,903,716 82,768 Orange and Rockland Participant Loans 11 12 464,228 340,672 Series of Transactions Attributable to Aggregate Master Trust Investment Account: EB Temporary Investment Fund 113 40 10,513,507 9,386,743 Connecticut General Life Insurance Co. - Pooled Annuity Contract #IN15498 - 1 - 3,250,000 - Pooled Annuity Contract #IN15608 - 1 - 2,250,000 John Hancock Life Insurance Co. 1 - 2,500,000 - - Group Annuity Contract #7032 New York Life Insurance Co. - Group Annuity Contract #06710 1 - 2,500,000 - Deposited at Interest in Mellon Bank 3 3 843,000 843,000
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the Fiscal Year ended December 31, 1993 OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from _____________ to _________________ Commission file number __________________________________________________ ORANGE AND ROCKLAND UTILITIES, INC. MANAGEMENT EMPLOYEES' SAVINGS PLAN (Full title of the plan) ORANGE AND ROCKLAND UTILITIES, INC. (Name of issuer of the securities held pursuant to the plan) ONE BLUE HILL PLAZA PEARL RIVER, NEW YORK 10965 (Address of principal executive office) EXHIBITS VOLUME 1 OF 1 EXHIBIT INDEX Exhibit Number 24 Consent of Independent Certified Public Accountants to incorporation by reference in the Prospectus of Registration Statement No. 33-25359 of their report dated March 25, 1994. EXHIBIT NO. 24 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated March 25, 1994, accompanying the financial statements and schedules included in the Annual Report of Orange and Rockland Utilities, Inc. Management Employees' Savings Plan on Form 11-K for the year ended December 31, 1993. We hereby consent to the incorporation by reference of said report in the Prospectus constituting part of Registration Statement No. 33-25359 on Form S-8. GRANT THORNTON New York, New York March 25, 1994 EX-99.4 9 EXHIBIT 99.4 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the Fiscal Year ended December 31, 1993 OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from _____________ to _________________ Commission file number __________________________________________________ ORANGE AND ROCKLAND UTILITIES, INC. HOURLY GROUP SAVINGS PLAN (Full title of the plan) ORANGE AND ROCKLAND UTILITIES, INC. (Name of issuer of the securities held pursuant to the plan) ONE BLUE HILL PLAZA PEARL RIVER, NEW YORK 10965 (Address of principal executive office) TABLE OF CONTENTS Financial Statements and Schedules Page Report of Independent Certified Public Accountants. F-1 Statements of Net Assets Available for Plan Benefits as of December 31, 1993 and 1992. F-2 Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 1993 and 1992. F-4 Notes to Financial Statements. F-6 Report of Independent Certified Public Accountants on Supplementary Information. F-11 Schedules of Investments as of December 31, 1993 and 1992. F-12 Schedule of Investments - Master Trust Investment Account. F-14 Schedule of Transactions or Series of Transactions in Excess of 5% of Prior Year's Total Market Value for the year ended December 31, 1993. F-15 Exhibit 24 Consent of Independent Certified Public Accountants to incorporation by reference in the Prospectus of Registration Statement No. 33-25358 of their report dated March 25, 1994. -1- FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ORANGE AND ROCKLAND UTILITIES, INC. HOURLY GROUP SAVINGS PLAN DECEMBER 31, 1993 AND 1992 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Orange and Rockland Utilities, Inc. Retirement Committee We have audited the statements of net assets available for plan benefits of the Orange and Rockland Utilities, Inc. Hourly Group Savings Plan as of December 31, 1993 and 1992, and the related statements of changes in net assets available for plan benefits for each of the two years in the period ended December 31, 1993. 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 net assets available for plan benefits of the Orange and Rockland Utilities, Inc. Hourly Group Savings Plan as of December 31, 1993 and 1992, and the changes in net assets available for plan benefits for each of the two years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. GRANT THORNTON New York, New York March 25, 1994 F-1 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, 1993
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Assets: Interest-bearing cash $ 26,217 $ - $ - $ 4,750 $ 3,699 $ 2,773 $ 37,439 Loans to participants - - 555,632 - - - 555,632 Value of interest in master trust - 14,739,740 - - - - 14,739,740 Common Stock - Orange and Rockland Utilities, Inc. 2,606,988 - - - - - 2,606,988 Value of interest in registered investment companies - - - 1,349,493 138,170 136,039 1,623,702 Other assets 11,998 - - 7,107 1,115 1,118 21,338 Total assets 2,645,203 14,739,740 555,632 1,361,350 142,984 139,930 19,584,839 Liabilities: Other liabilities (12,365) - - (7,106) (1,114) (1,118) (21,703) Total liabilities (12,365) - - (7,106) (1,114) (1,118) (21,703) Net assets available for plan benefits $2,632,838 $14,739,740 $555,632 $1,354,244 $ 141,870 $ 138,812 $19,563,136 The accompanying notes are an integral part of this financial statement.
Orange and Rockland Utilities, Inc. Hourly Group Savings Plan STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS December 31, 1992
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Assets: Interest-bearing cash $ 12,650 $ - $ - $ 4,173 $ 2,216 $ 1,949 $ 20,988 Loans to participants - - 485,036 - - - 485,036 Value of interest in master trust - 12,788,806 - - - - 12,788,806 Common Stock - Orange and Rockland Utilities, Inc. 2,409,421 - - - - - 2,409,421 Value of interest in registered investment companies - - - 198,396 69,222 85,530 353,148 Total assets 2,422,071 12,788,806 485,036 202,569 71,438 87,479 16,057,399 Liabilities: Other liabilities (11,061) - - (4,170) (2,216) (1,949) (19,396) Total liabilities (11,061) - - (4,170) (2,216) (1,949) (19,396) Net assets available for plan benefits $2,411,010 $12,788,806 $485,036 $198,399 $ 69,222 $ 85,530 $16,038,003 The accompanying notes are an integral part of this financial statement.
Orange and Rockland Utilities, Inc. Hourly Group Savings Plan STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS For the Year Ended December 31, 1993
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Additions: Contributions: Before-tax $ 336,565 $ 1,942,592 $ - $ 335,077 $ 66,707 $ 63,148 $ 2,744,089 Total contributions 336,565 1,942,592 - 335,077 66,707 63,148 2,744,089 Earnings on investments: Interest on interest-bearing cash 766 169 - 472 80 46 1,533 Interest on loans to participants - - 39,668 - - - 39,668 Interest on master trust - 933,284 - - - - 933,284 Dividend income 149,798 - - - - - 149,798 Gain on sale of assets 11,701 - - - - - 11,701 Unrealized depreciation of assets (94,382) - - - - - (94,382) Gain from registered investment companies - - - 94,939 8,514 11,884 115,337 Total earnings on investments 67,883 933,453 39,668 95,411 8,594 11,930 1,156,939 404,448 2,876,045 39,668 430,488 75,301 75,078 3,901,028 Deductions: Benefit payments to participants (24,013) (320,863) (2,932) - - - (347,808) (24,013) (320,863) (2,932) - - - (347,808) Increase in net assets 380,435 2,555,182 36,736 430,488 75,301 75,078 3,553,220 Net transfers to other Company plan (18,970) 3,870 (8,741) (3,463) (311) (472) (28,087) Fund transfers (139,637) (608,118) 42,601 728,820 (2,342) (21,324) - Changes in net assets 221,828 1,950,934 70,596 1,155,845 72,648 53,282 3,525,133 Net assets available for plan benefits at beginning of year 2,411,010 12,788,806 485,036 198,399 69,222 85,530 16,038,003 Net assets available for plan benefits at end of year $2,632,838 $14,739,740 $555,632 $1,354,244 $ 141,870 $ 138,812 $19,563,136 The accompanying notes are an integral part of this financial statement.
Orange and Rockland Utilities, Inc. Hourly Group Savings Plan STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS For the Year Ended December 31, 1992
Vanguard/ Vanguard/ Calvert- Stock Guaranteed Loan Windsor Morgan Ariel Combined Fund Fund Account Fund Growth Fund Growth Fund Funds Additions: Contributions: Before-tax $ 307,038 $ 2,107,308 $ - $ 91,686 $ 41,347 $ 36,390 $ 2,583,769 Rollovers - 26,786 - - - - 26,786 Total contributions 307,038 2,134,094 - 91,686 41,347 36,390 2,610,555 Earnings on investments: Interest on interest-bearing cash 664 98 - 167 52 62 1,043 Interest on loans to participants - - 36,157 - - - 36,157 Interest on unallocated insurance contract - 147,189 - - - - 147,189 Interest on master trust - 777,034 - - - - 777,034 Dividend income 133,120 - - - - - 133,120 Loss on sale of assets (3,909) - - - - - (3,909) Unrealized appreciation of assets 183,472 - - - - - 183,472 Gain from registered investment companies - - - 15,170 5,036 6,753 26,959 Total earnings on investments 313,347 924,321 36,157 15,337 5,088 6,815 1,301,065 620,385 3,058,415 36,157 107,023 46,435 43,205 3,911,620 Deductions: Benefit payments to participants (72,156) (465,968) (33,685) - - - (571,809) (72,156) (465,968) (33,685) - - - (571,809) Increase in net assets 548,229 2,592,447 2,472 107,023 46,435 43,205 3,339,811 Net transfers to other Company plan (6,876) (137,358) - - - - (144,234) Fund transfers (152,260) (155,647) 151,419 91,376 22,787 42,325 - Changes in net assets 389,093 2,299,442 153,891 198,399 69,222 85,530 3,195,577 Net assets available for plan benefits at beginning of year 2,021,917 10,489,364 331,145 - - - 12,842,426 Net assets available for plan benefits at end of year $2,411,010 $12,788,806 $485,036 $198,399 $ 69,222 $ 85,530 $16,038,003 The accompanying notes are an integral part of this financial statement.
Orange and Rockland Utilities, Inc. Hourly Group Savings Plan NOTES TO FINANCIAL STATEMENTS December 31, 1993 and 1992 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the Orange and Rockland Utilities, Inc. Hourly Group Savings Plan (the "Plan") have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles as applied to employee benefit plans and in accordance with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). The investments in the Orange and Rockland Utilities, Inc. (the "Company") common stock and the registered investment companies are valued at quoted market value. The investments in the Guaranteed Fund are valued at contract value. NOTE B - DESCRIPTION OF PLAN The following is a brief description of the Plan and is provided for general information purposes only. PARTICIPANTS SHOULD REFER TO THE PLAN AND THE PLAN PROSPECTUS FOR MORE COMPLETE INFORMATION. General The Plan is a qualified defined contribution employee profit-sharing plan, effective January 1, 1986, for eligible collective bargaining unit employees of the Company (the "Participants"). Participating Employees At December 31, 1993 and 1992, there were approximately 725 and 720 Participants in the Plan, respectively. The number of Participants in each of the Plan's funds were as follows: December 31, 1993 December 31, 1992 Stock Fund 404 391 Equity Funds: Vanguard/Windsor Fund 206 77 Vanguard/Morgan Growth Fund 81 55 Calvert-Ariel Growth Fund 78 52 Guaranteed Fund 633 635 The total number of Participants in the Plan is less than the sum of the number of Participants shown above because Participants may participate in more than one fund. F-6 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE B (Continued) Contributions No contributions to the Plan are made by the Company. Participants may elect to make before-tax contributions in accordance with the terms of the Plan. Rollover Contributions Employees may elect to roll over into the Plan any cash received in any distribution from a pension, profit sharing or stock bonus plan meeting the requirements of Section 401(a) of the Internal Revenue Code of 1986, or from any qualifying individual retirement account or annuity. Rollover contributions are invested and otherwise treated in the same manner as other contributions except where otherwise specifically provided in the Plan. Participant Accounts and Vesting Separate accounts are maintained for each Participant's interest in the Plan. The Participant accounts are at all times fully vested and nonforfeitable. Withdrawals and Distributions Upon Termination of Employment A Participant's contributions, and the earnings credited on these contri- butions, in general, may not be withdrawn except in accordance with the terms of the Plan. The taxable portion of such withdrawals may be subject to an excise tax. Upon termination of employment for any reason, a Participant's account balance, if less than or equal to $3,500, will be distributed to the Participant or designated beneficiary as soon as practicable, unless the Participant elects to defer such distribution in accordance with the terms of the Plan. However, if the value of a Participant's account is greater than $3,500, the Participant's account will not be distributed until the Participant elects in writing to receive such distribution, subject to certain limitations and in accordance with the terms of the Plan. In addition, the taxable portion of the distribution may be subject to an excise tax. Administration of Plan The Plan is administered by the Company's Retirement Committee, whose members are appointed by the Company's Board of Directors. The Plan's investments are held by Mellon Bank, N.A. (the "Trustee") in accordance with the terms of a master trust agreement (the "Trust Agreement") between the Trustee and the Company. F-7 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE B (Continued) Amendment or Discontinuance of Plan While the Company expects to continue the Plan indefinitely, it reserves the right to amend or terminate the Plan at any time, in whole or in part, provided that no amendment may retroactively reduce the rights of Participants. NOTE C - INVESTMENT OF FUNDS All contributions are invested, at the election of the Participant, in one or a combination of funds. The following is a brief description of the funds available: Stock Fund Contributions to the Stock Fund are invested exclusively in common stock of the Company purchased by the Trustee on the open market, through the method of purchase and sales which is used by the Trustee in the normal course of its security transactions, or through enrollment in the Company's Dividend Reinvestment and Stock Purchase Plan. The purchase price of such stock includes brokerage commissions and any transfer taxes, if applicable. The Stock Fund is valued at quoted market value. Guaranteed Fund Contributions to the Guaranteed Fund are invested primarily in fixed- income assets issued by high-quality insurance companies and banks that have been approved for investment by Morley Capital Management, the investment manager selected to manage the fund by the Retirement Committee in January 1992. Prior to March 1992, the assets of the Guaranteed Fund consisted of one guaranteed investment contract issued by Connecticut General Life Insurance Company. In March 1992, this contract and a similar contract held by the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan's Guaranteed Fund were placed in a commingled master trust investment account, the Orange and Rockland Savings GIC Trust. The investment experience of the master trust investment account is allocated monthly based on a weighted average of the account's assets based upon the prior month-end contract value, plus contributions and transfers in and less benefit payments and transfers out for the current month. At December 31, 1993, the master trust investment account consisted of 12 individual guaranteed investment contracts maturing through May 1998, a pooled fund investment and cash, which were allocated as follows: Guaranteed Fund - Management Plan $20,643,126 Guaranteed Fund - Hourly Plan 14,739,740 Total Master Trust $35,382,866 F-8 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE C (Continued) The "guarantee" of the Guaranteed Fund relates to the guarantee of an interest rate for specified periods and the return of principal value upon maturity by the issuing insurance companies. The guaranteed investment contracts are included in the financial statements at contract value as reported to the Trust by the insurance companies. Certain guaranteed investment contracts are subject to withdrawal penalties upon a plan termination or contract termination prior to the expiration date of the contract. The amounts remitted to insurance companies for guaranteed investment contracts generally become the assets of these companies, which in turn assume an obligation to fulfill the contract terms. The ultimate ability to repay principal and interest is dependent upon the financial stability of these insurance companies. Equity Funds Contributions may be invested in one or more registered investment company mutual funds ("Equity Funds") selected by the Company's Retirement Committee. The following three Equity Funds have been selected: Vanguard/Windsor Fund, Vanguard/Morgan Growth Fund and Calvert-Ariel Growth Fund. Vanguard/Windsor and Vanguard/Morgan Growth Funds are members of the Vanguard Group of Investment Companies. Vanguard/Windsor Fund is managed by Wellington Management Company while Vanguard/Morgan Growth Fund is managed by Wellington Management Company, Franklin Portfolio Associates, Inc., Husic Capital Management and Vanguard's Core Management Group. Calvert-Ariel Growth Fund is a member of the Calvert Group of Funds and is managed by Ariel Capital Management. Interests in each Equity Fund are represented by "units" of participation. The quoted market value of a unit is determined by the terms and conditions of each Equity Fund. NOTE D - LOANS TO PARTICIPANTS A Participant may obtain a loan under the Plan in a minimum amount of $500 and subject to a maximum amount as provided in the Plan. The interest rate on loans granted prior to October 19, 1989 was the effective interest rate paid on the Guaranteed Fund, on the date the loan was made, plus one percent. The interest rate for loans granted after October 18, 1989 is determined by the Retirement Committee on at least a quarterly basis. The interest rate established for a loan will not be changed during the term of the loan. Each loan will be evidenced by a promissory note payable to the Trustee for the loan amount, including interest, and secured by a lien on the Participant's account. The terms of the loan generally require repayment in not more than five years. F-9 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan NOTES TO FINANCIAL STATEMENTS (Continued) December 31, 1993 and 1992 NOTE E - FEDERAL INCOME TAX STATUS The Company has received a determination letter from the Internal Revenue Service, dated April 29, 1988, that the Plan meets the requirements of Section 401(a) and 401(k) of the Internal Revenue Code of 1954, as amended (the "Code"), and that the Trust is exempt from federal income tax under Code Section 501(a). The Company will file, as necessary, applications with the Internal Revenue Service, in order to maintain the qualified status of the Plan. The following is intended only as a brief, general description of the federal income tax consequences to Participants of participation in the Plan. Participants should refer to the prospectus for the Plan and consult a tax advisor to determine the specific federal, state and local tax consequences of participation in the Plan. 1. A Participant's before-tax contributions are not taxable to the Participant in the year contributed to the Plan; and, therefore, they are taxable to the Participant when distributed or withdrawn from the Plan. 2. Dividends, interest, profits from sale of securities by the Plan's Trustee, and other investment earnings on contributions are not taxable to the Participant while held in the Plan's Trust; and, therefore, they are taxable to the Participant when withdrawn from the Plan. 3. Upon withdrawal from the Plan, a Participant will be subject to income taxes on amounts deferred and may be subject to excise taxes on the taxable portion of such withdrawals and distributions. However, the Participant may be eligible for certain favorable tax treatment on such amounts. NOTE F - EXPENSES OF THE PLAN The costs of general administration of the Plan and Trustee fees are paid by the Company. The expenses of the investment funds, including management fees of the investment managers of the Equity Funds and the Guaranteed Fund, are deducted from the earnings of those funds. F-10 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTARY INFORMATION Orange and Rockland Utilities, Inc. Retirement Committee Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole of the Orange and Rockland Utilities, Inc. Hourly Group Savings Plan for each of the two years in the period ended December 31, 1993. The supplementary Schedule of Transactions or Series of Transactions in Excess of 5% of Prior Year's Total Market Value and the Schedules of Investments are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 and are not a required part of the basic financial statements. The supplementary schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. GRANT THORNTON New York, New York March 25, 1994 F-11 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan SCHEDULE OF INVESTMENTS December 31, 1993 Quoted Market Common Stock Cost Value Orange and Rockland Utilities, Inc. 64,172 shares $ 2,169,629 $ 2,606,988 Contract Value of Interest in Master Trust Cost Value Orange and Rockland Savings GIC Trust $14,739,740 $14,739,740 Quoted Value of Interest in Registered Market Investment Companies Cost Value Vanguard/Windsor Fund 97,016 mutual fund shares $ 1,357,832 $ 1,349,493 Vanguard/Morgan Growth Fund 11,505 mutual fund shares 144,155 138,170 Calvert-Ariel Growth Fund 4,506 mutual fund shares 132,825 136,039 $ 1,634,812 $ 1,623,702 Cost Loan Value Loans to Participants $ 555,632 $ 555,632 F-12 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan SCHEDULE OF INVESTMENTS December 31, 1992 Quoted Market Common Stock Cost Value Orange and Rockland Utilities, Inc. 57,884 shares $ 1,813,496 $ 2,409,421 Contract Value of Interest in Master Trust Cost Value Orange and Rockland Savings GIC Trust $12,788,806 $12,788,806 Quoted Value of Interest in Registered Market Investment Companies Cost Value Vanguard/Windsor Fund 15,573 mutual fund shares $ 193,535 $ 198,396 Vanguard/Morgan Growth Fund 5,472 mutual fund shares 67,625 69,222 Calvert-Ariel Growth Fund 2,876 mutual fund shares 85,095 85,530 $ 346,255 $ 353,148 Cost Loan Value Loans to Participants $ 485,036 $ 485,036 F-13 Orange and Rockland Utilities, Inc. Hourly Group Savings Plan SCHEDULE OF INVESTMENTS MASTER TRUST INVESTMENT ACCOUNT December 31, 1993
Amount Allocated Orange and Rockland Savings Guaranteed Guaranteed GIC Trust Fund - Fund - Contract Interest Maturity Contract / Management Hourly Asset Type & Issue Number Rate Date Cost Fair Value Plan Plan Guaranteed Investment Contracts Allstate Life Insurance Co. GA-5367 6.17% 9/30/97 $ 1,078,020 $ 1,078,020 $ 628,940 $ 449,080 Business Men's Life Assurance Co. 1097 6.05% 5/25/98 1,345,118 1,345,118 784,771 560,347 Connecticut General Life Insurance Co. IN-15498 8.00% - 10,033,402 10,033,402 5,853,703 4,179,699 Connecticut General Life Insurance Co. IN-15608 8.00% - 7,221,381 7,221,381 4,213,109 3,008,272 John Hancock Life Insurance Co. GAC-7032 5.23% 12/31/96 2,603,701 2,603,701 1,519,055 1,084,646 Metropolitan Life Insurance Co. GAC-14401 6.05% 12/01/97 800,769 800,769 467,186 333,583 Nationwide Insurance Group GAP-6062 7.20% 11/28/96 1,127,716 1,127,716 657,934 469,782 New York Life Insurance Co. GA-06710 6.48% 8/29/97 2,657,425 2,657,425 1,550,399 1,107,026 Ohio National Life Insurance Co. GA-5439 7.87% 3/31/97 570,319 570,319 332,736 237,583 Principal Mutual Life Insurance Co. GA4-2959-1 7.30% 3/31/97 1,130,408 1,130,408 659,504 470,904 Principal Mutual Life Insurance Co. GA4-2959-2 6.05% 4/23/98 1,051,493 1,051,493 613,464 438,029 Provident Mutual Life Insurance Co. GR-8194 6.70% 3/31/95 525,037 525,037 306,318 218,719 30,144,789 30,144,789 17,587,119 12,557,670 Pooled Fund Investment Firstar Institutional Investors GIC Fun - 6.38% - 3,481,166 3,481,166 2,030,987 1,450,179 Cash Equivalent EB Temporary Investment Fund - 3.33% - 1,756,911 1,756,911 1,025,020 731,891 $35,382,866 $35,382,866 $20,643,126 $14,739,740
Orange and Rockland Utilities, Inc. Hourly Group Savings Plan SCHEDULE OF TRANSACTIONS OR SERIES OF TRANSACTIONS IN EXCESS OF 5% OF PRIOR YEAR'S TOTAL MARKET VALUE Year Ended December 31, 1993
Total Number Total Number Total Value Total Value Description of Asset of Purchases of Sales of Purchases of Sales Series of Transactions Attributable to All Funds (Excluding the Guaranteed Fund): EB Temporary Investment Fund 289 202 $ 1,278,154 $1,260,952 Orange and Rockland Utilities, Inc. Common Stock 71 34 594,698 302,844 Calvert-Ariel Growth Fund 58 20 104,901 66,275 Vanguard/Windsor Fund 69 17 1,125,371 69,213 Orange and Rockland Participant Loans 9 12 277,756 171,781 Series of Transactions Attributable to Aggregate Master Trust Investment Account:* EB Temporary Investment Fund 113 40 10,513,507 9,386,743 Connecticut General Life Insurance Co. - Pooled Annuity Contract #IN15498 - 1 - 3,250,000 - Pooled Annuity Contract #IN15608 - 1 - 2,250,000 John Hancock Life Insurance Co. 1 - 2,500,000 - - Group Annuity Contract #7032 New York Life Insurance Co. - Group Annuity Contract #06710 1 - 2,500,000 - Deposited at Interest in Mellon Bank 3 3 843,000 843,000
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required) For the Fiscal Year ended December 31, 1993 OR ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from _____________ to _________________ Commission file number __________________________________________________ ORANGE AND ROCKLAND UTILITIES, INC. HOURLY GROUP SAVINGS PLAN (Full title of the plan) ORANGE AND ROCKLAND UTILITIES, INC. (Name of issuer of the securities held pursuant to the plan) ONE BLUE HILL PLAZA PEARL RIVER, NEW YORK 10965 (Address of principal executive office) EXHIBITS VOLUME 1 OF 1 EXHIBIT INDEX Exhibit Number 24 Consent of Independent Certified Public Accountants to incorporation by reference in the Prospectus of Registration Statement No. 33-25358 of their report dated March 25, 1994. EXHIBIT NO. 24 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our report dated March 25, 1994, accompanying the financial statements and schedules included in the Annual Report of Orange and Rockland Utilities, Inc. Hourly Group Savings Plan on Form 11-K for the year ended December 31, 1993. We hereby consent to the incorporation by reference of said report in the Prospectus constituting part of Registration Statement No. 33-25358 on Form S-8. GRANT THORNTON New York, New York March 25, 1994 -----END PRIVACY-ENHANCED MESSAGE-----