-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P4XFAZrSnHx2fs1YRlAzlrWM9KaUlYmsAi+WFMZ+cdGDPL+ZZFM7Vt0++4mCo6V3 mQ0QxPSKgeHbGw9fTqsndA== 0000074778-98-000019.txt : 19980515 0000074778-98-000019.hdr.sgml : 19980515 ACCESSION NUMBER: 0000074778-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORANGE & ROCKLAND UTILITIES INC CENTRAL INDEX KEY: 0000074778 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 131727729 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04315 FILM NUMBER: 98620359 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4315 ORANGE AND ROCKLAND UTILITIES, INC. (Exact name of registrant as specified in its charter) New York 13-1727729 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Blue Hill Plaza, Pearl River, New York 10965 (Address of principal executive offices) (Zip code) (914) 352-6000 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the close of the latest practicable date. Common Stock - $5 Par Value 13,518,779 shares (Class) (Outstanding at April 30, 1998) TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets (Unaudited) at March 31, 1998 and December 31, 1997 1 Consolidated Statements of Income (Unaudited) for the three months ended March 31, 1998 March 31, 1997 3 Consolidated Cash Flow Statements (Unaudited) for the three months ended March 31, 1998 and March 31, 1997 5 Notes to Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 15 ITEM 4. Submission of Matters to a Vote of Security Holders 18 ITEM 6. Exhibits and Reports on Form 8-K 19 Signatures 21 PART I. FINANCIAL INFORMATION Item I. Financial Statements ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) Assets
March 31, December 31, 1998 1997 (Thousands of Dollars) Utility Plant: Electric $1,048,587 $1,047,857 Gas 232,771 232,206 Common 64,570 64,570 Utility Plant in Service 1,345,928 1,344,633 Less accumulated depreciation 480,773 471,865 Net Utility Plant in Service 865,155 872,768 Construction work in progress 70,121 63,445 Net Utility Plant 935,276 936,213 Non-utility Property: Non-utility property 11,653 11,651 Less accumulated depreciation, depletion and amortization 1,148 1,109 Net Non-utility Property 10,505 10,542 Current Assets: Cash and cash equivalents 4,253 3,513 Temporary cash investments 518 518 Customer accounts receivable, less allowance for uncollectible accounts of $2,628 and $2,530 60,555 61,817 Accrued utility revenue 19,848 22,869 Other accounts receivable, less allowance for uncollectible accounts of $306 and $258 9,690 20,450 Materials and supplies (at average cost) 25,213 35,269 Prepaid property taxes 22,301 21,575 Prepayments and other current assets 23,605 21,469 Total Current Assets 165,983 187,480 Deferred Debits: Income tax recoverable in future rates 75,353 74,731 Deferred revenue taxes 10,466 10,923 Deferred pension and other postretirement benefits 8,051 9,334 IPP settlements 12,625 14,238 Unamortized debt expense (amortized over term of securities) 10,979 11,153 Other deferred debits 31,176 29,705 Total Deferred Debits 148,650 150,084 Net Assets of Discontinued Operations 1,476 1,645 Total $1,261,890 $1,285,964 The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) Capitalization and Liabilities
March 31, December 31, 1998 1997 (Thousands of Dollars) Capitalization: Common stock (13,518,737 & 13,589,011 shares outstanding) $ 67,594 $ 67,945 Premium on capital stock 132,300 132,985 Capital stock expense (6,056) (6,084) Retained earnings 183,625 181,473 Total 377,463 376,319 Non-redeemable preferred stock (428,443 shares outstanding) 42,844 42,844 Non-redeemable cumulative preference stock 11,548 and 11,639 shares outstanding) 376 379 Total Non-Redeemable Stock 43,220 43,223 Long-term debt 356,637 356,637 Total Capitalization 777,320 776,179 Non-current Liabilities: Reserve for claims and damages 4,187 4,591 Post-retirement benefits 13,207 15,334 Pension costs 44,841 43,618 Obligations under capital leases 1,603 1,646 Total Non-current Liabilities 63,838 65,189 Current Liabilities: Notes payable and obligations due within one year 121,398 130,609 Accounts payable 38,830 57,630 Accrued Federal income and other taxes 10,591 2,929 Refundable fuel and gas costs 6,018 3,848 Refunds to customers 1,292 986 Other current liabilities 25,044 30,678 Total Current Liabilities 203,173 226,680 Deferred Taxes and Other: Deferred Federal income taxes 191,927 192,514 Deferred investment tax credits 14,289 14,482 Accrued Order 636 transition costs 1,340 1,340 Other deferred credits 10,003 9,580 Total Deferred Taxes and Other 217,559 217,916 Total $1,261,890 $1,285,964 The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited)
Three Months Ended March 31, 1998 1997 (Thousands of Dollars) Operating Revenues: Electric $106,096 $107,101 Gas 58,826 77,906 Total Utility Revenues 164,922 185,007 Diversified Activities 159 312 Total Operating Revenues 165,081 185,319 Operating Expenses: Operations: Fuel used in electric production 16,274 12,414 Electricity purchased for resale 15,987 18,856 Gas purchased for resale 30,955 48,117 Other expenses of operation 34,225 32,586 Maintenance 7,292 8,959 Depreciation and amortization 8,561 9,377 Taxes other than income taxes 23,804 26,152 Federal income taxes 6,501 7,463 Total Operating Expenses 143,599 163,924 Income from Operations 21,482 21,395 Other Income and (Deductions): Allowance for other funds used during construction (3) 15 Investigation costs - (3,390) Other - net 621 12 Taxes other than income taxes (70) (66) Federal income taxes (51) 1,409 Total Other Income and (Deductions) 497 (2,020) Income Before Interest Charges 21,979 19,375 Interest Charges: Interest on long-term debt 5,945 6,150 Other interest 2,557 1,542 Amortization of debt premium, expense-net 283 397 Allowance for borrowed funds used during construction (610) (228) Total Interest Charges 8,175 7,861 Income from Continuing Operations 13,804 11,514 (continued)
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited) (continued)
Three Months Ended March 31, 1998 1997 (Thousands of Dollars) Discontinued Operations: Loss from discontinued operations net of related income taxes $ - $ (4,598) Net Income 13,804 6,916 Dividends on preferred and preference stock, at required rates 700 700 Earnings applicable to common stock $13,104 $ 6,216 Average number of common shares outstanding(000's) 13,520 13,654 Basic Earnings Per Average Common Share Outstanding: Continuing Operations $ .97 $ .79 Discontinued Operations - (.33) Total $ .97 $ .46 Dividends declared per common share outstanding $ .645 $ .645 The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Cash Flow Statements (Unaudited)
Three Months Ended March 31, 1998 1997 (Thousands of Dollars) Cash Flow from Operations: Net income $13,804 $6,916 Adjustments to reconcile net income to net cash provided by (used in)operating activities: Depreciation and amortization 8,449 9,265 Deferred Federal income taxes (1,333) (2,252) Deferred investment tax credit (193) (198) Deferred and refundable fuel and gas costs 2,170 4,781 Allowance for funds used during construction (607) (244) Other non-cash charges 705 752 Changes in certain current assets and liabilities: Accounts receivable (net) and accrued utility revenues 15,043 (4,859) Materials and supplies 10,056 8,059 Prepaid property taxes (726) (977) Prepayments and other current assets (2,136) (300) Operating accounts payable (18,800) (23,741) Accrued Federal income and other taxes 7,662 10,260 Accrued interest (2,362) (2,771) Refunds to customers 306 506 Other current liabilities (3,271) (4,461) Discontinued operations 169 1,804 Other-net 1,481 5,871 Net Cash Provided from Operations 30,417 8,411 Cash Flow from Investing Activities: Additions to plant (8,357) (12,082) Temporary cash investments -- 769 Allowance for funds used during construction 607 244 Net Cash Used in Investing Activities (7,750) (11,069) Cash Flow from Financing Activities: Proceeds from: Issuance of long-term debt -- 20,056 Retirements of: Common Stock (3,225) -- Preference and preferred stock -- (1,390) Long-term debt (10) (20,114) Capital lease obligations (39) -- Net borrowings (repayments) under short-term debt arrangements* (9,215) 16,530 Dividends on preferred and common stock (9,438) (9,536) Net Cash Used in Financing Activities (21,927) 5,546 Net Change in Cash and Cash Equivalents 740 2,888 Cash and Cash Equivalents at Beginning of Period 3,513 3,321 Cash and Cash Equivalents at End of Period $ 4,253 $ 6,209 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized $10,226 $10,456 Federal income taxes $3,000 -- *Debt with maturities of 90 days or less. The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of March 31, 1998, the consolidated statements of income for the three month periods ended March 31, 1998 and 1997, and the consolidated cash flow statements for the three month periods then ended have been prepared by Orange and Rockland Utilities, Inc. (the "Company") without an audit. In the opinion of management, all adjustments (which include only normal recurring adjustments and the adjustments necessitated by the discontinued operations) necessary to fairly present the financial position and results of operations at March 31, 1998, and for all periods presented, have been made. The amounts in the consolidated balance sheet as of December 31, 1997 have been derived from audited financial statements. 2. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these unaudited consolidated financial statements, notes to consolidated financial statements and management's discussion and analysis of financial condition and results of operations be read in conjunction with the consolidated financial statements, the review of the Company's results of operations and financial condition and the notes to consolidated financial statements included in the Company's December 31, 1997 Annual Report to Shareholders. The results of operations for the period ended March 31, 1998 are not necessarily indicative of the results of operations for the full year. 3. The consolidated financial statements include the accounts of the Company, all subsidiaries and the Company's pro-rata share of an unincorporated joint venture. All intercompany balances and transactions have been eliminated. 4. Contingencies at March 31, 1998 are substantially the same as the contingencies described in the "Notes to Consolidated Financial Statements" included in the Company's December 31, 1997 Annual Report to Shareholders, which material is incorporated by reference to the Company's December 31, 1997 Form 10-K Annual Report, and in Item 3, Legal Proceedings of the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1997, except changes in the status of regulatory matters which are updated in Part I, Item 2 under the caption "Regulatory Activities" and the status of certain Legal Proceedings which are updated in Part II, Item I, "Legal Proceedings". 5. In August 1997, Norstar Management, Inc. ("NMI"), a wholly owned indirect subsidiary of the Company, sold certain of the assets of NORSTAR Energy Limited Partnership ("NORSTAR"), a natural gas services and marketing company of which NMI is the general partner. During the first quarter of 1998, NMI continued to wind down the remaining portion of the NORSTAR business. All activity has been completed with the exception of finalizing the remaining accounts receivable and payable balances. The resolution of these items is not expected to have a material effect on the Company's 1998 consolidated financial position or results of operations. 6. Certain amounts from prior years have been reclassified to conform with the current year presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition: Financial Performance The Company's consolidated earnings per average common share outstanding for the first quarter of 1998 were $0.97 as compared to $0.46 for the first quarter of 1997. Discontinued operations had no effect on the first quarter of 1998 and accounted for a loss of $(0.33) per share for the first quarter of 1997. Settlement costs related to litigation with the Company's former Chairman had no effect on the first quarter of 1998 and accounted for a loss of $(0.16) per share for the first quarter of 1997. Fluctuations within the components of earnings are discussed in the "Results of Operations." The average number of common shares outstanding was 13.5 million for the first quarter of 1998 and 13.7 for the first quarter of 1997. The return on average common equity from continuing operations for the twelve months ended March 31, 1998 was 11.81% as compared to 11.35% for the twelve months ended March 31, 1997. The return on average common equity, including the effect of discontinued operations, for the twelve months ended March 31, 1998 was 8.99% as compared to 9.33% for the twelve months ended March 31, 1997. Capital Resources and Liquidity At March 31, 1998, the Company and its utility subsidiaries had unsecured bank lines of credit totaling $140.0 million. The Company borrows under the lines of credit through the issuance of promissory notes to the banks. However, the Company primarily utilizes such lines of credit to fully support commercial paper borrowings. The aggregate amount of borrowings through the issuance of promissory notes and commercial paper cannot exceed the aggregate lines of credit. The average daily balance of short-term borrowings for the three months ended March 31, 1998 amounted to $125.5 million at an effective interest rate of 5.9% as compared to $93.7 million at an effective interest rate of 5.8% for the same period of 1997. The average daily balance of temporary cash investments for the three months ended March 31, 1998 was $0.5 million with an effective interest rate of 5.1% compared to $1.3 million at an effective interest rate of 5.2% for the same period of 1997. The non-utility subsidiaries of the Company and of Rockland Electric Company ("RECO"), a wholly owned utility subsidiary of the Company, had no bank lines of credit at March 31, 1998. On December 18, 1997, the Company issued $80 million of 6 1/2% Debentures due 2027 (Series E)(the "Series E Debentures"). The proceeds of the Series E Debentures were used to repay promissory notes issued for the purpose of redeeming two series of the Company's long term debt aggregating $80 million principal amount which matured during October 1997. The Series E Debentures were not registered under the Securities Act of 1933 (the "1933 Act") and were sold to qualified institutional buyers pursuant to Rule 144A of the 1933 Act. Pursuant to an agreement in connection with the sale of the Series E Debentures, the Company, in January 1998, registered $80 million of 6 1/2% Debentures due 2027 (Series F)(the "Series F Debentures") under the 1933 Act. The Series F Debentures are substantially identical to the Series E Debentures and were offered to holders of the Series E Debentures in exchange for the Series E Debentures. On March 3, 1998, all of the Series E Debentures were exchanged for the Series F Debentures. During December 1997,the Company initiated a Common Stock Repurchase Program. Pursuant to an Order of the New York Public Service Commission ("NYPSC"), the Company has authority to repurchase up to 700,000 shares of its common stock not later than December 31, 1999 in the open market or through privately negotiated transactions. During February, 1998, the Company temporarily suspended the Common Stock Repurchase Program. Through March 31, 1998, 136,300 shares of the Company's common stock have been repurchased at an average price of $45.75 per share. The Company currently has no plans for the issuance of additional debt or equity securities. Regulatory Activities New York Competitive Opportunities Proceeding Electric: Reference is made to Item 3, Legal Proceedings, under the caption "New York Competitive Opportunities Proceeding" in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, for a description of the NYPSC Competitive Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900). On February 13, 1998, in accordance with the Settlement in the Company's Competitive Opportunities Proceeding(Case E-0900), the Company filed proposed unbundled tariffs. The unbundled filing separates the Company's existing tariffs into production, transmission, distribution and customer cost categories. The Company expects this phase of the Competitive Opportunities proceeding to continue throughout the remainder of 1998. In addition, on April 16, 1998, the NYPSC issued an order (the "April 16, 1998 Order") authorizing the process for auctioning the Company's generating assets. The NYPSC required that the Company and Consolidated Edison Company of New York, Inc. ("Con Edison") modify their agreement for the joint auction of the Bowline Plant. The Company and Con Edison had agreed that the gross proceeds from the auction of the Bowline Plant, including those from the sale of an adjacent 97 acre parcel of land, would be allocated 70% to Con Edison and 30% to the Company, until Con Edison receives a maximum premium of $9 million. The premium would be calculated by multiplying the difference between 70% and 66 2/3% (i.e., 3 1/3%) by the gross proceeds. Once the maximum premium is reached, any additional gross proceeds would be allocated two-thirds to Con Edison and one- third to the Company. The NYPSC found this arrangement to be unreasonable. According to the NYPSC, such a premium would be appropriate, however, if it is triggered when proceeds from the sale of the plant exceed the Company's total costs (book value, taxes and auction transaction costs). In addition, the Commission ruled that since the Company is the sole owner of the adjacent 97 acre parcel of land, that parcel should be treated as a Company asset. Con Edison should not share in the proceeds from the sale of that parcel. On May 1, 1998, the Company and Con Edison filed with the NYPSC a revised agreement, dated April 30, 1998, which complies with the requirements of the April 16, 1998 Order for the joint auction of the Bowline Plant. The Company requested that the NYSPC review and approve expeditiously this revised agreement, in order that the Company can commence its auction process. The April 16, 1998 Order also required that the Company submit to the NYPSC a written statement of unconditional acceptance of the modifications and conditions to the Company's proposed process for auctioning its generating assets, set forth in the April 16, 1998 Order. By letter dated April 30, 1998, the Company unconditionally accepted those modifications and conditions. The Company is unable to predict the outcome of this regulatory proceeding or its effect on the Company's consolidated financial position or results of operations. However, the Company anticipates that it will commence the auction of the generating assets during 1998. Gas: Reference is made to Item 3, Legal Proceedings, of the Company's Annual Report on Form 10-K for the year ended December 31, 1997, under the caption "Regulatory Matters - Competition," for a discussion of the transition to a competitive natural gas market. On April 1, 1998, the Company filed "Plans of Orange and Rockland Utilities, Inc. to Mitigate Stranded Costs" in Case 93-G-0932, the New York gas restructuring proceeding. The Company's plan indicates that the Company has not incurred stranded costs to date as a result of its natural gas restructuring program. As the transition to a competitive retail market develops, the Company will determine what supply, transportation and storage contracts it will maintain. Whether the Company incurs stranded costs in the future will depend upon the continuing development of the gas transportation market on the Company's distribution system and further NYPSC action in restructuring the New York gas market. The NYPSC has not yet acted on the Company's filing. The Company is unable to predict the outcome of regulatory initiatives undertaken in this regard or the effect on the Company's consolidated financial position or results of operations. New Jersey Energy Master Plan Reference is made to Items 3, Legal Proceedings under the caption "New Jersey - Energy Master Plan" in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, for information regarding the New Jersey Board of Public Utilities ("NJBPU") Order "Adopting and Releasing Final Report in its Energy Master Plan Phase II Proceeding to Investigate the Future Structure of the Electric Power Industry (Docket No. EX 94120585Y)." The Order required RECO and other New Jersey investor owned electric utilities each to file unbundled rates, a stranded cost proposal and a restructuring plan. Hearings were conducted in the stranded cost and unbundled rates phases before an Administrative Law Judge. The NJBPU issued an order modifying the return date for a decision from the Administrative Law Judge in the stranded cost and unbundled rates phases from May 15, 1998 to June 30, 1998. Hearings in the restructuring phase scheduled for May, 1998 will be heard directly by the NJBPU. The NJBPU has indicated that it will rule on these filings by October 1998. It is not possible to predict the outcome of the NJBPU proceeding or its effect, if any, on the Company's consolidated financial position or results of operations. QUARTERLY COMPARISON Results of Operations The Company's total consolidated earnings per average common share outstanding for the first quarter of 1998 amounted to $0.97 per share as compared to $0.46 per share for the first quarter of 1997. The lower earnings experienced during the first quarter of 1997 were primarily the result of the loss of $(0.33) per share experienced by the Company's now discontinued gas marketing subsidiary operations as well as a loss of $(0.16) per share due to settlement costs related to litigation with a former Chairman and Chief Executive Officer of the Company. During the first quarter of 1998, utility operating gas revenues were adversely affected by the below-normal sales resulting from the warm winter weather, the effect of which was somewhat mitigated by the Company's gas weather normalization clause as described below. Also partially offsetting the effect of lower gas sales was the Company's continued success in containing utility operation and maintenance expenses. Electric and Gas Revenues Electric and gas operating revenues, including fuel cost and purchased gas cost recoveries, decreased by $20.1 million during the first quarter of 1998 as compared to the same quarter of 1997, as a result of lower fuel cost recoveries, lower gas sales and the reduction in electric base rates effective December, 1997. Electric operating revenues during the current quarter were $106.1 million as compared to $107.1 million for the first quarter of 1997, a decrease of $1.0 million. Actual total sales of electric energy to retail customers during the first quarter of 1998 were 1,129,511 megawatt hours ("Mwh"), compared with 1,116,718 Mwh during the comparable period a year ago. Revenues associated with these sales were $101.7 million during the current quarter compared to $104.7 million during the first quarter of 1997. This decrease in revenue was the result of base rate reductions and lower fuel cost recoveries partially offset by slightly higher sales. Sales to other utilities for the first quarter of 1998 amounted to 120,977 Mwh with revenues of $3.4 million compared to 67,924 Mwh and $1.5 million of revenue in 1997. Revenue from these sales are primarily a recovery of costs, and under the applicable tariff regulations, have a minimal impact on earnings. Gas operating revenues during the current quarter were $58.8 million compared to $77.9 million for the first quarter of 1997, a decrease of $19.1 million. This decrease is primarily the result of a decrease in the volume of gas sold and the timing of fuel cost recoveries. Record warm weather conditions during the first quarter of 1998 resulted in a decrease in gas sales when compared to the first quarter of 1997. Sales to firm customers during the first quarter of 1998 totaled 7,860 million cubic feet ("Mmcf"), compared with 8,996 Mmcf during the same period a year ago. Gas revenues from firm customers were $54.7 million, compared with $72.6 million in the first quarter of 1997. The level of revenues from gas sales in New York is subject to a weather normalization clause that compares actual gas heating season sales levels as measured by heating degree days to the number of forecasted degree days used to establish gas base revenue requirements. To the extent that actual degree days differ from forecasted degree days by more than 2.2%, a revenue adjustment is recorded and the difference is either refunded to or collected from firm gas customers. Interruptible gas sales were 873 Mmcf for the first quarter of 1998 compared to 878 Mmcf for the same period of 1997. Revenues from interruptible customers were $2.9 million for the first quarter of 1998 compared to $3.9 million for the first quarter of 1997. Fuel, Purchased Electricity and Purchased Gas Costs The cost of fuel used in electric production and purchased electricity costs amounted to $32.3 million for the first quarter of 1998 compared to $31.3 million for the first quarter of 1997, an increase of $1.0 million. This increase reflects the increase in demand for electricity, which was partially offset by a decrease in fuel prices. Purchased gas costs for utility operations were $31.0 million in the first quarter of 1998 compared to $48.1 million in 1997, a decrease of $17.1 million. This decrease in gas costs is attributable to the lower volume of gas purchased for resale and a reduction in price. Other Operating and Maintenance Expenses The Company's total operating expenses excluding fuel, purchased power and gas purchased for resale for the first quarter of 1998 decreased by $4.2 million when compared with the same period in 1997. Utility operating expenses decreased by $4.3 million. Diversified operations expenses increased by $0.1 million. The decrease in utility operating expenses is the result of reductions in taxes other than income taxes of $2.3 million, lower depreciation and amortization expenses of $0.8 million and lower Federal income tax expense of $0.9 million. The reduction in taxes other than income taxes is primarily due to the change necessitated by the New Jersey Uniform Transitional Utilities Assessment Act which, although it resulted in a change in the method of recording the tax, did not effect the Company's tax liability or the Company's net income for the period. Depreciation and amortization expense decreased due to the regulatory adjustments approved in the New York Electric Restructuring Case. Federal income tax expense decreased due to lower taxable income. Other operation and maintenance expenses decreased by $0.3 million. Diversified Activities The Company's diversified activities consist of energy services and land development businesses conducted through wholly owned non-utility subsidiaries. Revenues from diversified activities were $159,000 for the first quarter of 1998 compared with $312,000 a year ago. Other Income, Deductions and Interest Charges - Net Other income, net of interest charges and other deductions, increased by $2.2 million during the first quarter of 1998 when compared to the same quarter of 1997. This is primarily the result of lower investigation charges, partially offset by higher interest on a higher average level of short term borrowings. PART II. OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a description of a petition filed by the Company, the six other New York State investor-owned electric utilities, and the Energy Association of New York State ("Petitioners') in the New York State Supreme Court pursuant to Article 78 of the New York Civil Practice Law and Rules challenging the NYPSC's May 20, 1996 Order in the NYPSC Competitive Opportunities Proceeding, (Case Nos. 94-E-0952 and 96-E-0900). By Decision and Order on Motion dated April 7, 1998, the Appellate Division has granted a motion to extend the time to perfect appeals to July 6, 1998. Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a description of matters related to the Cottman Avenue/Metal Bank Superfund Site in Philadelphia, Pennsylvania. The United States Environmental Protection Agency ("EPA") has notified the Company and other potentially responsible parties ("PRP") that the deadline for responding to the letter received by the Company on February 10, 1998 has been extended to May 26, 1998. In addition, the Company has received a package of information from the Metal Bank Group which, inter alia, changes the Company's allocated share to 4.34% and which sets forth an amount ($536,519.00) which the Metal Bank Group believes the Company should pay for the Company's pro rata share of past expenses incurred by the Group in conducting a remedial investigation and feasibility study at the Site. The Company will negotiate with the Metal Bank Group concerning these matters. The Company is unable at this time to estimate the Company's share, if any, of past or future costs at this site. Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a description of six former Manufactured Gas Plant ("MGP") sites which were owned or operated by the Company or its predecessors. The Company has prepared revised work plans for the initial three MGP sites based on comments received from the New York State Department of Environmental Conservation ("DEC"), and is awaiting DEC approval of the revised work plans. As to the two additional sites for which the Company had submitted draft work plans to the DEC, the DEC has approved these work plans and the Company has commenced the site investigation work at those sites. The Company will be preparing reports relative to this site investigation work. Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 for a description of a litigation entitled Crossroads Cogeneration Corporation v. Orange and Rockland Utilities, Inc., filed in the United States District Court for the District of New Jersey. The United States Court of Appeals for the Third Circuit heard oral argument on Crossroads' appeal on April 23, 1998, and has reserved decision. The Company is unable to predict the outcome of this proceeding or its effect on the Company's consolidated financial position or results of operations. Reference is made to Item 5, Other Events, in the Company's Current Report on Form 8-K dated March 9, 1998, for a description of a litigation entitled Virgilio Ciullo, et al. v. Orange and Rockland Utilities, Inc., et al. In response to the motion to dismiss filed by the O&R Defendants and the Company on March 30, 1998, plaintiffs have filed a Verified Amended Complaint and a Memorandum of Law in Support of Their Answer to Defendants' Motion to Dismiss the Complaint. Plaintiffs take the position that the Verified Amended Complaint moots the motion to dismiss. The Verified Amended Complaint essentially seeks the same relief as the original Complaint (including a broader request for an accounting and an increase in the $15 million claim (referred to in the Form 8- K) to $23 million) and contains additional allegations which Plaintiffs claim will cure any deficiencies in the original Complaint. In addition, the Verified Amended Complaint adds Andersen Consulting LLP as a defendant. The O&R Defendants and the Company plan to move to dismiss the Verified Amended Complaint. Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-Q Quarterly Report, for a description of the NYPSC Competitive Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900). The Public Utility Law Project of New York, Inc. ("PULP"), by complaint dated April 30, 1998, has instituted an action against the NYPSC, the New York State Department of Public Service ("NYDPS") and the Company. PULP contends that the NYPSC, in its Opinion No. 97-20 approving the Company's Electric Rate and Restructuring Plan, exceeded its statutory authority when it ordered the Company to file tariffs providing for retail wheeling service to all customer classes. PULP claims that the expenditure of state funds by the defendants NYPSC and NYDPS to implement the provision of residential electric service by energy services companies violates the Home Energy Fair Practices Act and is a wrongful application of state funds. PULP also contends that Opinion No. 97-20 establishes rules for the provision of retail energy services in violation of the State Administrative Procedure Act. The Company plans to file a motion to dismiss. The Company is unable to predict the outcome of this regulatory proceeding and the effect on the Company's consolidated financial position or results of operations. Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and to Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, in this Form 10-Q Quarterly Report, for a description of proceedings relating to the transition to a competitive natural gas market. The Company is unable to predict the outcome of regulatory initiatives undertaken in this regard or the effect on the Company's consolidated financial position or results of operations. Forward-Looking Information The Company has made forward-looking statements in this document with respect to the financial condition, results of operations and business of the Company in the future, which involve certain risks and uncertainties. Forward-looking statements are included in Item 1 of Part I of this Form 10-Q in the Notes to Consolidated Financial Statements as well as in this Item 1 under the caption "Legal Proceedings" with respect to certain pending litigation matters. For all of those statements, the Company claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Item 4. Submission of Matters to a Vote of Security Holders: (a) The Company's Annual Meeting of Shareholders was held on April 8, 1998. (b) At the Annual Meeting of Shareholders on April 8, 1998, the following directors were elected for a three-year term expiring at the Annual Meeting of Shareholders in 2001: Robert E. Mulcahy III, James F. O'Grady, Jr. and D. Louis Peoples. The terms of office of the following Directors continued after the meeting: Ralph M. Baruch, J. Fletcher Creamer, Michael J. DelGiudice, Jon F. Hanson, Kenneth D. McPherson, Frederic V. Salerno and Linda C. Taliaferro. (c) The following matters were submitted to a vote of security holders at the Company's Annual Meeting of Shareholders held on April 8, 1998: 1. The Company's nominees for election as Directors were approved by the following vote: Shares Shares Broker For Withheld Non-Votes Robert E. Mulcahy III 11,190,147 356,097 N/A James F. O'Grady, Jr. 11,187,286 358,958 N/A D. Louis Peoples 11,201,972 344,272 N/A 2. A proposal to appoint the firm of Arthur Andersen LLP, independent public accountants, to audit the books, records and accounts of the Company and its subsidiaries for the year 1998 was approved by the following vote: Shares Shares Shares Broker For Against Abstaining Non-Votes 11,275,480 113,580 157,184 N/A Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.52 - Agreement among the Company, Consolidated Edison, Inc., C Acquisition Corp. and G. D. Caliendo, dated May 10, 1998, providing for the termination of Mr. Caliendo's employment with the Company at the effective time of the Merger and the payment of certain amounts in accordance with the severance agreement between the Company and G. D. Caliendo dated January 21, 1996. 10.53 - Agreement among the Company, Consolidated Edison, Inc., C Acquisition Corp. and R. Lee Haney, dated May 10, 1998, providing for the termination of Mr. Haney's employment with the Company at the effective time of the Merger and the payment of certain amounts in accordance with the severance agreement between the Company and R. Lee Haney dated January 22, 1996. 10.54 - Agreement among the Company, Consolidated Edison, Inc., C Acquisition Corp. and Robert McBennett, dated May 10, 1998, providing for the termination of Mr. McBennett's employment with the Company at the later of the effective time of the Merger or July 1, 1999 and the payment of certain amounts in accordance with the severance agreement between the Company and Robert McBennett dated October 27, 1997. 10.55 - Agreement among the Company, Consolidated Edison, Inc., C Acquisition Corp. and D. Louis Peoples, dated May 10, 1998, providing for the termination of Mr. People's employment with the Company at the effective time of the Merger and the payment of certain amounts in accordance with the severance agreement between the Company and D. Louis Peoples dated January 22, 1996. 27 - Financial Data Schedule. 99.14 - The Company's Final Divestiture Plan as approved by the NYPSC on April 8, 1998 (b) Reports on Form 8-K On February 6, 1998, the Company filed a Current Report on Form 8-K dated February 5, 1998 regarding the election of Michael J. Del Giudice to the position of Chairman of the Company's Board of Directors. On April 1, 1998, the Company filed a Current Report on Form 8-K dated March 9, 1998 regarding a lawsuit brought against the Company by three alleged shareholders. On April 9, 1998, the Company filed a Current Report on Form 8-K dated April 8, 1998 regarding the approval by the NYPSC of the Company's Final Divestiture Plan. On May 12, 1998, the Company filed a Current Report on Form 8-K dated May 10, 1998 regarding the definitive Agreement and Plan of Merger, dated as of May 10, 1998, entered into on May 10, 1998 by and among the Company, Consolidated Edison, Inc., a New York corporation ("CEI"), and C Acquisition Corp., a New York corporation and a wholly- owned subsidiary of CEI. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORANGE AND ROCKLAND UTILITIES, INC. (Registrant) Date: May 14, 1998 By ROBERT J. McBENNETT Robert J. McBennett Treasurer Date: May 14, 1998 By EDWARD M. McKENNA Edward M. McKenna Controller EX-10.52 2 May 10, 1998 G.D. Caliendo General Counsel and Corporate Secretary Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, NY 10965 Dear Mr. Caliendo: The purpose of this letter agreement is to set forth the understanding between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection with the transactions (the "Transactions") described in the Agreement and Plan of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the "Merger Agreement"), including with respect to the application of the agreement entered into between the Company and you, dated January 21, 1996, as thereafter amended (the "Agreement"). This letter agreement is being entered into for good and valuable consideration, with knowledge that you are relying hereon in agreeing to terminate your employment and with the intent to be legally bound hereby. 1. Change in Control. The parties hereto confirm and agree that the approval by the shareholders of the Company of the Transactions will constitute a "Change in Control" of the Company (as defined in Section 15(E)(III) of the Agreement). 2. Termination of Employment. The parties hereto agree that, provided your employment with the Company has not previously been terminated, your employment with the Company will terminate at the Effective Time (as defined in the Merger Agreement). The parties hereto further agree and confirm that, for purposes of the Agreement, such termination shall be deemed to be a termination of your employment by you for Good Reason following a "Change in Control" of the Company. The Company, Buyer and Buyer Sub hereby agree that this letter agreement (i) constitutes the "Notice of Termination" described in, and (ii) otherwise satisfies the requirements of, Section 7.1 of the Agreement with respect to such termination. 3. Payments; Benefits. The parties further confirm and agree that, in accordance with the foregoing paragraphs 1 and 2, if the Transactions are consummated, the Company shall, or Buyer shall cause Buyer Sub to, (i) pay to you at the Effective Time, in a lump sum cash payment, the amounts described in Sections 6.1(A) and (B) of the Agreement, together with any unpaid compensation (including salary and accrued but unused vacation) with respect to the period ending on the Effective Time, (ii) pay to you, at the Effective Time, the benefits to which you are entitled under the Officers' Supplemental Retirement Plan of the Company (the "SERP"), calculated in accordance with the terms of the SERP, Section 6.1(C) of the Agreement and the letter agreements between you and the Company dated as of February 16, 1995, April 6, 1995, July 21, 1997, and February 25, 1998, and if the Effective Time occurs prior to July 1, 1999, as if you had continued to be employed by the Company and to accrue service under the SERP until such date, (iii) provide to you, for the thirty-six month period commencing on the date of the termination of your employment hereunder, the benefits and privileges described in Section 6.1(D) of the Agreement (relating to life, disability, accident and health insurance benefits), (iv) provide to you the benefits described in Section 6.1(E) of the Agreement (relating to post- retirement health care and life insurance) if you otherwise qualify for such benefits (after taking into account the terms of Section 6.1(E)) and (v) honor and perform all other obligations to you and agreements for your benefit contained in the Agreement (including, but not limited to, Sections 6.2, 6.3 and 6.4 thereof). 4. Other Benefits. The parties further confirm and agree that the Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase the automobile provided to you by the Company pursuant to Company policy at a price equal to its wholesale bluebook price, as of the date of the termination of your employment hereunder and (ii) honor and perform all of their respective other obligations to you and agreements for your benefit including, but not limited to, all obligations under the Company Long-Term Performance Share Unit Plan and the letter agreement between you and the Company dated as of July 23, 1997. You hereby acknowledge that, except as set forth herein, you are not entitled to receive severance, termination or similar benefits under any other plan, agreement or arrangement of the Company. 5. No Continuing Obligations. The parties hereto confirm and agree that upon your termination of employment pursuant to this letter agreement, you shall have no further obligations under the Agreement except as expressly provided in Section 6.1(D) thereof. 6. Miscellaneous. This letter agreement may not be modified or amended without the prior written consent of all the parties hereto, shall be governed by the laws of the State of New York without regard to its conflicts of laws rules, may be executed in two or more counterparts each of which shall constitute an original and, together with the Agreement, shall constitute the entire agreement of the parties with respect to the subject matter hereof. If this letter sets forth our agreement on the subject matter hereof, please sign and return to the Company and Buyer the enclosed copies of this letter, which will then constitute our agreement on this subject. Sincerely, ORANGE AND ROCKLAND UTILITIES, INC. By: /s/ D. Louis Peoples Name: Denton Louis Peoples Title: Vice Chairman and Chief Executive Officer CONSOLIDATED EDISON, INC. By: /s/ Joan S. Freilich Name: Joan S. Freilich Title: Executive Vice President and Chief Financial Officer C ACQUISITION CORP. By: /s/ Kevin Burke Name: Kevin Burke Title: President In accordance with the provisions set forth above, I hereby agree that (i) my employment with the Company and any subsidiaries thereof will terminate and (ii) I will relinquish all offices and directorships I hold with the Company or any subsidiaries thereof, in each case, effective as of the Effective Time. /s/ G.D. Caliendo G.D. Caliendo EX-10.53 3 May 10, 1998 R. Lee Haney Chief Financial Officer Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, NY 10965 Dear Mr. Haney: The purpose of this letter agreement is to set forth the understanding between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection with the transactions (the "Transactions") described in the Agreement and Plan of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the "Merger Agreement"), including with respect to the application of the agreement entered into between the Company and you, dated January 22, 1996, as thereafter amended (the "Agreement"). This letter agreement is being entered into for good and valuable consideration, with knowledge that you are relying hereon in agreeing to terminate your employment and with the intent to be legally bound hereby. 1. Change in Control. The parties hereto confirm and agree that the approval by the shareholders of the Company of the Transactions will constitute a "Change in Control" of the Company (as defined in Section 15(E)(III) of the Agreement). 2. Termination of Employment. The parties hereto agree that, provided your employment with the Company has not previously been terminated, your employment with the Company will terminate at the Effective Time (as defined in the Merger Agreement). The parties hereto further agree and confirm that, for purposes of the Agreement, such termination shall be deemed to be a termination of your employment by you for Good Reason following a "Change in Control" of the Company. The Company, Buyer and Buyer Sub hereby agree that this letter agreement (i) constitutes the "Notice of Termination" described in, and (ii) otherwise satisfies the requirements of, Section 7.1 of the Agreement with respect to such termination. 3. Payments; Benefits. The parties further confirm and agree that, in accordance with the foregoing paragraphs 1 and 2, if the Transactions are consummated, the Company shall, or Buyer shall cause Buyer Sub to, (i) pay to you at the Effective Time, in a lump sum cash payment, the amounts described in Sections 6.1(A) and (B) of the Agreement, together with any unpaid compensation (including salary and accrued but unused vacation) with respect to the period ending on the Effective Time, (ii) pay to you, at the Effective Time, the benefits to which you are entitled under the Officers' Supplemental Retirement Plan of the Company (the "SERP"), calculated in accordance with the terms of the SERP, Section 6.1(C) of the Agreement and the letter agreements between you and the Company dated as of September 2, 1994, September 29, 1994, July 21, 1997, and February 25, 1998, and if the Effective Time occurs prior to July 1, 1999, as if you had continued to be employed by the Company and to accrue service under the SERP until such date, (iii) provide to you, for the thirty-six month period commencing on the date of the termination of your employment hereunder, the benefits and privileges described in Section 6.1(D) of the Agreement (relating to life, disability, accident and health insurance benefits), (iv) provide to you the benefits described in Section 6.1(E) of the Agreement (relating to post-retirement health care and life insurance) if you otherwise qualify for such benefits (after taking into account the terms of Section 6.1(E)) and (v) honor and perform all other obligations to you and agreements for your benefit contained in the Agreement (including, but not limited to, Sections 6.2, 6.3 and 6.4 thereof). 4. Other Benefits. The parties further confirm and agree that the Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase the automobile provided to you by the Company pursuant to Company policy at a price equal to its wholesale bluebook price, as of the date of the termination of your employment hereunder and (ii) honor and perform all of their respective other obligations to you and agreements for your benefit including, but not limited to, all obligations under the Company Long-Term Performance Share Unit Plan and the letter agreement between you and the Company dated as of July 23, 1997. You hereby acknowledge that, except as set forth herein, you are not entitled to receive severance, termination or similar benefits under any other plan, agreement or arrangement of the Company. 5. No Continuing Obligations. The parties hereto confirm and agree that upon your termination of employment pursuant to this letter agreement, you shall have no further obligations under the Agreement except as expressly provided in Section 6.1(D) thereof. 6. Miscellaneous. This letter agreement may not be modified or amended without the prior written consent of all the parties hereto, shall be governed by the laws of the State of New York without regard to its conflicts of laws rules, may be executed in two or more counterparts each of which shall constitute an original and, together with the Agreement, shall constitute the entire agreement of the parties with respect to the subject matter hereof. If this letter sets forth our agreement on the subject matter hereof, please sign and return to the Company and Buyer the enclosed copies of this letter, which will then constitute our agreement on this subject. Sincerely, ORANGE AND ROCKLAND UTILITIES, INC. By: /s/ D. Louis Peoples Name: Denton Louis Peoples Title: Vice Chairman and Chief Executive Officer CONSOLIDATED EDISON, INC. By: /s/ Joan S. Freilich Name: Joan S. Freilich Title: Executive Vice President and Chief Financial Officer C ACQUISITION CORP. By: /s/ Kevin Burke Name: Kevin Burke Title: President In accordance with the provisions set forth above, I hereby agree that (i) my employment with the Company and any subsidiaries thereof will terminate and (ii) I will relinquish all offices and directorships I hold with the Company or any subsidiaries thereof, in each case, effective as of the Effective Time. /s/ R. Lee Haney R. Lee Haney EX-10.54 4 May 10, 1998 Robert J. McBennett Treasurer Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, NY 10965 Dear Mr. McBennett: The purpose of this letter agreement is to set forth the understanding between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection with the transactions (the "Transactions") described in the Agreement and Plan of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the "Merger Agreement"), including with respect to the application of the agreement entered into between the Company and you, dated October 27, 1997, as thereafter amended (the "Agreement"). This letter agreement is being entered into for good and valuable consideration, with knowledge that you are relying hereon in agreeing to terminate your employment and with the intent to be legally bound hereby. 1. Change in Control. The parties hereto confirm and agree that the approval by the shareholders of the Company of the Transactions will constitute a "Change in Control" of the Company (as defined in Section 1 of the Agreement). 2. Termination of Employment. The Company and Buyer Sub hereby agree that neither the Company nor the Buyer Sub will terminate your employment, other than for Cause (as defined in the Agreement), until the later of July 1, 1999, and the Effective Time (such date, the "Termination Date"). The parties hereto agree that, provided your employment with the Company has not previously been terminated, your employment with the Company will terminate on the Termination Date. The parties hereto further agree and confirm that, for purposes of the Agreement, such termination shall be deemed to be a termination of your employment by you for Good Reason following a "Change in Control" of the Company. 3. Payments; Benefits. The parties further confirm and agree that, in accordance with the foregoing paragraphs 1 and 2, if the Transactions are consummated, the Company shall, or Buyer shall cause Buyer Sub to, subject to Section 3(d) of the Agreement, (i) pay to you on the Termination Date, in a lump sum cash payment, the amounts described in Sections 3(a) of the Agreement, together with any unpaid compensation (including salary, accrued but unused vacation and any Annual Team Incentive Plan payment payable for the calendar year in which the termination of your employment occurs) with respect to the period ending on the Termination Date, (ii) pay to you, on the Termination Date, the benefits to which you are entitled under the Officers' Supplemental Retirement Plan of the Company (the "SERP"), calculated in accordance with the terms of the SERP, (iii) provide to you, for the twenty-four month period commencing on the date of the termination of your employment hereunder, the benefits described in Section 3(b) of the Agreement (relating to life, disability, accident and health insurance benefits) and (iv) honor and perform all other obligations to you and agreements for your benefit contained in the Agreement. 4. Other Benefits. The parties further confirm and agree that the Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase the automobile provided to you by the Company pursuant to Company policy at a price equal to its wholesale bluebook price, as of the date of the termination of your employment hereunder and (ii) honor and perform all of their respective other obligations to you and agreements for your benefit including, but not limited to, all obligations under the Company Long-Term Performance Share Unit Plan. You hereby acknowledge that, except as set forth herein, you are not entitled to receive severance, termination or similar benefits under any other plan, agreement or arrangement of the Company. 5. No Continuing Obligations. The parties hereto confirm and agree that upon your termination of employment pursuant to this letter agreement, you shall have no further obligations under the Agreement except as expressly provided in Section 3(c) thereof. 6. Miscellaneous. This letter agreement may not be modified or amended without the prior written consent of all the parties hereto, shall be governed by the laws of the State of New York without regard to its conflicts of laws rules, may be executed in two or more counterparts each of which shall constitute an original and, together with the Agreement, shall constitute the entire agreement of the parties with respect to the subject matter hereof. If this letter sets forth our agreement on the subject matter hereof, please sign and return to the Company and Buyer the enclosed copies of this letter, which will then constitute our agreement on this subject. Sincerely, ORANGE AND ROCKLAND UTILITIES, INC. By: /s/ D. Louis Peoples Name: Denton Louis Peoples Title: Vice Chairman and Chief Executice Officer CONSOLIDATED EDISON, INC. By: /s/ Joan S. Freilich Name: Joan S. Freilich Title: Executive Vice President and Chief Financial Officer C ACQUISITION CORP. By: /s/ Kevin Burke Name: Kevin Burke Title: President In accordance with the provisions set forth above, I hereby agree that (i) my employment with the Company and any subsidiaries thereof will terminate and (ii) I will relinquish all offices and directorships I hold with the Company or any subsidiaries thereof, in each case, effective on the Termination Date. /s/ Robert J. McBennett Robert J. McBennett EX-10.55 5 May 10, 1998 D. Louis Peoples Chief Executive Officer Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, NY 10965 Dear Mr. Peoples: The purpose of this letter agreement is to set forth the understanding between Orange and Rockland Utilities, Inc. (the "Company"), Consolidated Edison, Inc. ("Buyer"), C Acquisition Corp. ("Buyer Sub") and you in connection with the transactions (the "Transactions") described in the Agreement and Plan of Merger, dated as of May 10, 1998, among the Company, Buyer and Buyer Sub (the "Merger Agreement"), including with respect to the application of the agreement entered into between the Company and you, dated January 22, 1996, as thereafter amended (the "Agreement"). This letter agreement is being entered into for good and valuable consideration, with knowledge that you are relying hereon in agreeing to terminate your employment and with the intent to be legally bound hereby. 1. Change in Control. The parties hereto confirm and agree that the approval by the shareholders of the Company of the Transactions will constitute a "Change in Control" of the Company (as defined in Section 15(E)(III) of the Agreement). 2. Termination of Employment. The parties hereto agree that provided your employment with the Company has not previously been terminated, your employment with the Company will terminate at the Effective Time (as defined in the Merger Agreement). The parties hereto further agree and confirm that, for purposes of the Agreement, such termination shall be deemed to be a termination of your employment by you for Good Reason following a "Change in Control" of the Company. The Company, Buyer and Buyer Sub hereby agree that this letter agreement (i) constitutes the "Notice of Termination" described in, and (ii) otherwise satisfies the requirements of, Section 7.1 of the Agreement with respect to such termination. 3. Payments; Benefits. The parties further confirm and agree that, in accordance with the foregoing paragraphs 1 and 2, if the Transactions are consummated, the Company shall, or Buyer shall cause Buyer Sub to, (i) pay to you at the Effective Time, in a lump sum cash payment, the amounts described in Sections 6.1(A) and (B) of the Agreement, together with any unpaid compensation (including salary and accrued but unused vacation) with respect to the period ending on the Effective Time, (ii) pay to you, at the Effective Time, the benefits to which you are entitled under the Officers' Supplemental Retirement Plan of the Company (the "SERP"), calculated in accordance with the terms of the SERP, Section 6.1(C) of the Agreement and the letter agreements between you and the Company dated as of September 29, 1994, April 6, 1995, and July 18, 1997, (iii) provide to you, for the thirty-six month period commencing on the date of the termination of your employment hereunder, the benefits and privileges described in Section 6.1(D) of the Agreement (relating to life, disability, accident and health insurance benefits), (iv) provide to you the benefits described in Section 6.1(E) of the Agreement (relating to post-retirement healthcare and life insurance) if you otherwise qualify for such benefits (after taking into account the terms of Section 6.1(E)) and (v) honor and perform all other obligations to you and agreements for your benefit contained in the Agreement (including, but not limited to, Sections 6.2, 6.3 and 6.4 thereof). 4. Other Benefits. The parties further confirm and agree that the Company shall, and Buyer shall cause Buyer Sub to, (i) permit you to purchase the automobile provided to you by the Company pursuant to Company policy at a price equal to its wholesale bluebook price, as of the date of the termination of your employment hereunder and (ii) honor and perform all of their respective other obligations to you and agreements for your benefit including, but not limited to, all obligations under the Company Long-Term Performance Share Unit Plan and the letter agreement between you and the Company dated as of July 23, 1997. You hereby acknowledge that, except as set forth herein, you are not entitled to receive severance, termination or similar benefits under any other plan, agreement or arrangement of the Company. 5. No Continuing Obligations. The parties hereto confirm and agree that upon your termination of employment pursuant to this letter agreement, you shall have no further obligations under the Agreement except as expressly provided in Section 6.1(D) thereof. 6. Miscellaneous. This letter agreement may not be modified or amended without the prior written consent of all the parties hereto, shall be governed by the laws of the State of New York without regard to its conflicts of laws rules, may be executed in two or more counterparts each of which shall constitute an original and, together with the Agreement, shall constitute the entire agreement of the parties with respect to the subject matter hereof. If this letter sets forth our agreement on the subject matter hereof, please sign and return to the Company and Buyer the enclosed copies of this letter, which will then constitute our agreement on this subject. Sincerely, ORANGE AND ROCKLAND UTILITIES, INC. By: /s/ G. D. Caliendo Name: G. D. Caliendo Title: General Counsel and Corporate Secretary CONSOLIDATED EDISON, INC. By: /s/ Joan S. Freilich Name: Joan S. Freilich Title: Executive Vice President and Chief Financial Officer C ACQUISITION CORP. By: /s/ Kevin Burke Name: Kevin Burke Title: President In accordance with the provisions set forth above, I hereby agree that (i) my employment with the Company and any subsidiaries thereof will terminate and (ii) I will relinquish all offices and directorships I hold with the Company or any subsidiaries thereof, in each case, effective as of the Effective Time. /s/ D. Louis Peoples D. Louis Peoples EX-27 6
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORANGE AND ROCKLAND UTILITIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS DEC-31-1998 MAR-31-1998 PER-BOOK 935,276 10,505 165,983 148,650 1,476 1,261,890 67,594 126,244 183,625 377,463 0 43,220 356,637 0 0 121,185 40 0 1,603 173 361,569 1,261,890 165,081 6,501 137,098 143,599 21,482 497 21,979 8,175 13,804 700 13,104 8,739 5,945 30,417 0.97 0
EX-99.14 7 STATE OF NEW YORK PUBLIC SERVICE COMMISSION : : Case 96-E-0900 - In the Matter of Orange and Rockland : Utilities, Inc.'s Plans for Electric Rate/Restructuring Pursuant : to Opinion No. 96-12. : : Final Divestiture Plan Dated: February 3, 1998 Pearl River, New York Table of Contents INTRODUCTION 1 1. Objectives 3 2. Time Is of the Essence 3 3. Divestiture Milestone Targets 3 4. External Advisors 4 5. Packaging of Generating Assets for Sale 5 A. Orange and Rockland Employees 5 B. Packaging of Bids 5 C. Description of Generating Assets 6 (a) Lovett Generating Station 6 (b) Bowline Point Generating Station 9 (c) Hillburn Gas Turbine 11 (d) Shoemaker Gas Turbine 12 (e) Mongaup Hydro-Electric Facility 13 (f) Rio Hydro-Electric Facility 14 (g) Swinging Bridge Hydro-Electric Facility 14 (h) Grahamsville Hydro-Electric Facility 15 6. Legal/Regulatory Limitations on Bidders 16 7. Auction Procedures 17 A. Phase I 18 B. Phase II 20 8. Amendments 23 9. Form of Consideration 23 10. Financing Contingencies 24 11. Minimum Bid 24 12. Entrance Fee and Security Deposit 24 13. Bidders' Costs 24 14. Other Auction Designs 25 15. Principal Agreements 25 A. Asset Sale Agreement 26 B. Interconnection Agreement(s) 26 C. Continuing Site Agreement(s) 26 16. Disputes 27 17. Maintenance of Generating Assets 28 18. Property Taxes 28 19. Con Edison and Bowline 29 20. Employee Transition Program 30 21. Resolution of Market Power Issues in Load Pocket Areas 31 22. Environmental Issues 34 23. SEQRA Compliance 36 24. Regulatory Approvals 36 A. New York Public Service Commission 37 B. Federal Energy Regulatory Commission 37 C. New Jersey Board of Public Utilities, Pennsylvania Public Utility Commission 38 D. Federal Antitrust Review 38 CONCLUSION 39 STATE OF NEW YORK PUBLIC SERVICE COMMISSION : : : Case 96-E-0900 - In the Matter of Orange and Rockland : Utilities, Inc.'s Plans for Electric Rate/Restructuring Pursuant : to Opinion No. 96-12. : : Final Divestiture Plan Introduction On November 6, 1997, Orange and Rockland Utilities, Inc. ("Orange and Rockland" or the "Company") filed in this proceeding an Electric Rate and Restructuring Plan ("Restructuring Plan") with the New York State Public Service Commission ("Commission"). The Restructuring Plan also has been signed by Staff of the New York State Department of Public Service, the New York State Department of Economic Development, the Industrial Energy Users Association, the National Association of Energy Service Companies, The Joint Supporters, the Independent Power Producers of New York, Inc., Pace Energy Project and Enron Capital & Trade Resources. The Restructuring Plan was approved by the Commission at its open session on November 25, 1997. The Commission issued Orders adopting the Restructuring Plan on November 26 and December 31, 1997. The Restructuring Plan provides for the divestiture, by auction, of all of the Company's generating assets (i.e., all units at the Lovett Generating Station and the Company's one-third interest in all units at the Bowline Point Generating Station(1), hydro-electric facilities and gas turbines, hereinafter collectively referred to as the "Generating Assets"). The Restructuring Plan (p. 18) provides that Orange and Rockland "will submit its divestiture plan to Staff and the other parties in this proceeding within three months of the Commission approving the [Restructuring] Plan." Pursuant to the terms of the Restructuring Plan, this divestiture plan will identify how the Generating Assets will be packaged for sale; what restrictions, if any, will be placed on the capacity that any one bidder may purchase; the procedures to be followed in the sale of the Generating Assets, including minimum bids; and key dates and milestones to achieve the scheduled divestiture. The divestiture plan also will address the resolution of market power issues in any load pocket areas. (1) The Company and Consolidated Edison Company of New York, Inc. ("Con Edison") are co-tenants in the Bowline Point Generating Station, with the Company owning a 1/3 interest and Con Edison owning a 2/3 interest. In its Order adopting the Restructuring Plan issued November 26, 1997, the Commission offered the Company the opportunity to bid on the Generating Assets, subject to certain conditions. As set forth in Orange and Rockland's letter to the Commission dated December 4, 1997, a copy of which is attached as Exhibit A to this filing, the Company has declined the Commission's offer. Neither Orange and Rockland nor any of its affiliates will submit a bid in the auction of the Generating Assets. On December 11, 1997 Orange and Rockland distributed its Preliminary Divestiture Plan to Staff and the other parties to this proceeding. On January 6, 1998 a meeting of all parties to this proceeding was held at which Orange and Rockland made a presentation regarding and answered questions concerning its Preliminary Divestiture Plan. Staff and other interested parties submitted written comments on the Preliminary Divestiture Plan to the Company on January 12, 1998. This process has provided parties to this proceeding with ample opportunity to express their interests regarding the Company's proposed divestiture plan. The Company has considered the comments and suggestions of Staff and the other parties in developing its divestiture plan. This document sets forth Orange and Rockland's Final Divestiture Plan. 1. Objectives Orange and Rockland's divestiture plan seeks to achieve the following objectives: 1. Maximize the value received for the Generating Assets; 2. Complete the divestiture in an expeditious and efficient manner; 3. Recognize the concerns of employees, local communities and other stakeholders affected by the divestiture; 4. Ensure a fair, open and unbiased auction process; 5. Ensure continued reliability of electric service; and 6. Enhance competition in electric generation. 2. Time Is of the Essence The Company cannot overemphasize the need to complete the divestiture expeditiously and requests the Commission's support by maintaining existing comment periods and issuing its ruling on the Final Divestiture Plan expeditiously. As noted below, milestone targets have been designed to allow the Commission to rule on the Final Divestiture Plan at its April 8, 1998 open session. Orange and Rockland believes that an expeditious divestiture will enhance the market value of the Generating Assets, minimize the uncertainty of affected employees and local communities, provide the greatest prospect for a robust competitive generation market and, if completed by May 1, 1999, avoid the necessity of a Competitive Transition Charge. 3. Divestiture Milestone Targets In conformance with the terms of the Restructuring Plan (pp. 19-20), Orange and Rockland has developed the following milestone targets: November 25, 1997 Commission approves Restructuring Plan December 11, 1997 Company files Preliminary Divestiture Plan January 12, 1998 Parties submit comments on Preliminary Divestiture Plan February 3, 1998 Company files Final Divestiture Plan March 6, 1998 Parties submit comments on Final Divestiture Plan April 8, 1998 Commission approves Final Divestiture Plan June - September 1998 Company selects winning bidder 6-9 months later Final closing (after receipt of necessary regulatory approvals) 4. External Advisors Orange and Rockland has retained the investment banking firm of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") to assist in divesting the Generating Assets. DLJ will serve as the primary interface with bidders during the auction process. This will ensure that communication will be implemented in a consistent and controlled manner and that relevant information is made available to all bidders simultaneously. Orange and Rockland has retained the law firm of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden") to act as lead outside legal counsel in this matter. DLJ and Skadden will be involved in all aspects of the divestiture process including structuring the sale process, soliciting bidders, evaluating proposals and negotiating with the buyer(s). They will work closely with Orange and Rockland's personnel to develop a process and transaction schedule that will achieve the objectives identified above. Orange and Rockland will retain other external advisors as necessary in order to complete the divestiture of the Generating Assets. 5. Packaging of Generating Assets for Sale A. Orange and Rockland Employees Orange and Rockland's generation function includes a highly-trained and dedicated workforce--both union and management. These employees have a demonstrated record of operating the Generating Assets at a low cost, with high reliability and safety. Orange and Rockland believes that these employees will enhance the value of the Generating Assets to qualified bidders. The Company will attempt to focus bidders' attention on the capabilities and skills of these employees. By the terms of the collective bargaining agreement with IBEW Local 503, and the terms of the Restructuring Plan (p. 18), all qualified bidders will receive a copy of the current labor agreement which is effective through midnight May 31, 2000. In connection with its unionized workforce, it is Orange and Rockland's position that the winning bidder will be obligated to accept the terms and conditions of this collective bargaining agreement. This agreement includes a "successors and assigns" provision. It is expected that employees within the Local Union 503, IBEW bargaining unit who are assigned to the Generating Assets as of the closing will remain with the Generating Assets and become employees of the winning bidder. B. Packaging of Bids In an effort to address concerns voiced by parties to this proceeding and to provide the market with an opportunity to indicate what kind of packaging will produce the greatest overall value, during Phase I of the auction process, participants will be allowed to submit separate indications of interest on any or all of the following Generating Assets: (i) the Company's interest in Bowline; (ii) the hydro-electric facilities; (iii) Lovett; and (iv) the gas turbines. Phase I participants also may submit indications of interest for all the Generating Assets as a single package. Based upon its extensive expertise and experience in conducting asset auctions, DLJ believes that in all likelihood the highest value for the Generating Assets will be received through the sale of these assets as a single package. Specifically, benefits to keeping the assets together include (i) the likelihood of receiving a higher price for the bundled assets; (ii) the simplicity of managing and executing the bidding process; (iii) the avoidance of being left with less salable residual assets following the disposition of selected assets; and (iv) the necessity of unwinding shared assets or liabilities among properties to be offered separately. DLJ and the Company will evaluate the indications of interest submitted by Phase I participants in formulating its packaging of the assets for Phase II. C. Description of Generating Assets Orange and Rockland plans to divest the Generating Assets as described below. Exhibit B attached hereto sets forth the capacity of each of the Generating Assets. Exhibit C attached hereto summarizes the facilities at each of the Generating Assets which will be transferred to the winning bidder and describes the interconnection point between each of the Generating Assets and the Orange and Rockland transmission system. (a) Lovett Generating Station The Lovett Generating Station is located on the west bank of the Hudson River approximately 40 miles north of New York City in Tomkins Cove, New York. It is accessible from State Highway 9W and is served by ConRail. The site is bounded on the west by steep hilly terrain, and on the other sides by the Hudson River. The site is occupied by five existing units, together with service facilities which include a switchyard, coal storage, coal handling and an adjacent coal ash management facility. A fuel oil storage facility consists of two 77,000 bbl tanks and one 58,000 bbl tank serving all five units. A service building houses a warehouse, laboratory and office facilities. Lovett consists of five fossil-fired units. Units 1 and 2, nominally rated at 20 MW and each designed to burn coal, oil or natural gas, were retired in 1995. Unit 3, nominally rated at 62.5 MW, is capable of utilizing oil or natural gas. Unit 4, nominally rated at 167 MW and originally designed to fire pulverized coal or natural gas, was modified to replace coal with oil firing in 1970. Unit 5, nominally rated at 187 MW, also was designed for coal and gas firing and modified to burn oil instead of coal in 1970. In 1987, a Coal Reconversion Project restored coal firing capability to Units 4 and 5, incorporated additional environmental facilities, and upgraded the coal handling facilities. Lovett Unit No. 3 is a Combustion Engineering two pass configuration tangential fired balanced draft unit with superheater, reheater, economizer, tubular airheater, and two forced draft and induced draft fans. The unit was designed initially for firing bituminous coal, oil and natural gas. Although the pulverizers, fuel-air pipes, burner coal nozzles, and accessories are still in place, coal is no longer fired in this unit. Lovett Unit 3 steam turbine generator is a General Electric tandem compound flow reheat steam unit. The turbine was designed to operate with main steam throttle conditions of 1800 psig and 1050 degrees F and reheat conditions of 430 psig and 1000 degrees F with an exhaust pressure of 1.0" Hg. Lovett Unit No. 4 is a Foster Wheeler front wall fired, coal-oil- natural gas fueled unit with superheater, reheater, economizer, regenerative airheater and two cylindrical ball tube mill pulverizers. Originally built as a pressurized furnace unit, it was converted to balanced draft with the installation of a new electrostatic precipitator and induced draft fans as part of the Coal Reconversion Project. There are three steam cooled radiant division wall platens in the upper furnace. In 1994-95, the eight burners were replaced with Foster-Wheeler low nitrogen oxide ("NOx") burners, along with burner management system modifications. Overfire air ports for NOx control also were added at that time. The turbine is a General Electric 3600 rpm, 22 stage, tandem-compound reheat unit with double-flow low pressure stages (26 inch last stage buckets), six point extraction, condensing type, directly connected to a 2 pole, 3 phase, 60 cycle hydrogen-cooled generator. The turbine is rated for inlet steam conditions of 1800 psig and 1000 degrees F at the throttle, with reheat at 1000 degrees F. The maximum expected throttle flow is 1,170,102 pounds of steam per hour at 1.25 inches Hg (absolute) exhaust pressure, and zero makeup, with throttle valves wide open. Lovett Unit No. 5 is a Babcock & Wilcox front wall fired, 16 burners, coal-oil-natural gas fueled unit, pressurized furnace, superheater, reheater, economizer, two regenerative airheaters, two forced draft fans, and four EL-76 vertical coal pulverizers. Coal is the main fuel and a new electrostatic precipitator was installed as part of the Coal Reconversion Project in 1987. In 1995, new low NOx burners were installed, including replacement of the burner management system and combustion controls, as well as the addition of overfire air ports. The turbine is a General Electric 3600 rpm, 21 stage, tandem-compound reheat unit with double-flow low pressure stages (23 inch last stage buckets), six point extraction, condensing type, directly connected to a 2 pole, 3 phase, 60 cycle hydrogen-cooled generator with water-cooled stator winding. The turbine is rated for inlet steam conditions of 1800 psig and 1000 degrees F at the throttle, with reheat at 1000 degrees F. The maximum expected throttle flow with design steam conditions is 1,309,632 pounds of steam per hour. The Company will auction off all of the real property at Lovett including the property on which the two substations are located. Orange and Rockland will retain the right to operate and maintain certain transmission and distribution facilities at the substations. Taxing Authorities: Town of Stony Point, New York North Rockland School District (b) Bowline Point Generating Station Bowline Point Generating Station is located on the west bank of the Hudson River approximately 35 miles north of New York City in the Town of Haverstraw, New York. Orange and Rockland and Con Edison are co-tenants in the Bowline Point Generating Station, with Orange and Rockland owning a 1/3 interest and Con Edison owning a 2/3 interest. Pursuant to the operating agreement between the parties, Orange and Rockland is the operator of Bowline. The plant consists of two completely enclosed oil and gas burning steam electric generating units each designed to produce nominally 600 MW. The plant is also equipped with an auxiliary boiler rated to deliver 100,000 pounds per hour of steam at 250 psig. The auxiliary boiler may be fired either by natural gas or propane. Auxiliary facilities include a two-story administration and service building, a warehouse with switchyard relay room, a service garage, and an enclosed intake superstructure. A road network provides access to the plant from three locations in the surrounding communities and also serves the outlying tank farm, intake structure and marine terminal. The fuel-oil facilities accommodate low-sulfur-residual oil. All fuel-oil lines are steam traced. Fuel is delivered by barge to an offshore unloading pier connected to land by a trestle. Oil is stored in six 145,000 bbl tanks. A concrete pumphouse built into the dike surrounding the storage tanks houses the fuel-oil pumps and foam fire-protection system. The switchyard has two 138 kV bays for incoming power and two 345 kV bays for outgoing power. Circulating water is drawn through a dredged channel from the Hudson River to Bowline Pond and into the reinforced- concrete intake structure. For each unit, approximately 4400 ft of 126 inch steel pipe delivers cooling water to the condensers and returns it to an underwater multi-port discharge diffuser located in the Hudson River. Bowline Point 1 boiler is a balanced draft, tangentially fired, Combustion Engineering boiler. Rated at a steam flow of 4,200,000 lbs/hr, the boiler is capable of firing both low sulfur oil and natural gas through 20 burners; arranged in five elevations per corner. The boiler is equipped with a flue gas recirculating ("FGR") fan which can inject flue gas into the furnace hopper for steam temperature control. In 1994, the unit was retrofitted with improved combustion hardware and burner management controls to reduce NOx emissions and enable it to achieve regulatory compliance while firing oil, natural gas and oil/gas combinations. The emission control technology, which is referred to as "REACH" (Reduced Emissions and Advanced Combustion Hardware), employs integrated atomizer and flame stabilizer designs. Bowline Point 2 boiler is a natural circulation, balanced draft, opposed fired boiler rated at a steam flow of 4,200,000 lbs/hr. Manufactured by Babcock & Wilcox, this boiler is equipped to fire either low sulfur oil or natural gas through 32 single register burners, arranged in four elevations of four burners each on both the front and rear furnace walls. Eight over-fire air ports are installed in the windbox directly above the top row of burners on each wall for NOx control. The boiler is equipped with a FGR fan which can inject flue gas into the combustion air and/or into the furnace hopper, the former being for NOx control and the latter for steam temperature control. In 1995, the unit was retrofitted with improved combustion hardware and burner management controls to reduce NOx emissions and enable it to achieve regulatory compliance while firing oil, natural gas and oil/gas combinations. The REACH emission control technology employs integrated atomizer and flame stabilizer designs. Both units have identical General Electric Steam Turbines rated at 600 MW. Each turbine is a 3600 rpm, tandem-compound, single-reheat, condensing-type turbine which has 18 stages with quadruple-flow low-pressure stages (thirty-inch last-stage blading) and six-point extraction and is directly connected to a three phase 60 Hz, hydrogen-cooled generator with water-cooled stator winding. The turbines are rated for inlet steam conditions of 2400 psig and 1000 degrees F (at the throttle) and 1000 degrees F reheat. Orange and Rockland will auction off all of the real property at Bowline including the property on which the two substations are located. Orange and Rockland will retain the right to operate and maintain certain transmission and distribution facilities at the substations. Orange and Rockland will auction off its one-third interest in the 345 KV transmission line from Bowline to Ladentown. Also included in the auction package will be the 16" gas main form Bowline to West Haverstraw. In addition, the Company plans to auction off a parcel of property containing approximately 90 acres adjacent to Bowline. Although Orange and Rockland owns this property, pursuant to an agreement with Con Edison dated October 10, 1969, Con Edison has a 90 day right of first refusal to purchase this property upon the terms and conditions offered by a third party. Taxing Authorities: Town of Haverstraw, Village of Haverstraw and Village of West Haverstraw, New York North Rockland School District and East Ramapo School District (c) Hillburn Gas Turbine A gas turbine peaking unit is located at the Company's Hillburn Substation in the Town of Ramapo, New York. This unit is capable of burning either natural gas or liquid jet fuel. The unit is a Worthington Model ER-224, 40 MW dual fuel gas turbine electric generating unit. This unit is leased from the Fleet Capital Corporation of Rhode Island. The present lease, which covers both the Hillburn and Shoemaker gas turbines, expires on July 31, 2006. The semi-annual payments are $145,000, which covers the cost for both the Hillburn and Shoemaker Gas Turbines. The Company will auction off all the real property at the Hillburn Substation while retaining an easement for its transmission and distribution facilities. Taxing Authorities: Town of Ramapo, Village of Hillburn, New York Ramapo Central School District (d) Shoemaker Gas Turbine This gas turbine peaking unit is located at the Company's Shoemaker Substation in the Towns of Wawayanda and Wallkill and City of Middletown, New York. The facility is equipped with a natural gas compressor unit to raise the gas supply to the required pressure level. This unit is capable of burning either natural gas or liquid jet fuel. The unit is a Worthington Model ER-224, 40 MW dual fuel gas turbine electric generating unit. This unit is leased from the Fleet Capital Corporation of Rhode Island. The present lease, which covers both the Hillburn and Shoemaker gas turbines, expires on July 31, 2006. The semi-annual payments are $145,000, which covers the cost for both the Hillburn and Shoemaker units. Subject to the Lessor's approval, the Company can assign its leasehold interest in the Shoemaker and Hillburn units to the winning bidder. Under the terms of the lease, Orange and Rockland also has an option to purchase the Shoemaker and Hillburn units. If the Company exercises this option, it will then resell them as part of the auction process. Orange and Rockland is still exploring which of these two approaches (i.e., purchase and resale, assignment) is preferable. Orange and Rockland does not wish to retain these assets because it wishes to exit the generating function entirely. The Company will grant an easement to the purchaser for the real property associated with the gas turbine. Taxing Authorities: Town of Wawayanda, Town of Wallkill, City of Middletown, New York City of Middletown School District (e) Mongaup Hydro-Electric Facility This facility, which is licensed by the Federal Energy Regulatory Commission ("FERC"), is located in the Towns of Forestburgh and Lumberland, New York and consists of the Mongaup Reservoir with associated dam, a 2500 foot long eight foot diameter wood stave penstock, a powerhouse with four turbine generators with a total generating capacity of 4 MW and a substation with both transmission and distribution functions. The Company will auction off the substation while retaining the right to maintain its distribution facilities. In addition, this facility includes the Black Brook Diversion which includes a small dam on Black Brook and a four foot diameter 4,000 foot long wood stave penstock. The Black Brook Diversion has been out of service since 1986. The Company will auction off all of the real property which is associated with the facility and governed by the FERC license. Pursuant to the terms of the facility's FERC license, public access at the facility consists of a parking facility on Plank Road and hiking/fishing access trails on the Mongaup River and Black Brook. The entire facility falls within the boundaries of New York State Department of Environmental Conservation's ("NYSDEC") Bald Eagle Habitat Area. Taxing Authorities: Town of Forestburgh and Town of Lumberland, New York Eldred Central School District, and Monticello Central School District (f) Rio Hydro-Electric Facility This facility, which is licensed by the FERC, is located in the Towns of Deerpark, Forestburgh and Lumberland, New York and consists of Rio Reservoir with associated dam, 11 foot diameter 7,000 foot long steel penstock, a powerhouse with two turbine generators with a total capacity of 10 MW and a substation with transmission and distribution functions. The Company will auction off the substation while retaining the right to maintain its distribution facilities. The Company will auction off all of the real property which is associated with the facility and governed by the FERC license. Pursuant to the terms of the facility's FERC license, public access at the facility consists of three fishing accesses, one on the reservoir near the dam and two on the Mongaup River between the dam and the powerhouse. There is a whitewater access area adjacent to the powerhouse. The entire facility falls within the boundaries of NYSDEC's Bald Eagle Habitat Area. Taxing Authorities: Town of Deerpark, Town of Forestburgh and Town of Lumberland, New York Eldred Central School District, Monticello Central School District and Port Jervis Central School District (g) Swinging Bridge Hydro-Electric Facility This facility, which is located in the Towns of Forestburgh, Lumberland and Thompson, New York consists of three major reservoirs with associated dams: Toronto, Cliff Lake, and Swinging Bridge; and two powerhouses with a total generating capacity of 12 MW. Each powerhouse has an associated substation with a step-up transformer and breakers. The substation next to Unit No. 1 has a small distribution bank. The Company will auction off the substations while retaining the right to maintain its distribution facilities. There is an interconnecting tunnel running between Cliff Lake and Swinging Bridge Reservoir. In addition, water is diverted from Lebanon Lake, a small non-project lake, via a tunnel and open trench to Cliff Lake. The Company will auction off all of the real property which is associated with the facility and governed by the FERC license. Pursuant to the terms of the facility's FERC license, public recreation areas are located at the Project, as well as two primitive boat launches at Toronto Reservoir; a car top boat launch and picnic area at the north end of Swinging Bridge Reservoir, and a large developed boat launch area. A large portion of the facility falls within the boundaries of the NYSDEC Bald Eagle Habitat Area, including all of Cliff Lake, approximately half of Swinging Bridge Reservoir, the powerhouses and the access roads to the facilities. Taxing Authorities: Town of Thompson, Town of Forestburgh and Town of Lumberland, New York Monticello Central School District and Eldred Central School District (h) Grahamsville Hydro-Electric Facility This facility is located on Route 55A just outside of the Village of Grahamsville, New York. The facility consists of a large powerhouse, 18 MW turbine generator, transmission substation and surge tank. Water for power generation comes from New York City's Pepacton Reservoir through the 25 mile long East Delaware Tunnel. Water from the turbine is released into the Rondout Reservoir. This facility is the result of an agreement between New York City and Rockland Light and Power Co.("RLP") to settle a water rights dispute on the Neversink River Basin. The agreement allowed RLP to construct and operate a hydroelectric plant at the end of the East Delaware Tunnel for a period of 50 years. Assignment of this Agreement is subject to the approval of New York City. Orange and Rockland is the corporate successor of RLP. Approximately one half of the water (8.1 billion cubic feet/year) is free, the remaining is paid for at two varying rates based on avoided fuel costs and New York Power Pool Lambda rates. In addition, as part of the agreement the Company provides free electricity to the City of Port Jervis sewage treatment plant, which is owned and operated by New York City and to New York City by-pass facilities adjacent to the Grahamsville facility. The entire Grahamsville facility becomes the property of New York City at the end of the agreement period, which is January 1, 2006. The Company has transmission agreements with Central Hudson to provide a tie between the facility and the Sugar Loaf Substation. Taxing Authority: Town of Neversink, New York Tri-Valley Central School District This Project is exempt from FERC licensing. 6. Legal/Regulatory Limitations on Bidders While Orange and Rockland does not anticipate any legal or regulatory constraints on bidders, as described below, the Company reserves its right to consider these issues in the selection of the participants for Phase II of the auction and the determination of the winning bidder. Orange and Rockland would be especially concerned if a bidder's acquisition of the Generating Assets may trigger market power concerns. Such concerns will result in heightened scrutiny of the transaction by regulators, particularly the FERC, which will delay or perhaps fatally impede the transfer of title to the Generating Assets. Accordingly, Phase I participants will be required to provide information regarding their other generation holdings. Orange and Rockland will review this information and the other contents of Phase I submittals in order to identify potential market power concerns that might restrict the ability of certain bidders to obtain needed regulatory approvals to purchase the Generating Assets. Orange and Rockland will not require a detailed market power analysis until Phase II due to the costs associated with such analysis. Requiring such a costly analysis in Phase I may tend to discourage certain qualified bidders. In performing their market power analyses, Phase II participants will be required to perform a competitive analysis screen based on Appendix A to the FERC merger guidelines(2). These guidelines are an objective screening tool which should be familiar to most bidders and are similar to the criteria utilized by the United States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976. This is particularly relevant since Hart-Scott-Rodino filings will be required in order to complete the divestiture of the Generating Assets. (2) Inquiry Concerning the Commission's Merger Policy Under the Federal Power Act, Order No. 592,61 Fed. Reg. 68,595 (1996), III FERC Stats. & Regs. Paragraph 31,044(1996). In light of the above noted procedures to address potential market power concerns, Orange and Rockland sees no need to impose on potential bidders any predetermined "limit on ownership within the region." Such criteria may be controversial, since it is not readily apparent how to define "the region" or what ownership limitation should be employed. More important, imposing such a limitation will tend to discourage participation in the auction. Similarly, so long as the issue of market power is addressed satisfactorily, Orange and Rockland will not prevent any bidder from purchasing all of the Generating Assets. 7. Auction Procedures As previously noted, the objectives in this auction process include maximizing the value received for the Generating Assets and entering into a definitive Asset Sale Agreement as expeditiously as possible. Orange and Rockland will conduct a fair and open auction process that provides adequate information for bid formulation to all qualified bidders on a timely and consistent basis. The auction process is designed to control the flow of information by relying on Orange and Rockland's financial advisor, DLJ, as the primary interface with bidders. Bidders will be instructed to request information directly from DLJ. DLJ will promptly respond to reasonable information requests, with such additional information simultaneously furnished to all of the participants. Orange and Rockland's personnel will interact with bidders in controlled situations, such as plant tours and scheduled management presentations. The time frame for Orange and Rockland's auction has been designed to provide sufficient time for bidders to conduct due diligence, and formulate bids based on their valuation of the Generating Assets. However, the aggressive schedule will require bidders to dedicate sufficient resources to respond and prepare the materials required in the bidding stages of the auction. The offering process will encompass two phases: A. Phase I Each qualified participant will receive an Offering Memorandum from DLJ, upon DLJ's receipt of an executed confidentiality and non-disclosure agreement. The Offering Memorandum will contain detailed financial and business information, investment considerations and other relevant materials. DLJ will distribute the Offering Memorandum to a list of qualified bidders which it will compile. The Offering Memorandum also will be made available to other interested qualified bidders who may not have been contained on DLJ's list, but who are subsequently identified. Orange and Rockland expects to distribute the Offering Memorandum shortly after the Commission approves the Company's Final Divestiture Plan. Requisite bidder qualifications for entry into Phase I include (but are not limited to) the following items: (i) experience in the utility industry; (ii) the strategic objective of owning generation assets in the Northeast; (iii) credit worthiness and financial wherewithal to consummate the purchase; (iv) the ability to properly operate the Generating Assets, consistent with good utility practice; (v) the likelihood that a bidder could gain regulatory approval to purchase the Generating Assets; and (vi) other standard financial criteria to participate in an auction with these characteristics. Phase I will be limited to a review of the information contained in the Offering Memorandum with clarification, as appropriate, supplied only by and through DLJ and Skadden. The Offering Memorandum also will provide that bidders will not be allowed to contact the management or employees of Orange and Rockland directly, but must communicate exclusively through designated advisors. Interested parties who have received the Offering Memorandum will be asked to submit written indications of interest to Orange and Rockland in care of DLJ. Such interested parties will be required to submit the following information in their indications of interest: (i) a preliminary, non-binding estimate of the proposed purchase price for the Generating Assets(3); (ii) a description of the expected sources of financing for the potential acquisition and, to the extent that such financing is not fully committed, an indication of the timing and the steps required to secure such financing; (iii)a list of additional information required to complete the business investigations in order to finalize a final binding acquisition proposal; (iv) a list of approvals (shareholder, corporate, regulatory and otherwise) required to consummate the transaction and the estimated timing to obtain such approvals; (v) a statement regarding any constraints or requirements regarding the closing date of a transaction; (vi) any other substantive conditions required as part of a transaction; (vii)the identity of advisors (financial, legal, etc.) if any; and (viii)both a telephone and a fax number where the party can be contacted in case clarification of the proposal is required. (3) As described in section 5 above, parties may submit indications of interests on discrete Generating Assets. B. Phase II Shortly after completion of Phase I, DLJ will notify all parties who have submitted preliminary proposals regarding the Generating Assets as to whether or not they will be invited to participate in Phase II. The Company plans to narrow the number of parties which will be invited to participate in Phase II based upon an analysis of the terms and conditions of the preliminary indications of interest received. The goal during this phase is to select a manageable group of the most competitive proposals, and to allow for the possibility that certain Phase II participants may decide not to submit final binding acquisition proposals. Based on prior asset sales, the number of Phase II bidders may range from four to eight participants. However, the Company reserves the right to select as many Phase II participants as it deems appropriate and will have no obligation to inform participants in Phase I of the reasons why they were not selected to participate in Phase II. Advancement to the final round will include bidders who have submitted bids whose consideration is deemed by DLJ and the Company to be among the highest of those received. In addition, bids must satisfy a number of other characteristics such as (i) the perceived sincerity of the bids; (ii) the ability to successfully finance and close a transaction in a timely manner; (iii) the assumption of environmental and other liabilities associated with the Generating Assets; (iv) the ability to properly operate the Generating Assets, consistent with good utility practice; (v) the commitment to retain associated personnel; and (vi) the certainty of receiving all of the requisite approvals from the various regulatory entities. These same criteria will be applied in selecting the "winning bidder" from among the Phase II participants. As a result, the "winning bidder" will be chosen from this subset of final bidders based on both financial and non-financial criteria. The Company will be utilizing its discretion in evaluating these non-financial criteria. In the event that a number of acceptable bidders offer substantially identical consideration for the Generating Assets, DLJ and the Company may employ a process by which bidders have the opportunity to improve their offers in order to enhance their chances of becoming the winning bidder. If there is no clear cut winning bidder, but rather several acceptable bidders offering substantially identical consideration, the Company reserves the right to conduct additional bidding rounds on a real time basis over a short time frame. Each additional round would require bidders to top the highest price bid in the prior round by a specific increment. At the point where no bidder is willing to bid any higher, the auction would end, and Orange and Rockland would negotiate any remaining non-price terms with the buyer. The qualified prospective purchasers selected by the Company to participate in Phase II will be provided with access to additional financial, operating and legal information in order to formulate binding offers to acquire the Generating Assets. Due diligence procedures will include meetings with senior management of the Company, tours of key facilities and access to additional information regarding the Company, to the extent reasonably requested by qualified prospective purchasers. Orange and Rockland will set up a data room in Pearl River, New York to assist Phase II participants to conduct their due diligence. Bidders will be instructed to conduct all due diligence so as not to interfere with the ongoing conduct of the Company's business. DLJ will be available throughout the course of Phase II to respond to potential purchasers' supplementary information requests and arrange for follow-up discussions with management as appropriate. During Phase II, each potential purchaser will be supplied with a form of Asset Sale Agreement specifying the terms pursuant to which the Company would expect to sell the Generating Assets. DLJ and Skadden will be available to consult with potential purchasers regarding the draft Asset Sale Agreement. Potential purchasers will be encouraged to avail themselves of the opportunity to discuss proposed changes to the draft Asset Sale Agreement with DLJ and Skadden in advance of submitting final binding acquisition proposals. Phase II participants will be asked to submit final binding acquisition proposals. As noted in Section 6 above, participants also will be requested to submit a competitive analysis screen based on Appendix A to the FERC Merger Guidelines, if they have not submitted it earlier. Any final binding acquisition proposal which contains provisions (including the consideration offered) that would vary depending upon other contingent events will not be considered. Each bidder will be required to indicate in its final binding acquisition proposal that such proposal has been approved by its Board of Directors (and by each investor whose Board of Directors' approval is required in connection with consummating the final binding acquisition proposal). The Company, with the advice and assistance of DLJ and Skadden, will evaluate the final, binding proposals submitted as promptly as is reasonably practicable, with the objective of entering into a definitive Asset Sale Agreement with the potential purchaser or purchasers who submit(s) the proposal that best satisfies the Company's objectives for the sale of the Generating Assets. The Company will have no obligation to accept any final binding acquisition proposal whether or not such final binding acquisition proposal represents the highest proposed purchase price for the Generating Assets. An offer will only be deemed to be accepted upon the Company's execution and delivery of a definitive Asset Sale Agreement. Until such time, the Company will not have any obligation to any potential purchaser with respect to the sale of the Generating Assets, and following such time the Company's only obligations will be to the other party to the definitive Asset Sale Agreement, and only as set forth in the definitive Asset Sale Agreement. Orange and Rockland will inform the Commission promptly if a situation arises which causes the Company to cancel the auction process or reject all bids submitted. In such a case, Orange and Rockland reserves the right to review the situation in order to determine the appropriate course of action. Any such course of action will be subject to Commission review and approval. 8. Amendments The Company will reserve its right to amend the Offering Memorandum or any other written material furnished or information orally transmitted to a potential purchaser. The Company's interpretation of the provisions of the Offering Memorandum or any other written material furnished or information orally transmitted to a potential purchaser shall be binding on all bidders. 9. Form of Consideration Bidders will be instructed that all consideration must be in the form of United States Dollars. 10. Financing Contingencies No financing contingencies will be allowed. 11. Minimum Bid Orange and Rockland will not specify a minimum bid. According to the Company's financial advisor, DLJ, a minimum bid would have a tendency to focus potential bidders on the lower end of an acceptable range of values for the Generating Assets, thereby reducing the likelihood of obtaining maximum value. 12. Entrance Fee and Security Deposit The Company will not require either an entrance fee or a security deposit from any bidder. According to DLJ, requiring an entry fee or security deposit may have the effect of discouraging potential bidders. Any small financial benefit of the entry fee will be more than offset by dampened interest in the auction. Since prospective bidders must demonstrate their financial wherewithal in order to be included in Phase I of the auction process, the security deposit is unnecessary. 13. Bidders' Costs Each bidder will be responsible for all of its own costs, including those of its advisors and agents, relating to its participation in the auction process including the conduct of due diligence relating to the Generating Assets. In the event of auction cancellation, the Company shall have no obligation to reimburse participants for any costs they may have incurred in responding to the solicitation. 14. Other Auction Designs The Company and DLJ considered other auction designs such as a closed auction process with a select number of buyers, and a single stage auction process. In addition to alternative sale methods, the Company and DLJ considered a number of variations to an open auction process prior to deciding upon the current approach. Such alternatives included the following variants: (i) the establishment of required qualifications for entry into the process as a means by which to define the universe of potential auction participants; (ii) whether to insist upon entry fees; (iii) the inclusion of minimum bids; and (iv) the manner in which the Generating Assets might be bundled together. Each of these alternatives were considered to be less effective than the proposed auction process. DLJ has a wealth of experience which relates directly to the proposed divestiture including sale assignments which were conducted in a manner similar to the one proposed for the divestiture of the Generating Assets. DLJ and the Company will certainly draw from this breadth of experience throughout the process to ensure that the Company is receiving the best market price for the Generating Assets. Additionally, DLJ and the Company have made it a priority to preserve flexibility of the Company to alter the process along the way where such changes may be favorable and appropriate. 15. Principal Agreements Orange and Rockland expects to enter into a number of agreements with the buyer(s), including (i) an Asset Sale Agreement, (ii) one or more Interconnection Agreements, and (iii) one or more Continuing Site Agreements. These agreements are explained in more detail below. Orange and Rockland also expects to enter into one or more Load Pocket Call Option Agreement(s). Load Pocket Call Option Agreement(s) are discussed in Section 21 below. A. Asset Sale Agreement The Asset Sale Agreement ("ASA") will govern the terms of the sale transaction as a whole. The ASA will specify the purchase price and any adjustments to such price (e.g., actual fuel inventory levels). The ASA will contain customary representations, warranties, covenants and conditions of both Orange and Rockland and the buyer(s). The ASA also will address the assignments of all related agreements (e.g., fuel contracts). Orange and Rockland expects to operate and maintain the Generating Assets throughout the auction process and will continue normal operations from the time of signing definitive agreements until the final turnover of the Generating Assets to the buyer ("Contract Period"). Any material changes to the Generating Assets during the Contract Period will require approval of the buyer. The winning bidder will be expected to execute the ASA as soon as practicable after the determination of the "winning" bid. The agreement will not permit the bidder to withdraw unilaterally its offer to purchase the Generating Assets. In the event of a bidder default such as a bankruptcy, the circumstances at the time certainly will impact on how the Company will proceed. Most likely, under these circumstances, the other Phase II participants will be permitted to update their due diligence and submit another "final" bid for the Generating Assets. B. Interconnection Agreement(s) The Interconnection Agreement(s) will set forth the operating, metering and equipment protection requirements for the parallel operation of the Generating Assets with the Company's transmission and distribution facilities. C. Continuing Site Agreement(s) The Generating Assets and the transmission and distribution ("T&D") facilities were designed and constructed as integrated facilities with interdependent control and protection functions, many of which are not easily and cost effectively separated. Since it is Orange and Rockland's general intention to transfer ownership of the generation facilities including related real property, while maintaining ownership of the T&D facilities and related real property, it will be necessary for the Company and the buyer of the Generating Assets to provide access to each other's facilities through easements and formal operating agreements. The Continuing Site Agreements will govern the relationship between Orange and Rockland and the buyer after the closing. The purpose of these agreements will be to set forth the continuing obligations, responsibilities and liabilities of Orange and Rockland and the buyer(s) as they relate to operation, construction and maintenance of equipment; access to each other's property; provision of services; environmental protection and safety. These agreements (i) will provide for permanent easements on the buyer's property, (ii) will set forth the rights of the parties to enter common facilities, (iii) will set forth services that the parties must provide to each other as a result of the integrated nature of the assets, and (iv) will set forth the liability of the parties for property damage and personal injury. 16. Disputes The auction will be conducted in strict accordance with the procedures set forth in the Commission approved auction plan. These procedures will be outlined in the Offering Memorandum provided by DLJ to auction participants. DLJ and the Company reserve the right to include or exclude any and all parties from participation in the auction process as well as the right to terminate the auction without recourse at any time prior to the execution of a definitive agreement following the determination of the "winning" bid. Prior to this event, neither DLJ nor the Company is under any obligation to any participant in the auction process. Decisions rendered by DLJ and the Company are binding upon those participants with respect to the auction process. Finally, neither DLJ nor the Company is obligated to set forth any explanations to any participants for the rationale underlying non-winning bids. Based upon the experience of its advisors in other auctions, Orange and Rockland believes that control over the auction process is critical in obtaining the highest price for its customers and shareholders. By controlling the auction process, the Company should be able to obtain higher bids and negotiate a higher purchase price for the Generating Assets. Similar auction rules and procedures were adopted by New England Electric System ("NEES") in the divestiture of its generation assets and by sellers in auctions of assets in other industries. Orange and Rockland believes that such rules and procedures contributed toward the maximization of the return on that sale. 17. Maintenance of Generating Assets Orange and Rockland will take all appropriate actions prior to the closing of the sale to maintain the Generating Assets in accordance with general industry standards, environmental regulations and employee safety considerations. Such maintenance is essential in order to safeguard the Generating Assets' market value. Since Orange and Rockland cannot predict how a winning bidder will utilize the Generating Assets, it would not be appropriate for the Company to engage in renovations or capital expenditures relating to the Generating Assets other than those required to maintain the operability of the Generating Assets. 18. Property Taxes Orange and Rockland is involved in tax certiorari proceedings with the Town of Haverstraw and the North Rockland School District. Orange and Rockland is continuing to negotiate with both of these parties in an attempt to settle these cases. While the Company plans to seek short-term agreements with local communities with respect to property tax issues, it intends to defer the negotiation of any tax agreements relating to periods after the execution of the Asset Sale Agreement in order to allow the winning bidder to participate in such negotiations. This approach will provide the winning bidder with the flexibility to enter into its own negotiations with the municipalities. The Company will set forth in the Offering Memorandum, for each of the Generating Assets, the assessed values, equalization rates and actual taxes paid to the various municipalities for each of the last five years. 19. Con Edison and Bowline As acknowledged in the Restructuring Plan (p. 18), Orange and Rockland and Con Edison are tenants in common in the Bowline Point Generating Station and associated transmission facilities. The agreement between Orange and Rockland and Con Edison regarding Bowline provides that if Orange and Rockland wishes to convey its interest in Bowline to a third party, Con Edison shall have a six- month right of first refusal to purchase Orange and Rockland's interest upon the terms and conditions offered by the third party(4). Orange and Rockland has an identical right regarding Con Edison's interest in Bowline. The Company believes that it would be preferable for Con Edison and Orange and Rockland to jointly auction off their interests in Bowline. Representatives from Con Edison and Orange and Rockland have met to discuss the future of Bowline and further meetings between the parties are expected. To date, Con Edison has been non- committal regarding its future plans for Bowline. The Company believes that this matter could be expeditiously resolved if the Commission clarifies its position regarding whether (i) it will allow Con Edison to acquire Orange and Rockland's interest in Bowline, and (ii) it will require Con Edison to divest its interest in Bowline. Absent such Commission clarification, bidders may be reluctant to expend the time and resources necessary to submit a bid, thereby possibly denying customers and shareholders receipt of maximum value for the Generating Assets. In the event that Con Edison does not waive its right of first refusal, Orange and Rockland reserves the right to modify the divestiture plan (e.g., schedule, procedures). (4) As discussed in Section 5 above, Con Edison has a 90 day right of first refusal to purchase the approximately 90 acre parcel owned by Orange and Rockland which is located adjacent to Bowline. 20. Employee Transition Program The Company recognizes the value of its employees and the need to maintain that value through the transition. Orange and Rockland has held meetings with employees to discuss the divestiture of the Generating Assets. Orange and Rockland has developed and communicated a management (i.e., non- union) employee transition program. The employee transition program developed for management employees is comprised of four elements: (i) severance under the Company's Severance Pay Plan; (ii) career management services; (iii) a pension protection program; and (iv) a retention bonus program. The Company's Severance Pay Plan provides salary continuation to management employees who suffer a loss of employment as a result of the divestiture of the Company's Generating Assets, through a formula based on employee pay grade and years of service. The Company's career management services program will assist employees by providing seminars on managing change in their work environment. A pension protection program will be in place to help ensure that employees who would likely have met eligibility thresholds under the Company's retirement plan but for the divestiture of the Generating Assets will not be penalized. The Company will retain the pension obligation, relating to their period of employment at Orange and Rockland, for those Company employees who become employees of the winning bidder. The Company will retain and maintain both the pension assets and liabilities associated with such employees. The retention bonus program provides a monetary incentive to remain with the Company through the transition period to employees with skill sets that would be difficult to replace. Under the National Labor Relations Act, upon request of Local Union 503, IBEW, the Company has an obligation to bargain over the effects of the transition of the Generating Assets on its unionized workforce. To date, such negotiations have not commenced. Orange and Rockland will endeavor to resolve any open issues with its unionized workforce prior to the transfer of title to the Generating Assets. 21. Resolution of Market Power Issues in Load Pocket Areas A load pocket is a geographic area of load that, because of transmission limitations, must have generating resources internal to the area available to operate so as to ensure reliable service to the area's load. Orange and Rockland has identified two load pocket areas in its service area, an eastern area load pocket of approximately 128,000 customers as well as a western area load pocket of 53,000 customers. Based upon the Company's analysis, a single contingency outage in either of these load areas could result in the loss of service to that respective load area unless generation capacity is provided. A single contingency outage describes a condition where one electric transmission facility is out of service. Such facilities could include transmission lines, substation transformers or generating units. For the eastern area load pocket, the Company must operate the Lovett Generating Station when the eastern load area exceeds 320 MW during the summer capability period and 370 MW during the winter capability period. This was the case for approximately 1900 hours during 1997. Energy supplied to the load pocket area during this condition in 1997 amounted to approximately 176,000 MWH out of a total area load, within that load pocket area, of about 2,595,000 MWH. As to the western area load pocket, the Company would be required to operate its Mongaup, Rio and Swinging Bridge hydro-electric facilities and its Shoemaker gas turbine whenever the western load area exceeds 145 MW or during thunderstorms. The Shoemaker gas turbine was run for approximately 600 hours on average during the last several years. Energy supplied to the western area load pocket during these conditions in 1997 amounted to approximately 53,000 MWH hours out of a total area load, within that load pocket area, of about 1,100,000 MWH. The Restructuring Plan (pp. 27-28) provides that: a process will be established in which Staff, the Company, and other interested parties will address different measures, analyses of which are to be submitted in January 1998, for mitigating load pocket conditions in Orange and Rockland's service territory... The January 1998 filing will include a proposal to provide for such interim relief as may be necessary pending a final Commission determination. The parties anticipate that the divestiture plan will address the load pocket issue on an interim basis pending a final Commission determination on the load pocket issue. As part of its January 1998 load pocket filing, Orange and Rockland will propose that the Orange and Rockland regulated delivery company execute an agreement with the winning bidder to address these load pocket conditions. The details of the Load Pocket Call Option Agreement, including its pricing terms, will be set forth in this January 1998 filing. An alternate mitigation strategy of reinforcing the Company's existing transmission system is presently impractical due to cost considerations. Moreover, given the lead time associated with permitting and constructing such transmission reinforcements, they could not be operational by May 1, 1999. Orange and Rockland will specify in the Offering Memorandum the required capacity the purchaser must provide by month and facility for load pocket support. Each bidder who wishes to bid on Lovett, the Shoemaker gas turbine and the hydro-electric facilities, will be required to submit a bid, separate and distinct from its asset purchase bid, specifying the annual cost by facility to have the required capacity available. Orange and Rockland will execute with the purchaser a call option agreement for a maximum of five years, renewable annually at the Company's sole discretion. In addition, the agreement also would require the purchaser to provide energy during load pocket hours, to the extent such energy was not already being produced. Energy actually provided to mitigate load pocket conditions would be priced as follows: Lovett Start up costs - $/Unit start up Fuel costs - actual Variable O&M - set at $1/mwh Shoemaker Start up costs - $/Unit start up (most GT overhaul maintenance costs for standby units are cycle related). Fuel costs - actual Rio, Mongaup Swinging Bridge Replacement energy cost based on X% of the on peak weekly average zonal price, recognizing that it is in the interest of the new owner to only operate the hydros at peak price periods, and that normally there is only available water to operate the Units at 25% load factor. As noted in Section 24 below, any call option agreement will be subject to FERC review and approval. The costs associated with these call option agreements are directly related to system reliability and thus will be collected from all customers of the regulated Orange and Rockland distribution company through a non-bypassable wires charge. These call option agreements would remain effective only for so long as they remain less costly to the delivery company than other mitigation measures (e.g., transmission reinforcement). The Company also will coordinate plant and transmission system maintenance and emergency operations with the new owner(s) and operator(s) of Lovett, the Shoemaker gas turbine and the Rio, Mongaup and Swinging Bridge hydro-electric facilities. 22. Environmental Issues The Company is identifying and gathering existing records and information regarding the environmental liability issues associated with the Generating Assets. As part of the auction process, prospective bidders will be provided access to these records and information. This information will be sufficient to allow bidders to meaningfully assess any potential environmental liabilities. A similar approach was adopted by NEES in the auction of its generating assets. Orange and Rockland will provide bidders with a list of all environmental permits, certificates and licenses associated with the Generating Assets. Orange and Rockland will cooperate with the winning bidder to have such permits, certificates and licenses transferred to the winning bidder. The Company also will provide available information related to those authorizations and any environmental permit requirements currently in effect or anticipated. Depending upon the individual licenses or permits, typical requirements may include: Fish enhancement technology improvements; Limitations on temperature, minimum flows, and run-of river operations; Increased instrumentation and monitoring requirements; Aesthetic and/or recreational issues; and Emissions and discharge limitations. Sulfur dioxide and nitrogen oxides emission allowances will be allocated to the Generating Assets in accordance with the regulatory methodology employed at the time of sale. Any banked allowances accumulated prior to the transfer of title shall be retained by Orange and Rockland. During 1995 and 1996, an extensive environmental compliance audit of Orange and Rockland's principal facilities, including its Generating Assets, was undertaken by an outside environmental consultant. The audit included a comprehensive review of documents relating to the environmental status of the Generating Assets, site inspections and interviews with operating personnel. At the conclusion of the audit process, a report detailing the status of environmental compliance at each of the Generating Assets was prepared. To the extent relevant for a particular facility, the report focused on the following general subject areas: air, water, hazardous waste, solid waste, PCBs, oil storage/chemical storage/spill response, Superfund and wetlands. For those facilities for which issues requiring corrective action were identified by the audit, Orange and Rockland took actions to resolve such outstanding issues. Subsequent to the completion of the above-described audit, Orange and Rockland's Environmental Services Department initiated a periodic compliance assessment program in April 1997 to ensure that the Company's facilities remain in compliance. Lovett and Bowline are reviewed monthly; gas turbines and hydroelectric facilities bi-annually. Orange and Rockland is presently reviewing strategies to comply with Phase II of the Clean Air Act. It does not appear that capital additions will be required for compliance. As to the State Pollution Discharge Elimination System ("SPDES") permit for Bowline, Orange and Rockland is engaged in a process with Con Edison, the New York Power Authority ("NYPA") and Central Hudson Gas and Electric Corporation ("Central Hudson") to secure new SPDES permits from the NYSDEC for Bowline as well as the Roseton and Indian Point Generating Stations(5). Orange and Rockland will continue its efforts to secure a revised SPDES permit for Bowline. Given the delays inherent in completing the ongoing draft environmental impact statement, however, it appears unlikely that a new SPDES permit for Bowline will be issued prior to the completion of the auction process. The Company is continuing its efforts to obtain a revised SPDES permit for Lovett, and is engaged in ongoing discussions with NYSDEC regarding this permit. To the extent that new SPDES permits are not issued by the NYSDEC prior to transfer of title to the Generating Assets, the winning bidder would participate in the ongoing negotiations as the Company's successor. (5) Central Hudson and Con Edison are the joint owners of the Roseton Generating Station. Con Edison is the owner of the Indian Point 2 Generating Station. NYPA is the owner of the Indian Point 3 Generating Station. It is Orange and Rockland's plan to have the winning bidder assume responsibility for any environmental liability associated with the Generating Assets and for the sites on which they are located. Orange and Rockland will remain responsible for any materials or wastes associated with the Generating Assets which may have been shipped off site prior to the transfer of title. Orange and Rockland believes that the information to be made available to prospective bidders will be sufficient to allow meaningful assessments of any potential environmental liabilities. NEES adopted similar procedures with respect to requiring bidders to assume all environmental liabilities (except off-site environmental liabilities) after giving such bidders access to the information necessary to assess such assumed liabilities. Such procedures did not negatively impact the bids received by NEES. 23. SEQRA Compliance The transfer of title to the Generating Assets should not result in a significant impact on the environment for purposes of the New York State Environmental Quality and Review Act ("SEQRA")(6). The Generating Assets will still be required to comply with all applicable environmental regulations. To the extent that the winning bidder wishes to modify the operation of a Generating Asset, it will be responsible for obtaining all relevant environmental permits. It is by no means clear to the Company that divestiture of the Generating Assets requires SEQRA review. In order to avoid delays and to expedite the SEQRA review process, to the extent it may be required, Orange and Rockland is submitting an Environmental Assessment Form as Exhibit D to this Final Divestiture Plan. (6) N.Y. Envtl. Conserv. Section 8-0101 et seq. 24. Regulatory Approvals Orange and Rockland's transfer of title to the Generating Assets will be subject to the review and approval of various state and federal regulatory agencies, including the following: A. New York Public Service Commission The Company will apply to the Commission under Section 70 of the Public Service Law(7) for authorization to dispose of the Generating Assets. The Commission has the responsibility to review the sale to determine whether it is in the public interest. To the extent that the buyer wishes to use the Generating Assets to sell at retail, the buyer first must obtain a Certificate of Public Convenience ("CPC") from the Commission under Section 68 of the Public Service Law(8). Orange and Rockland expects the Section 70 application to be made shortly after relevant contracts are executed with the winning bidder. The buyer would be expected to file its CPC application in the same time frame. (7) N.Y. Pub. Serv. Section 70. (8) N.Y. Pub. Serv. Section 68. B. Federal Energy Regulatory Commission The Company will submit a filing under Section 203 of the Federal Power Act(9) ("FPA") with the FERC for authorization to sell the Generating Assets. While generating assets per se are not subject to FERC jurisdiction, sale of the Generating Assets will be subject to the FERC's jurisdiction under Section 203 because of certain substation and transmission facilities which will be included as part of the sale. Furthermore, to the extent that any asset sale includes a purchase power agreement between Orange and Rockland and the buyer (e.g., call-option contract), any such agreement for wholesale sales of electricity would have to be filed with the FERC under Section 205 of the FPA(10) by the seller of that power. The transfer of the licenses for hydro- electric generating facilities also requires written approval of the FERC, pursuant to Section 8 of the FPA(11). (9) 16 U.S.C. Section 824b. (10) 16 U.S.C. Section 824d. (11) 16 U.S.C. Section 801. If the buyer expects to use any Generating Asset to make wholesale sales of electricity, it will need to file the appropriate tariffs with the FERC under Section 205. If the buyer seeks authorization from the FERC to make such sales at market based rates, it would have to make the requisite showing at the FERC that it did not possess market power. The buyer also will have to negotiate a transmission service agreement with Orange and Rockland (or the New York State ISO) under their filed Order 888 tariff(12). (12) Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21,540 (May 10, 1996), FERC Stats. & Regs. Paragraph 31,036(1996), order on reh'g, Order No. 888-A, 62 FR 12,274 (March 14, 1997), FERC Stats. & Regs. Paragraph 31,048 (1997). The Company would expect to submit its Section 203 and Section 8 filings with the FERC in parallel with its Section 70 petition(s) to the Commission. The buyer would be expected to submit its Section 205 application in the same time frame. C. New Jersey Board of Public Utilities, Pennsylvania Public Utility Commission The Company's wholly owned subsidiaries Rockland Electric Company and Pike County Light & Power Company are regulated by the New Jersey Board of Public Utilities ("NJBPU") and the Pennsylvania Public Utility Commission ("PPUC"), respectively. The Company anticipates that both the NJBPU and the PPUC will review the sale of the Generating Assets. Orange and Rockland anticipates that any required filings with these agencies will be made shortly after relevant contracts are executed with the winning bidder. D. Federal Antitrust Review Any of the transactions contemplated will likely require filings with the Federal Trade Commission and the Antitrust Division of the Department of Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976. These filings give these antitrust agencies the opportunity to consider whether the transaction is likely to have an adverse impact on competition and to seek to halt the transaction before it is consummated if they believe it is likely to have such an impact. The Company would expect the Hart-Scott-Rodino filings to be made shortly after the necessary filings are made with the Commission and the FERC. CONCLUSION Orange and Rockland hereby requests that the Commission expeditiously approve this Final Divestiture Plan. Moreover, the Company requests that the Commission, in its order approving the Final Divestiture Plan, provide that if Orange and Rockland follows the procedures set forth in the Commission approved Final Divestiture Plan, it will be presumed to be entitled to an expeditious approval under Section 70 of the Public Service Law. Respectfully submitted, s/ John L. Carley G. D. Caliendo Senior Vice President, General Counsel and Corporate Secretary John L. Carley Senior Counsel Andrew Gansberg Nixon, Hargrave, Devans & Doyle LLP Attorneys for: Orange and Rockland Utilities, Inc. One Blue Hill Plaza Pearl River, New York 10965 Dated:February 3, 1998 Pearl River, New York EXHIBITS Exhibit A - Orange and Rockland's Letter dated December 4, 1997 to Secretary Crary Declining Opportunity to Bid on Generating Assets Exhibit B - Generating Assets Capacity Table Exhibit C - Facilities to be Transferred and Interconnection Points Exhibit D - Environmental Assessment Form EXHIBIT A December 10, 1997 VIA FEDERAL EXPRESS Hon. John C. Crary Secretary New York State Public Service Commission Three Empire State Plaza Albany, New York 12223 Re: Orange and Rockland Utilities, Inc. Case 96-E-0900 Dear Secretary Crary: By "Order Adopting Terms of Settlement" dated November 26, 1997 (the "Order"), the New York State Public Service Commission (the "Commission") approved in its entirety the Electric Rate and Restructuring Plan ("Restructuring Plan") filed by Orange and Rockland Utilities, Inc. ("Orange and Rockland" or the "Company") on November 6, 1997, and signed by the Company, Staff and several other active parties in the proceeding. The Restructuring Plan requires the auction of Orange and Rockland's generating assets. Under the terms of the Restructuring Plan, if a bidder is selected prior to May 1,1999, the Company's shareholders will be permitted to retain up to 25 percent of the New York share of any net book gain that may be realized from the sale, with the remaining 75 percent allocated to the Company's customers. The Restructuring Plan also provides that under this schedule, the Company's shareholders would be required to bear five percent of the New York share of any net book loss from the sale of the generating assets. If a successful bidder is not chosen until after May 1, 1999, the Company's shareholders will be permitted to retain 20 percent of the New York share of any net book gain, and must absorb 20 percent of the New York share of any net book loss. The Restructuring Plan as filed with the Commission did not allow Orange and Rockland to bid in the auction. In the Order, however, the Commission offered the Company the opportunity to bid on its generating assets in the auction subject to the following conditions: (i) Orange and Rockland's shareholders would forgo their share of any net book gain from the auction; (ii) shareholders would not be required to absorb any share of any net book loss (and therefore all losses are passed on to customers); and (iii) the auction would be conducted entirely by an independent third party approved by the Commission. After careful evaluation of the Commission's offer, the Company has determined that it will not participate as a bidder in the auction of its generating assets. In evaluating the Commission's offer, the Company concluded that if it were to participate as a bidder in the auction of its generating assets, it would not only forgo its share of any net book gain from the auction, but it would also suffer from certain significant disadvantages as compared to other bidders, making it unlikely that the Company would be selected as the winning bidder. For the Company to divest its generating assets as required by the Restructuring Plan, in all likelihood, any bid by it would have to be submitted by an unregulated affiliate. Such affiliate would be relatively small compared to many potential bidders, making it unlikely that it would be able to secure financing on competitive terms. In addition, bidders with ownership of other generating assets would benefit from economies of scale not available to the Company's affiliate. This would allow these bidders to submit bids more attractive than that submitted by the Company's affiliate. It is also important to note that Orange and Rockland's participation would necessarily complicate and thereby delay the auction process. Early divestiture of the Company's generating assets is expected to maximize their market value, and, accordingly, moving as rapidly as possible to complete the process is in the best interest of customers, shareholders and the Company's employees. In recent generation asset auctions conducted for New England Electric System, Edison International and Pacific Gas and Electric, each block of assets was sold at a substantial premium to book value. As more and more generation - both in New York and surrounding states - becomes available for auction, its fair to assume that the utilities which are able to move quickly will be able to secure a higher price. Another unfortunate outcome of delay in the auction would be the increased likelihood of the implementation of a Competitive Transition Charge, a result that all parties were hoping to avoid. Moreover, since a condition to the Company's participation in the bidding is appointment of an independent third party to conduct the auction, the Company would be unable to negotiate conditions for the sale of the assets with other proposed bidders. The Company believes that its participation in the sale process will best enable it to protect the interests of its employees and other affected stakeholders. For these reasons, the Company respectfully declines to participate in the auction process. Respectfully submitted, s/G.D. Caliendo G. D. Caliendo EXHIBIT B EXHIBIT B GENERATING ASSETS CAPACITY TABLE Commission Date Nominal DMNC-Summer Capacity 1997** Lovett Unit 1 3/49 20.0 Retired Lovett Unit 2 9/51 20.0 Retired Lovett Unit 3 3/55 62.5 68.3 Lovett Unit 4 5/66 167.0 176.8 Lovett Unit 5 4/69 187.0 195.3 Bowline Unit 1* 9/72 200.0 203.3 Bowline Unit 2 5/74 200.0 201.8 Hillburn 4/71 40.0 37.9 Shoemaker 5/71 40.0 37.9 Mongaup 1 7/23 1.0 0.9 Mongaup 2 7/23 1.0 1.0 Mongaup 3 7/23 1.0 0.9 Mongaup 4 11/26 1.0 1.0 Swinging Bridge 1 2/30 5.0 4.7 Swinging Bridge 2 8/39 7.0 7.8 Rio 1 12/27 5.0 5.1 Rio 2 12/27 5.0 5.0 Grahamsville 12/55 18.0 16.8 ___________________ * This sets forth the Company's 1/3 interest in Bowline. ** Dependable Maximum Net Capability determined in accordance with New York Power Pool Methods and Procedures No. 2. EXHIBIT C BOWLINE POINT - GENERAL 16" Gas Main from West Haverstraw (Regulator to remain Orange & Rockland Gas Company) BOWLINE #1 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank #155 Bank #155G PCB T155-67 Disconnects T155-3, T67-3, 155-A, 67-55-3Y, 155-55-3X Line 67 - Underground Cable Line 67 - Overhead Line Disconnect 67-54-4 (Ladentown) Bank #555 BOWLINE #2 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank #255 Bank #255G PCB T255-68 Disconnects T255-3, T68-3, 255-A, 68-55-3Y, 255-55-3X Line 68 - Underground Cable Line 68 - Overhead Line Disconnect 68-54-4 (Ladentown) Bank #655 BOWLINE START-UP YARD MAJOR ELECTRICAL EQUIPMENT TO BE SOLD OCB 56-55-2Y, 56-55-2X, 561-55-2X, 561-55-2Y Disconnects 56-55-1Y, 56-55-3Y, 56-55-3X, 56-55-1X, 56-X, 561-55-1X, 561-55-3X, 561-55-3Y, 561-55-1Y, 561-Y Line 56 - Underground Cable to Minisceongo Switch Line 561 - Underground Cable to Minisceongo Switch NOTE: These devices will become the property of the purchaser but Orange & Rockland will maintain sole control and operational responsibility of the Bowline Start-up Yard. MINISCEONGO SWITCH MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Disconnects 56-57-4, 561-57-4, T-56-561 Line 56 - Underground to Bowline Start-up Yard Line 561 - Underground to Bowline Start-Up Yard Note: These devices will become the property of the purchaser but Orange & Rockland will maintain sole control and operational responsibility of the Minisceongo Switch Station. BOWLINE POINT UNIT #1 TRANSMISSION INTERCONNECTION THE INTERCONNECTION OF UNIT #1 INTO THE O&R TRANSMISSION SYSTEM WILL BE AT THE LADENTOWN 345KV TRANSMISSION BUS. O&R WILL OWN THE STATION BREAKERS AND THE PURCHASER WILL OWN THE 345KV BUS TAPS TO THE LINE 67 SWITCH 67-54-4. THE PURCHASER WILL OWN THE LINE 67 PROTECTION SYSTEM AND WILL BE RESPONSIBLE FOR ITS MAINTENANCE. THE 1-56-2 & 3-56-2 BREAKERS WILL BE OWNED AND OPERATED BY O&R. THE LADENTOWN BUS ARRANGEMENT IS THAT OF A RING BUS WITH FOUR TRANSMISSION LINES. TWO LINES CONNECT TO BOWLINE POINT AND TWO LINES CONNECT TO THE 345KV SYSTEM. THE 345KV TRANSMISSION LINES Y88 & W72 CONNECT THE LADENTOWN BUS INTO THE BULK POWER SYSTEM BETWEEN BUCHANNON AND RAMAPO. BOWLINE POINT UNIT #2 TRANSMISSION INTERCONNECTION THE INTERCONNECTION OF UNIT #2 INTO THE O&R TRANSMISSION SYSTEM WILL BE AT THE LADENTOWN 345KV TRANSMISSION BUS. O&R WILL OWN THE STATION BREAKERS AND THE PURCHASER WILL OWN THE 345KV BUS TAPS TO THE LINE 68 SWITCH 68-54-4. THE PURCHASER WILL OWN THE LINE 68 PROTECTION SYSTEM AND WILL BE RESPONSIBLE FOR ITS MAINTENANCE. THE 4-56-2 & 6-56-2 BREAKERS WILL BE OWNED AND OPERATED BY O&R. THE LADENTOWN BUS ARRANGEMENT IS THAT OF A RING BUS WITH FOUR TRANSMISSION LINES. TWO LINES CONNECT TO BOWLINE POINT AND TWO LINES CONNECT TO THE 345KV SYSTEM. THE 345KV TRANSMISSION LINES Y88 & W72 CONNECT THE LADENTOWN BUS INTO THE BULK POWER SYSTEM BETWEEN BUCHANNON AND RAMAPO. BOWLINE POINT START-UP TRANSMISSION INTERCONNECTION THE INTERCONNECTION OF THE BOWLINE POINT START-UP YARD INTO THE O&R TRANSMISSION SYSTEM WILL BE THE MINISCEONGO SWITCHING STATION TAPS TO THE OVERHEAD TRANSMISSION LINES 56 AND 561. LOVETT #1 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank 133 Bank 133G OCB 133-2X, 133-2Y Disconnect 133-1Y, 133-3Y, 133-1X, 133-3X LOVETT #2 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank 233 Bank 233G OCB 233-2X, 233-2Y Disconnect 233-1Y, 233-3Y, 233-1X, 233-3X LOVETT #3 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank 333 Bank 333G OCB 333-2X, 333-2Y Disconnect 333-1Y, 333-Y, 333-1X, 333-3X Bank 733 OCB 733-2X, 733-2Y Disconnect 733-1Y, 733-3Y, 733-1X, 733-3X, 733-A Bank 533 Disconnect 533-A LOVETT #4 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank #447 Bank #447G OCB #447-2 Disconnects 447-1, 447-3 Spare 200mva Generator Step-up Transformer LOVETT #5 MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank #547 Bank #547G OCB 547-2 Disconnects 547-1, 547-3 LOVETT UNIT #1 TRANSMISSION INTERCONNECTION Lovett Unit #1 will be interconnected with the O&R transmission system at the bus taps to the 69KV Bus in O&R Substation #33. The purchaser will be responsible for the protection systems associated with the generator. O&R shall be responsible for the 69KV bus differential system. Presently the taps from the bus have been removed as the unit is retired. The Lovett 69KV bus is connected to the O&R transmission system through the 85MW Bank 147 and Line 55 which is rated 91MW. LOVETT UNIT #2 TRANSMISSION INTERCONNECTION Lovett Unit #2 will be interconnected with the O&R transmission system at the bus taps to the 69KV Bus in O&R Substation #33. The purchaser will be responsible for the protection systems associated with the generator. O&R shall be responsible for the 69KV bus differential system. Presently the taps from the bus have been removed as the unit is retired. The Lovett 69KV bus is connected to the O&R transmission system through the 85MW Bank 147 and Line 55 which is rated 91MW. LOVETT UNIT #3 TRANSMISSION INTERCONNECTION LOVETT UNIT #3 WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #33. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL BE RESPONSIBLE FOR THE 69KV BUS DIFFERENTIAL SYSTEM. THE LOVETT PLANT START-UP TRANSFORMER #733 SHALL BE THE RESPONSIBILITY OF THE PURCHASER AND SHALL BE CONNECTED TO THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #33. THE LOVETT PLANT START-UP TRANSFORMER #533 SHALL BE THE RESPONSIBILITY OF THE PURCHASER AND SHALL BE CONNECTED TO THE O&R TRANSMISSION SYSTEM AT THE TAPS BETWEEN THE 633-A AND 533-A SWITCHES IN O&R SUBSTATION #33. THE 533-A SWITCH WILL BE THE RESPONSIBILITY OF THE PURCHASER. THE LOVETT 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH THE 85MW BANK 147 AND LINE 55 WHICH IS RATED 91MW. LOVETT UNIT #4 TRANSMISSION INTERCONNECTION LOVETT UNIT #4 WILL BE INTERCONNECTED WITH THE O&R SYSTEM AT THE BUS TAPS TO THE 138KV BUS IN O&R SUBSTATION #47. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL BE RESPONSIBLE FOR THE 138KV BUS DIFFERENTIAL SYSTEM. THE LOVETT PLANT START-UP TRANSFORMER #647 SHALL BE THE RESPONSIBILITY OF THE PURCHASER AND SHALL BE CONNECTED TO THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 138KV BUS IN O&R SUBSTATION #47. THE LOVETT 138KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TRANSMISSION LINES, 53, 54, 56. EACH LINE IS RATED 224MW. LOVETT UNIT #5 TRANSMISSION INTERCONNECTION LOVETT UNIT #5 WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 138KV BUS IN O&R SUBSTATION #47. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL BE RESPONSIBLE FOR THE 138KV BUS DIFFERENTIAL SYSTEM. THE LOVETT 138KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TRANSMISSION LINES, 53, 54, 56. EACH LINE IS RATED 224MW. THE LOVETT #5 GENERATOR LEADS ARE UNDERGROUND CABLES THAT SHARE THE OIL PUMPING PLANT WITH LINE 53 &54. HILLBURN GT MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank #617 OCB 617-2Y, GT-17-2X Disconnects 617-1Y, 617-3Y, T617-3, T-GT-3, GT-17-3X, GT-17-1X HILLBURN GT TRANSMISSION INTERCONNECTION THE HILLBURN GT WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #17. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL BE RESPONSIBLE FOR THE 69KV BUS DIFFERENTIAL SYSTEM. THE HILLBURN 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TRANSMISSION LINES 31, 51, 52, 59, & 89. THE COMBINED RATING OF THESE LINES IS 473MW. SHOEMAKER GT MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank #511 OCB 511-2 Disconnects 511-1 SHOEMAKER GT TRANSMISSION INTERCONNECTION THE SHOEMAKER GT WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #11. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. O&R SHALL BE RESPONSIBLE FOR THE 69KV BUS DIFFERENTIAL SYSTEM. THE SHOEMAKER 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TRANSMISSION LINES LINES 24, 25, & 27. THE COMBINED RATING OF THESE LINES IS 246MW. RIO HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator #1, #2 Bank #13 OCB 13-2 Disconnects 13-1, 13-3 Bank #83 Disconnects 83-A RIO HYDRO TRANSMISSION INTERCONNECTION THE RIO HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #3. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. THE RIO 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TWO TRANSMISSION LINES LINES 15 & 18. THE COMBINED RATING OF THESE LINES IS 53MW. MONGAUP HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator #1, #2, #3, #4 Bank #52 OCB 52-2 Disconnects 52-1, 52-3 MONGAUP HYDRO TRANSMISSION INTERCONNECTION THE MONGAUP HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV BUS IN O&R SUBSTATION #2. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. THE MONGAUP 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TRANSMISSION LINES 12, 13, & 15. THE COMBINED RATING OF THESE LINES IS 105MW SWINGING BRIDGE HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator #1, #2 Bank #11, #31 OCB 11-2 Disconnects 11-3, 31-A Bank #21 OCB 21-2 Disconnect 9-1-6 Line Tap to Line #9 SWINGING BRIDGE HYDRO TRANSMISSION INTERCONNECTION THE SWINGING BRIDGE #1 HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV BUS FROM SWITCH 11-3 IN O&R SUBSTATION #3. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. THE SWINGING BRIDGE #1A HYDRO WILL BE INTERCONNECTED WITH THE O&R TRANSMISSION SYSTEM AT THE LINE 9 TAPS TO THE 69KV LINE 9 TO MONGAUP JUST OUTSIDE O&R SUBSTATION #3. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR. THE SWINGING BRIDGE 69KV BUS IS CONNECTED TO THE O&R TRANSMISSION SYSTEM THROUGH TRANSMISSION LINES 12, 13, & 15. THE COMBINED RATING OF THESE LINES IS 22MW. GRAHAMSVILLE HYDRO MAJOR ELECTRICAL EQUIPMENT TO BE SOLD Generator Bank #14 OCB HG-1291 Disconnects HG-1294, HG-1293, HG-1290, 14-4 GRAHAMSVILLE HYDRO TRANSMISSION INTERCONNECTION THE GRAHAMSVILLE HYDRO WILL BE INTERCONNECTED WITH THE CENTRAL HUDSON TRANSMISSION SYSTEM AT THE BUS TAPS TO THE 69KV CENTRAL HUDSON HG LINES IN O&R SUBSTATION #4. THE PURCHASER WILL BE RESPONSIBLE FOR THE PROTECTION SYSTEMS ASSOCIATED WITH THE GENERATOR AND THE SUBSTATION. THE EXISTING ORANGE AND ROCKLAND WHEELING AGREEMENT WITH CENTRAL HUDSON WILL BE ASSIGNED TO THE PURCHASER. EXHIBIT D 14.16-4 (2/87)-Text 12 PROJECT I.D. NUMBER 617.21 SEQR Appendix C State Environmental Quality Review SHORT ENVIRONMENTAL ASSESSMENT FORM For UNLISTED ACTIONS Only PART I-PROJECT INFORMATION (To be completed by Applicant or Project sponsor) 1. APPLICANT/SPONSOR 2. PROJECT NAME Orange and Rockland Utilities, Inc. Electric Rate/Restructuring - Case 96-E-0900 3. PROJECT LOCATION: Municipality Orange and Rockland's electric County service territory 4. PRECISE LOCATION (street address and road Intersections, prominent landmarks, etc., or provide map) See response to No. 3 above 5. IS PROPOSED ACTION: ( )New ( )Expansion ( )Modification/alteration NOT APPLICABLE 6. DESCRIBE PROJECT BRIEFLY: See the attached Environmental Assessment Form Narrative 7. AMOUNT OF LAND AFFECTED: Initially( )acres Ultimately( )acres NOT APPLICABLE 8. WILL PROPOSED ACTION COMPLY WITH EXISTING ZONING OR OTHER EXISTING LAND USE RESTRICTIONS? ( )Yes ( )No If No, describe briefly NOT APPLICABLE 9. WHAT IS PRESENT LAND USE IN VICINITY OF PROJECT? ( ) Residential ( )Industrial ( )Commercial ( )Agriculture ( )Park/Forest/Open space ( ) Other Describe: NOT APPLICABLE 10. DOES ACTION INVOLVE A PERMIT APPROVAL, OR FUNDING, NOW OR ULTIMATELY FROM ANY OTHER GOVERNMENTAL AGENCY (FEDERAL, STATE OR LOCAL)? (X)Yes ( )No If yes, list agency(s) and permit/approvals NYS PUBLIC SERVICE COMMISSION 11. DOES ANY ASPECT OF THE ACTION HAVE A CURRENTLY VALID PERMIT OR APPROVAL? (X)Yes ( )No If yes, list agency name and permit/approval All of Orange and Rockland's Generating Assets that are to be divested have valid, approved certificates to operate. 12. AS A RESULT OF PROPOSED ACTION WILL EXISTING PERMITIAPPROVAL REQUIRE MODIFICATION? ( )Yes ( )No I CERTIFY THAT THE INFORMATION PROVIDED ABOVE IS TRUE TO THE BEST OF MY KNOWLEDGE Applicant/sponsor name: Orange and Rockland Utilities, Inc. Date: 2/3/98 Signature: s/John L.Carley If the action Is In the Coastal Area, and you are a state agency, complete the Coastal Assessment Form before proceeding with this assessment OVER PART II-ENVIRONMENTAL ASSESSMENT (To be completed by Agency) A. DOES ACTION EXCEED ANY TYPE-1 THRESHOLD IN 6 NYCRR, PART 617.12? If Yes, coordinate the review process and use the FULL EAF. ( )Yes (X)No B. WILL ACTION RECEIVE COORDINATED REVIEW AS PROVIDED FOR UNLISTED ACTIONS IN 6 NYCRR, PART 617.6? If No, a negative declaration may be superseded by another involved agency. ( )Yes ( )No NOT APPLICABLE C. COULD ACTION RESULT IN ANY ADVERSE EFFECTS ASSOCIATED WITH THE FOLLOWING: (Answers may be handwritten, If legible) Cl. Existing air quality, surface of groundwater quality or quantity, noise levels. Existing traffic patterns, solid waste production or disposal, potential for erosion, drainage or flooding problems? Explain briefly: C2. Aesthetic, agricultural, archaeological, historic, or other natural or cultural resources; or community or neighborhood character? Explain briefly: C3. Vegetation or fauna. fish, shellfish or wildlife species, significant habitats, or threatened or endangered species? Explain briefly: C4. A community's existing plans or goals as officially adopted, or a change in use or intensity of use of land or other natural resources? Explain briefly: C5. Growth. subsequent development, or related activities likely to be induced by the proposed action? Explain briefly: C6. Long term, short term, cumulative, or other effects not identified in Cl-C5? Explain briefly: C7. Other impacts (including changes in use of either quantity or type of energy)? Explain briefly: D. IS THERE, OR IS THERE LIKELY TO BE, CONTROVERSY RELATED TO POTENTIAL ADVERSE ENVIRONMENTAL IMPACTS? ( )Yes (X)No If Yes, explain briefly PART III-DETERMINATION OF SIGNIFICANCE (To be completed by Agency) INSTRUCTIONS: For each adverse effect identified above, determine whether it is substantial, large, important or otherwise significant. Each effect should be assessed in connection with its (a) setting (i.e. urban or rural); (b) probability of occurring; (c) duration; (d) irreversibility; (e) geographic scope; and (f) magnitude. If necessary, add attachments or reference supporting materials. Ensure that explanations contain sufficient detail to show that all relevant adverse impacts have been identified and adequately addressed. ( ) Check this box if you have identified one or more potentially large or significant adverse impacts which MAY occur. Then proceed directly to the FULL EAF and/or prepare a positive declaration. ( ) Check this box if you have determined, based on the information and analysis above and any supporting documentation, that the proposed action WILL NOT result in any significant adverse environmental impacts AND provide on attachments as necessary, the reasons supporting this determination: Name of Lead Agency Print or Type Name of Responsible Title of Officer in Lead Agency Responsible Officer Signature of Responsible Signature of Preparer Officer in Lead Agency (if different from responsible officer) Date 2 Environmental Assessment Form Narrative Divestiture of Generating Assets Prepared for New York Public Service Commission Case 96-E-0900 Introduction On November 6, 1997, Orange and Rockland Utilities, Inc. ("Orange and Rockland" or the "Company") filed an Electric Rate and Restructuring Plan ("Restructuring Plan") with the New York State Public Service Commission ("Commission") in Case 96-E-0900(1). The Restructuring Plan also has been signed by Staff of the New York State Department of Public Service, the New York State Department of Economic Development, the Industrial Energy Users Association, the National Association of Energy Service Companies, The Joint Supporters, the Independent Power Producers of New York, Inc., Pace Energy Project and Enron Capital & Trade Resources. The Restructuring Plan was approved by the Commission at its open session on November 25, 1997. The Commission issued Orders adopting the Restructuring Plan on November 26 and December 31, 1997, respectively. (1) Case 96-E-0900, In the Matter of Orange and Rockland Utilities, Inc.'s Plans for Electric Rate/Restructuring Pursuant to Opinion No. 96-12. The Restructuring Plan provides for the divestiture, by auction, of all of the Company's generating assets (i.e., all units at the Lovett Generating Station and the Company's one-third interest in all units at the Bowline Point Generating Station(2), hydro-electric facilities and gas turbines, hereinafter collectively referred to as the "Generating Assets"). The Restructuring Plan (p. 18) provides that Orange and Rockland "will submit its divestiture plan to Staff and the other parties in this proceeding within three months of the Commission approving the [Restructuring] Plan." Pursuant to the terms of the Restructuring Plan, this divestiture plan will identify how the Generating Assets will be packaged for sale; what restrictions, if any, will be placed on the capacity that any one bidder may purchase; the procedures to be followed in the sale of the Generating Assets, including minimum bids; and key dates and milestones to achieve the scheduled divestiture. The divestiture plan also will address the resolution of market power issues in any load pocket areas. On December 11, 1997 the Company distributed its preliminary divestiture plan to Staff and the other parties in Case 96-E-0900. (2) The Company and Consolidated Edison Company of New York, Inc. ("Con Edison") are co-tenants in the Bowline Point Generating Station, with the Company owning a 1/3 interest and Con Edison owning a 2/3 interest. In its Order adopting the Restructuring Plan issued November 26, 1997, the Commission offered the Company the opportunity to bid on the Generating Assets, subject to certain conditions. As set forth in Orange and Rockland's letter to the Commission dated December 10, 1997, the Company has declined the Commission's offer. Neither Orange and Rockland nor any of its affiliates will submit a bid in the auction of the Generating Assets. Staff and other parties submitted their comments on the preliminary divestiture plan by January 12, 1998. The Restructuring Plan (p.19) requires the Company to submit a final divestiture plan to the Commission within six months of the Commission approving the Restructuring Plan. As part of such final divestiture plan, Orange and Rockland is submitting this Environmental Assessment Form to the Commission. As set forth below, divestiture of the Generating Assets should not result in significant new environmental impacts which would require further environmental review. I. BACKGROUND On May 3, 1996, the Commission issued a Final Generic Environmental Impact Statement ("FGEIS") in the Competitive Opportunities Proceeding, Case 94-E-0952. As lead agency for environmental review, the Commission identified the proposed action in the Competitive Opportunities Proceeding as the "adoption of a policy supporting increased competition in electric markets, including a preferred method to achieve electric competition; and regulatory and ratemaking practices that will assist in the transition to a more competitive and efficient electric industry, while maintaining safety, environmental, affordability, and service quality goals." The FGEIS identified generic environmental consequences of the Commission's proposed action together with social, economic and other essential considerations. The FGEIS also identified mitigation strategies for any adverse environmental effects that could result from implementing a competition policy. In reviewing this FGEIS and in considering the proposed action, the Commission, in Opinion No. 96-12 (p. 80)(3), found that the requirements of the State Environmental Quality Review Act ("SEQRA") have been met. The Commission also determined that the proposed action "avoids or minimizes adverse environmental impacts to the maximum extent practicable..." (3) Cases 94-E-0952, et al., Competitive Opportunities Proceedings, Opinion No. 96-12 (issued May 20, 1996). The Commission also recognized that individual utility proposals might bring to light new concerns. As a result, in Opinion No. 96-12, as further clarified in Opinion No. 96-17(4), the Commission required each utility to file an environmental assessment of its restructuring plan. On April 4, 1997 Orange and Rockland submitted its Environmental Assessment Form ("EAF") and SEQRA recommendation in connection with the Agreement and Settlement dated March 25, 1997 in Case No. 96-E-0229. (4) Cases 94-E-0952, et al., Competitive Opportunities Proceeding, Opinion No. 96-17 (issued October 24, 1996). In Opinion No. 97-20 in Case 96-E-0900, issued December 31, 1997, the Commission considered Orange and Rockland's EAF, the comments and responses submitted by Staff and other parties, and other additional information. In particular, the Commission considered an EAF prepared by Staff. In the narrative attached to Staff's EAF (p.17), Staff notes that the Restructuring Agreement provides that Orange and Rockland will auction off all its Generating Assets. The Staff, in fact, notes that this auction process might lead to retirement of certain of these Generating Assets. Both Staff's EAF and the Commission, in Opinion No. 97-20, also considered the possible increase in air pollution that could accompany the increased demand for electric energy resulting from the Restructuring Plan. After considering all of these issues, the Commission in Opinion No. 97-20 (p.30) concluded as follows: Based on these analyses, the potential environmental impacts of the Settlement are found to be within the range of thresholds and conditions set forth in the FGEIS. Therefore, no further SEQRA action is necessary. DISCUSSION PHYSICAL AND OPERATIONAL CHANGES DUE TO DIVESTITURE 1. Plant Retirements Orange and Rockland has committed to divest all its Generating Assets through an auction process. Orange and Rockland has no plans to retire any of the Generating Assets as part of this auction process. While it seems unlikely that a bidder would purchase the Generating Assets in order to retire them, this prospect has been considered. As noted in Staff's EAF narrative (p. 17), "it is possible that the divestiture of these plants could result in one or more of them being retired earlier than they would have been in the absence of competition". Staff went on to note, that the FGEIS concluded that accelerated retirement of less efficient plants is an unavoidable potential consequence of a more competitive electric industry and that this would cause some local adverse impacts (e.g., increases in unemployment and decreased tax base) which may be balanced by positive impacts elsewhere. This divestiture process makes no explicit provision for the construction of new generating facilities. It is possible, of course, that a winning bidder may wish to modify or retrofit certain of the Generating Assets. However, any such plan must undergo rigorous environmental review by the State's regulatory agencies, as well in all likelihood by similar federal agencies. Any such construction or modification would have to comply with the provisions of Article VIII of the Public Service Law or SEQRA. Moreover, all new generation must comply with all environmental regulations, including the State's strict air quality requirements. 2. Plant Dispatch With the introduction of full retail competition, plant dispatch will be provided by the Independent System Operator ("ISO") rather than by the New York Power Pool. It seems likely that by the time title to the Generating Assets is transferred to a winning bidder, the ISO will be operational. As noted in the EAF submitted by Orange and Rockland on April 4, 1997, it is unclear exactly how the Generating Assets will be dispatched, although Orange and Rockland anticipates that Lovett will be a base load plant. Actual generation dispatch conducted in a competitive market is difficult to predict. Incremental changes in environmental effects as a result of competition will be site specific and will depend on the operator's efficiency and the pricing for generation. Other sources of generation, regardless of location, would be required to comply with site specific environmental requirements, including permissible emissions requirements. Environment Impacts of Divestiture, Their Magnitude, and Potential Mitigation Measures Divestiture of the Generating Assets is not expected to have significant impacts over and above those identified in the FGEIS and in Opinion No. 97-20. The expected environmental impacts of divestiture of the Generating Assets are summarized below. 1. Air Quality Under the existing air permits for Lovett and Bowline, air emissions (e.g., NOx, SO2, particulates) are strictly regulated. Orange and Rockland will transfer these permits to the winning bidder, subject to the New York State Department of Environmental Conservation's ("NYSDEC") review and approval. The winning bidder will be required to comply with the provisions of these permits. Any modification to the existing air permits proposed by the winning bidder is subject to NYSDEC review and approval prior to implementation. Divestiture will not change these regulatory requirements. As noted above, Orange and Rockland has no plans to construct additional generating facilities as part of the divestiture process. As noted by the Commission in Opinion 96-12 (p. 79), likely environmental effects are hard to predict. Any new generation to be constructed by the winning bidder at the Generating Assets sites will be required to comply with the State's stringent air quality regulations. The ambient air quality impacts from Generating Assets will depend on generation dispatch, location, fuel, economics, and retirement and construction programs. Divestiture should not alter these factors markedly. 2. Water Resources Discharges from Lovett and Bowline are presently strictly regulated by State Pollutant Discharge Elimination System ("SPDES") permits issued by the NYSDEC. Divestiture of these plants does nothing to amend or modify these permits. As with air emissions, any modifications to the discharges from the Generating Assets are subject to the NYSDEC's review and approval. To the extent that new generation is constructed at the Generating Assets sites by the winning bidder, water quality effects will be reviewed by the NYSDEC during the facility approval process. 3. Land Use Orange and Rockland has no plans to construct any new generating facilities or any major transmission lines as part of the divestiture. To the extent that new generating facilities are constructed at the Generating Assets sites, land use impacts would be expected and would be reviewed. Similarly, to the extent that new transmission facilities are constructed, land use impacts would be reviewed (See, Article VII of the Public Service Law). 4. Socioeconomic Orange and Rockland has no plans to retire any of the Generating Assets as part of the divestiture process. Therefore, Orange and Rockland expects that employment levels and property tax payments associated with these plants will continue, although perhaps at somewhat lower levels. The Restructuring Plan provides for significantly reduced electric prices to large industrial customers. It is anticipated that these price reductions will assist in the retention of jobs and the enhancement of economic development in Orange and Rockland's service territory. The exact number of jobs that will be retained and the specific amount of future economic development are extremely difficult to predict. To the extent that economic development is enhanced, both employment and the resulting tax base should increase. Moreover, all customer classes will benefit from lower prices that should result from the implementation of competition. Divestiture of the Generating Assets should expedite and enhance the development of such competition. In addition, as identified by the Commission in Opinion 96-12 (p. 79), a principal social consideration in the shift to competition in the electric industry "is the benefit of increased customer choice from among generators, marketers, and energy services companies." Conclusion The Commission has considered the environmental effects of alternate competition scenarios in the FGEIS. The Commission, in considering the FGEIS in Opinion 96-12, concluded that there could be generic air quality environmental effects (oxides of sulfur and nitrogen) resulting from the implementation of competition. Nevertheless, weighing and balancing these likely environmental effects of the shift to competition in the electric industry in New York with social, economic and other essential considerations, the Commission concluded that implementing the proposed action toward greater competition is desirable. In Opinion No. 97-20, the Commission reviewed the potential environmental impacts specific to the Restructuring Plan, including those related to the divestiture of the Generating Assets. In its review, the Commission relied on a detailed EAF prepared by Staff. After a thorough review, the Commission concluded that since the potential environmental impacts of the Restructuring Plan were within the range of thresholds and conditions set forth in the FGEIS, no further SEQRA action is necessary. As noted above, the actions to implement the Restructuring Plan by divesting the Generating Assets will be carried out in conformance with the conditions and thresholds established in the FGEIS and Commission Opinion Nos. 96-12 and 97-20. Orange and Rockland anticipates that the divestiture of the Generating Assets will have environmental impacts that are modest or not distinguishable from those of alternative actions, including the no action alternative identified by the FGEIS as the evolving regulatory model. Therefore, no further environmental impact analysis is required. -----END PRIVACY-ENHANCED MESSAGE-----