-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZxgALEEiJSds94f8q60aCCshgFcwE1NLYeabCorjiqwTpD/NtNY9JdiMCzvueG5T dIEEctgqMkDxcfyfrix9yQ== 0000084613-94-000007.txt : 19940824 0000084613-94-000007.hdr.sgml : 19940824 ACCESSION NUMBER: 0000084613-94-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORANGE & ROCKLAND UTILITIES INC CENTRAL INDEX KEY: 0000074778 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 131727729 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04315 FILM NUMBER: 94543011 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 ORU FORM 10Q 06/30/94 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 June 30, 1994 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 Identification No.) incorporation or organization) One Blue Hill Plaza, Pearl River, New York 10965 (Address of principal executive offices) (Zip Code) (914) 352-6000 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (l) 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 13,590,075 Shares (Class) (Outstanding at July 29, 1994) TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Consolidated Balance Sheets (Unaudited) at June 30, 1994 and December 31, 1993 1 Consolidated Statements of Income (Unaudited) for the three months and six months ended June 30, 1994 and June 30, 1993 3 Consolidated Cash Flow Statements (Unaudited) for the six months ended June 30, 1994 and June 30, 1993 4 Notes to Consolidated Financial Statements 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 17 ITEM 4. Submission of Matters to a Vote of Security Holders 19 ITEM 6. Exhibits and Reports on Form 8-K 20 Signatures 21 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) Assets
June 30, December 31, 1994 1993 (Thousands of Dollars) Utility Plant: Electric $ 939,337 $ 931,827 Gas 192,321 189,000 Common 52,849 52,525 Utility Plant in Service 1,184,507 1,173,352 Less accumulated depreciation 387,455 372,279 Net Utility Plant in Service 797,052 801,073 Construction work in progress 33,178 30,907 Net Utility Plant 830,230 831,980 Non-utility Property: Non-utility property 35,242 35,049 Less accumulated depreciation, depletion and amortization 13,536 13,041 Net Non-utility Property 21,706 22,008 Current Assets: Cash and cash equivalents 5,771 14,256 Temporary cash investments 949 1,447 Customer accounts receivable, less allowance for uncollectible accounts of $2,001 and $2,026 59,599 60,289 Accrued utility revenue 19,888 23,017 Other accounts receivable, less allowance for uncollectible accounts of $249 and $60 11,251 11,619 Gas marketing accounts receivable, less allowance for uncollectible accounts of $283 and $513 44,697 49,206 Materials and supplies (at average cost) 31,313 39,062 Prepayments and other current assets 48,352 40,626 Total Current Assets 221,820 239,522 Deferred Debits: Income tax recoverable in future rates 74,783 75,468 Extraordinary property loss - Sterling nuclear project 12,810 15,481 Deferred Order No. 636 transition costs 16,390 21,500 Deferred revenue taxes 17,458 17,588 Deferred pension and other postretirement benefits 10,817 7,277 Unamortized debt expense (amortized over term of securities) 8,019 8,565 Other deferred debits 45,042 41,584 Total Deferred Debits 185,319 187,463 Total $1,259,075 $1,280,973 The accompanying notes are an integral part of these statements. /TABLE ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) Capitalization and Liabilities
June 30, December 31, 1994 1993 (Thousands of Dollars) Capitalization: Common stock (13,585,167 and 13,532,055 shares outstanding) $ 67,926 $ 67,660 Premium on capital stock 131,878 130,313 Capital stock expense (6,107) (6,108) Retained earnings 173,443 184,179 Total Common Stock Equity 367,140 376,044 Non-redeemable preferred stock (428,443 shares outstanding) 42,844 42,844 Non-redeemable cumulative preference stock (13,234 and 13,590 shares outstanding) 431 443 Total Non-Redeemable Stock 43,275 43,287 Redeemable preferred stock (41,580 shares outstanding) 4,158 4,158 Long-term debt 379,772 380,266 Total Capitalization 794,345 803,755 Non-current Liabilities: Reserve for claims and damages 4,160 3,830 Postretirement benefits 11,527 6,719 Pension costs 36,742 34,275 Obligation under capital leases 539 793 Total Non-current Liabilities 52,968 45,617 Current Liabilities: Lease obligations due within one year 498 479 Long-term debt due within one year 1,067 984 Preferred stock to be redeemed within one year 1,384 1,384 Notes payable 10,050 1,200 Commercial paper 13,345 45,000 Accounts payable 44,165 57,359 Gas marketing accounts payable 46,982 54,247 Dividends payable 10,260 752 Customer deposits 5,850 5,807 Accrued Federal income and other taxes 8,313 9,586 Accrued interest 9,933 9,877 Refundable gas costs 7,286 8,967 Other current liabilities 27,920 17,114 Total Current Liabilities 187,053 212,756 Deferred Taxes and Other: Deferred Federal income taxes 170,362 172,672 Deferred investment tax credits 17,587 18,004 Accrued Order No. 636 transition costs 16,390 21,500 Refundable fuel costs 18,065 4,405 Other deferred credits 2,305 2,264 Total Deferred Taxes and Other 224,709 218,845 Total $1,259,075 $1,280,973 The accompanying notes are an integral part of these statements. /TABLE ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, 1994 1993 1994 1993 (Thousands of Dollars)(Thousands of Dollars) Operating Revenues: Electric $114,964 $114,403 $226,110 $223,559 Gas 25,832 24,339 107,235 95,121 Electric sales to other utilities 1,674 1,515 4,815 3,255 Total Utility Revenues 142,470 140,257 338,160 321,935 Diversified activities 87,265 74,856 184,250 157,208 Total Operating Revenues 229,735 215,113 522,410 479,143 Operating Expenses: Operations: Fuel used in electric production 21,512 14,351 46,567 30,649 Electricity purchased for resale 11,447 18,430 22,419 35,655 Gas purchased for resale 15,106 13,598 65,272 55,595 Non-utility gas marketing purchases 82,475 70,998 173,550 149,416 Other expenses of operation 39,087 37,076 75,139 72,747 Maintenance 10,400 10,852 20,472 19,909 Depreciation and amortization 8,798 8,560 17,509 17,036 Amortization of property losses 1,416 1,304 2,831 2,608 Taxes other than income taxes 22,868 21,703 49,023 46,107 Federal income taxes 3,206 (531) 14,302 11,349 Deferred Federal income taxes 70 3,845 (2,159) (505) Deferred investment tax credit (30) (49) (60) (130) Total Operating Expenses 216,355 200,137 484,865 440,436 Income from Operations 13,380 14,976 37,545 38,707 Other Income and (Deductions): Allowance for other funds used during construction 27 17 57 16 Investigation costs (2,797) - (6,009) - Other - net 112 (254) 511 (443) Taxes other than income taxes (28) (25) (54) (52) Federal income taxes 1,044 188 2,124 382 Deferred Federal income taxes (34) (52) (73) (85) Deferred investment tax credit 179 197 357 394 Total Other Income and (Deductions) (1,497) 71 (3,087) 212 Income Before Interest Charges 11,883 15,047 34,458 38,919 Interest Charges: Interest on long-term debt 7,498 7,499 14,990 15,384 Other interest 770 725 1,566 1,442 Amortization of debt premium and expense-net 302 296 603 514 Allowance for borrowed funds used during construction (67) (74) (149) (106) Total Interest Charges 8,503 8,446 17,010 17,234 Net Income 3,380 6,601 17,448 21,685 Dividends on preferred and preference stock, at required rates 813 841 1,626 1,682 Earnings applicable to common stock $ 2,567 $ 5,760 $ 15,822 $ 20,003 Avg. number of common shares outstanding (000's) 13,565 13,532 13,549 13,531 Earnings per average common share outstanding $ .19 $ .43 $ 1.17 $ 1.48 Dividends declared per common share outstanding $ 1.27 $ 1.25 $ 1.90 $ 1.86 The accompanying notes are an integral part of these statements. /TABLE ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES Consolidated Cash Flow Statements (Unaudited)
Six Months Ended June 30, 1994 1993 (Thousands of Dollars) Cash Flow from Operations: Net income $17,448 $21,685 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,749 17,172 Deferred Federal income taxes (1,625) (413) Deferred investment tax credit (417) (524) Deferred and refundable fuel and gas costs 11,979 8,839 Allowance for funds used during construction (206) (122) Changes in certain current assets and liabilities: Temporary cash investments 498 (1) Accounts and gas marketing accounts receivable, net and accrued utility revenues 8,696 (2,861) Materials and supplies 7,749 5,177 Prepayments and other current assets (7,726) (605) Operating and gas marketing accounts payable (20,459) (9,048) Accrued Federal Income and other taxes (1,273) 597 Accrued interest 56 639 Other current liabilities 10,849 3,854 Other-net 5,115 (6,679) Net Cash Provided from Operations 48,433 37,710 Cash Flow from Investing Activities: Additions to plant (16,772) (23,066) Allowance for funds used during construction 206 122 Net Cash Used in Investing Activities (16,566) (22,944) Cash Flow from Financing Activities: Proceeds from: Issuance of common stock 1,819 - Issuance of long-term debt - 75,000 Retirements of: Long-term debt (455) (74,707) Capital lease obligations (235) (217) Net repayments under short-term debt arrangements* (22,805) (7,000) Dividends on preferred and common stock (28,184) (27,692) Change in dividends payable 9,508 9,367 Net Cash Used in Financing Activities (40,352) (25,249) Net Change in Cash and Cash Equivalents (8,485) (10,483) Cash and Cash Equivalents at Beginning of Period 14,256 15,378 Cash and Cash Equivalents at End of Period $ 5,771 $ 4,895 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest, net of amounts capitalized $16,354 $15,907 Federal income taxes $ 8,500 $13,050 * Debt with maturities of 90 days or less. The accompanying notes are an integral part of these statements. /TABLE ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated balance sheet as of June 30, 1994, the consolidated statements of income for the three month and six month periods ended June 30, 1994 and 1993, and the consolidated cash flow statements for the six 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) necessary to present fairly the financial position and results of operations at June 30, 1994, and for all periods presented, have been made. The amounts in the consolidated balance sheet as of December 31, 1993 are 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 be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 1993 Annual Report to Shareholders. The results of operations for the period ended June 30, 1994 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 significant intercompany balances and transactions have been eliminated. 4. Contingencies at June 30, 1994 are substantially the same as the contingencies described in the "Notes to Consolidated Financial Statements" included in the Company's December 31, 1993 Annual Report to Shareholders, which material is incorporated by reference to the Company's December 31, 1993 Form 10-K Annual Report, except, during June, 1994, the Company entered into an agreement with Harriman Energy Partners, LTD. to terminate a long-term power purchase agreement for 57 Mw of capacity. The company will request NYPSC approval of deferred accounting of all associated termination costs pending recovery of those costs in rates. 5. Certain amounts from prior years have been reclassified to conform with the current year presentation. 6. Effective January 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postretirement Benefits" which required the recording of a liability of approximately $.8 million. The adoption of Statement No. 112 did not have a significant impact on the results of current operations because of the recording of an offsetting regulatory asset. 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 second quarter of 1994 were $.19 as compared to $.43 for the second quarter of 1993. Fluctuations within the components of earnings are discussed in the "Results of Operations". The average number of common shares outstanding for the second quarter of 1994 were 13.6 million and 13.5 million for the second quarter of 1993. The current quarterly dividend rate of $.64 is equivalent to an annual dividend rate of $2.56 per share. Dividends declared during the twelve months ended June 30, 1994 amounted to $2.53 with a dividend payout ratio of 92.0% as compared to $2.48 a year ago with a payout ratio of 74.5%. The return on average common equity for the twelve months ended June 30, 1994 was 9.95%, as compared to 12.32% for the twelve months ended June 30, 1993. Allowance for Funds Used During Construction ("AFDC") amounted to 3.7% of earnings applicable to common stock for the quarter ended June 30, 1994 as compared to 1.6% for the second quarter of 1993. Capital Resources and Liquidity At June 30, 1994, the Company and its utility subsidiaries had unsecured bank lines of credit totaling $59 million. The Company may borrow under the lines of credit through the issuance of promissory notes to the banks. The Company, however, utilizes such lines of credit to fully support commercial paper borrowings. The aggregate amount of borrowings through the issuance of promissory notes and commercial paper cannot exceed the aggregate lines of credit. In addition, non-utility lines of credit amounted to $15.0 million at June 30, 1994, and the non-utility subsidiaries may undertake short-term borrowings or make short-term investments. The average daily balance of short-term borrowings for the six months ended June 30, 1994 amounted to $38.8 million at an effective interest rate of 3.8% as compared to $35.8 million at 3.2% for the same period of 1993. The level of temporary cash investments for the six months ended June 30, 1994 increased to an average daily balance of $10.2 million from $5.1 million for the same period of 1993. Effective May 1, 1994, all shares of common stock purchased under the Company's Dividend Reinvestment and Stock Purchase Plan ("DRP") and the Employee Stock Purchase and Dividend Reinvestment Plan ("ESPP") with reinvested dividends and optional cash payments, will be original issue shares purchased from the Company. At the option of the Company, however, common stock purchased under the DRP and ESPP may again be purchased on the open market. The New York Public Service Commission ("NYPSC") has authorized the Company to issue up to 750,000 shares under the DRP and ESPP. Since May 1, 1994, $1.8 million of common equity was generated through the issuance of approximately 52,600 shares of common stock under the Company's dividend reinvestment and stock purchase plans. Under the original issue option, the Company expects to raise $38 million of equity capital over the next five years. During June 1994, Standard & Poor's Corporation, Moody's Investors Service and Fitch Investor Service lowered their ratings on the Company's securities as detailed below: Standard & Poor's Moody's Fitch Current Previous Current Previous Current Previous Commercial paper A-2 A-1 P-2 P-1 F-2 F-1+ First Mortgage bonds A- A A3 A2 A- AA- Unsecured debt A- A Baa1 A3 A- AA- Preferred stock BBB+ A- Baa1 A2 A- AA- The major reasons cited for the downgrade include uncertainties resulting from ongoing investigations surrounding alleged financial improprieties and the termination by the NYPSC of the Company's electric rate proceeding which included a reduction in the targeted return on equity to 10.6% (reference is made to "Rate Activities" in this Item 2). Rate Activities New York On February 4, 1993 (revised April 8, 1993), the Company filed with the NYPSC the second adjustment to electric rates pursuant to the Revenue Decoupling Mechanism ("RDM") which amounted to an increase in annual revenues of $11.3 million, or 3.5%, including the maximum allowable incentive award of 1.06% on common equity. This second adjustment was approved by the NYPSC on April 21, 1993, with new rates effective May 1, 1993. The RDM procedures were approved by the NYPSC on August 29, 1990, in a rate agreement which provided, among other things, for annual rate adjustments during the three years covered by the agreement (1991-1993). These procedures provide for the reconciliation of revenue deviations between forecasted sales and actual sales. In addition, the RDM provides for the opportunity to recover changes in the cost of providing service such as wages, property taxes, inflation, capacity purchases, major maintenance costs, rate base additions and the cost of capital. On September 1, 1993, the Company filed with the NYPSC the first adjustment to gas rates pursuant to a settlement agreement that the Company and the NYPSC Staff entered into regarding an application the Company filed with the NYPSC on January 16, 1992. The agreement, approved by the NYPSC on September 30, 1992, contains a weather adjustment clause which automatically adjusts rates to offset the effects of variations in weather from that assumed for setting rates. The four-year agreement provides for an overall rate of return of 10.26%, with a return on common equity of 12.15% including incentives of 50 basis points. The total increase in annual gas revenues is $2.7 million or 1.8%. Although the settlement provided for an effective date for this adjustment of January 1, 1994, the Company agreed to extend the effective date until June 30, 1994, in connection with the Order described below, which was issued in the Company's electric rate case on October 4, 1993. The effective date of this adjustment was further extended until December 31, 1994 by NYPSC Order issued June 3, 1994. On January 29, 1993, the Company filed with the NYPSC for an increase in electric rates of $17.1 million to be effective January 1, 1994. The rate application proposed a three-year (1994-1996) extension of the RDM revenue reconciliation and operating cost adjustment procedures. Continuation of the energy efficiency and customer service incentive programs was also requested. In addition, the Company requested the implementation of a new power plant efficiency incentive. The rate increase request included a 12.25% return on equity. On October 4, 1993, the NYPSC, as a result of the investigation into alleged financial improprieties, issued an Order in this case (the "October Order") which provided that, subject to certain conditions, the Company could agree to a six-month extension of the NYPSC's statutory suspension period to June 30, 1994. Reference is made to Item 1, "Legal Proceedings", for a discussion of ongoing investigations of the Company in connection with the arrest in August, 1993 of then Vice President Linda Winikow and her subsequent guilty plea to a felony and two misdemeanor charges. The Company agreed to the extension of the suspension period and the associated conditions. A condition of the October Order was that the Company continue existing rate- making mechanisms, prescribed under the RDM procedure, for the duration of the suspension period. In addition, the October Order specified that up to $3.0 million of revenue be made subject to refund pending final resolution of the ongoing investigation. On December 16, 1993, the NYPSC issued an order (the "December Order"), which approved the extension of the suspension period to June 30, 1994, modified the Demand Side Management ("DSM") incentive, eliminated a customer service incentive effective January 1, 1994 and directed the Company to make up to $3.0 million ($2.25 million electric and $0.75 million gas) of revenue subject to refund. A request for further extension through December 31, 1994, under the same conditions, was made by the Company on December 17, 1993. The NYPSC staff submitted comments opposing some of the terms of the Company's extension. By order issued June 10, 1994 (the "June Order") the electric rate application was terminated. The June Order provides for the continuation of the RDM revenue reconciliation and operating cost adjustment procedures and the continuation of other provisions of the December Order including up to $3.0 million of revenue made subject to refund, a 5% net resource saving DSM incentive, and elimination of a customer service incentive. The June Order also provides for a reduction in the RDM adjustment factor effective July 1, 1994 reflecting the new recovery level required for 1993 net RDM deferrals less amounts recovered during the months of May and June 1994. Finally, the June Order reduces the threshold for measuring excess earnings from 12.0% to 10.6% effective retroactively to January 1, 1994. All earnings in excess of 10.6% are to be deferred for future disposition pending the conclusion of the ongoing investigation. The NYPSC accepted the Company's proposal for a two-month temporary rate reduction of $115,000 per month related to the misappropriation of funds. The Company voluntarily extended the temporary rate reduction for a third month, through January 1994, bringing the total amount refunded to New York ratepayers to $345,000. It is not possible to predict at this time the extent of additional refunds that may be required by the NYPSC, if any. New Jersey In January 1992, in response to Rockland Electric Company's ("RECO's") March 18, 1991 petition requesting a $12.9 million increase in base rates, an increase in electric rates of $5.1 million was granted by the New Jersey Board of Regulatory Commissioners, which was renamed effective July 5, 1994 and is now the New Jersey Board of Public Utilities ("NJBPU"). This increase includes a 12% rate of return on common equity. In addition, the NJBPU initiated a Phase II proceeding in this case to address the effect of the State of New Jersey's June 1, 1991 tax legislation. That legislation changed the procedure under which certain taxes are collected from the State's utilities. Previously, utilities had been subject to a 12.5% gross receipts and franchise tax, which the utilities paid in lieu of property taxes; however, the new tax is based upon the number of units of energy (kwh or therms) delivered by a utility rather than revenues. The legislation also requires that utilities accelerate payment to the State of the taxes collected. As a result, RECO is required to make additional tax payments of approximately $16 million during the period 1993-1994. On November 12, 1992, the NJBRC issued a Decision and Order approving the recovery of the additional tax over a ten-year period. A carrying charge of 7.5% on the unamortized balance was also approved. The amount of unrecovered accelerated payments is included in Deferred Revenue Taxes. On February 26, 1993 the New Jersey Department of Public Advocate, Division of Rate Counsel ("Rate Counsel") filed a Notice of Appeal from the NJBPU Decision and Order with the Superior Court of New Jersey, Appellate Division, stating as grounds for the appeal that the Decision is arbitrary and capricious and would result in unjust and unreasonable rates. On March 21, 1994, the Superior Court of New Jersey, Appellate Division, upheld the NJBRC Decision, stating the NJBPU used proper rate-making principles. Under an agreement with the NJBPU to return to customers funds misappropriated by certain former employees (Reference is made to Part II, Item 1, "Legal Proceedings"), RECO has refunded to New Jersey ratepayers $94,100 through reductions in the applicable fuel adjustment charges in February and March 1994. The Company has also pledged to return any other funds that are discovered to have been misappropriated. Pennsylvania On November 19, 1992, Pike County Light & Power Company ("Pike") filed with the Pennsylvania Public Utility Commission ("PPUC") for a $497,000 increase in electric rates and a $36,300 increase in gas rates. The proposed rates apply to all residential, commercial, industrial and municipal customers. During April 1993, Pike and the other parties involved in this proceeding signed a stipulated agreement providing for an increase of $270,000, or 6.6% for electric rates and $12,000, or 1.5% for gas rates. On June 10, 1993, the PPUC approved the electric rate settlement with rates effective June 11, 1993. On June 24, 1993, the PPUC approved the gas rate settlement with rates effective June 25, 1993. With regard to the ongoing investigation into the alleged financial improprieties, Pike has pledged to return to ratepayers any funds discovered to have been misappropriated. Results of Operations: QUARTERLY COMPARISON The earnings per share for the second quarter of 1994 were $.19 as compared to $.43 for the second quarter of 1993. The decrease reflects the expenses associated with the continuing investigation and litigation involving the Company's former officers and others, as well as the impact of the NYPSC recent decision denying the Company's electric rate request and reducing the Company's targeted rate of return on equity to 10.6 percent retroactive to January 1, 1994. Consequently, this quarter's results include a significant accounting adjustment to earnings. These expenses were somewhat offset by improved operating results, and the success of the Company's accelerated cost- reduction program. Electric and Gas Revenues Electric and gas operating revenues, including fuel cost and purchased gas cost recoveries, increased by $2.2 million in the second quarter of 1994 as compared to the same quarter of 1993. Electric operating revenues during the current quarter were $116.6 million as compared to $115.9 million for the second quarter of 1993, an increase of $.7 million. The components of the changes in electric operating revenues for the quarter ended June 30, 1994 as compared to the same quarter of 1993 are as follows: (Millions of Dollars) Retail sales: Base Revenues* $ (.2) Fuel cost recoveries (.3) Sales volume changes 3.2 Subtotal 2.7 Sales for resale .2 Other operating revenue: RDM revenue reconciliation and DSM incentives (2.4) Other .2 Total $ .7 *Includes miscellaneous surcharges and revenue tax recoveries. Electric operating revenues for the quarter ended June 30, 1994 when compared to the same quarter of 1993 were adversely affected by the NYPSC recent rate decision denying the Company's electric rate request and reducing the Company's targeted rate of return on equity to 10.6 percent. Because this targeted return is retroactive to January 1, 1994, this quarter's electric revenues include an over-earnings adjustment reducing revenues by $1.2 million. Actual total sales of electric energy to retail customers during the second quarter of 1994 were 1,063,281 megawatt hours ("Mwh"), compared with 1,024,754 Mwh during the comparable period a year ago. This increase is the result of increases in usage and the average number of customers when compared to the same period a year ago. Before reflecting the effect of the RDM and the DSM incentives in the Company's New York jurisdiction, electric revenues associated with these sales were $118.2 million during the current quarter compared to $115.5 million during the second quarter of 1993, an increase of $2.7 million. New York electric revenue targets under the Company's RDM, as established in a base rate case, net of fuel and taxes, amounted to $54.2 million for the second quarter of 1994. In accordance with RDM procedures, deviations between revenue targets and actual sales revenue are deferred and either recovered from or returned to customers. The variation between the target revenue and the Company's actual sales revenue of $58.0 million for the second quarter of 1994 was $3.8 million, which is recorded as a reduction to revenue. In the second quarter of 1993, the Company recorded $2.0 million as a reduction to revenue. With regard to the DSM goal achievement incentives, the Company's performance during the second quarter of 1994 allowed it to record $.2 million of incentive related revenue. The incentive revenue recorded in the second quarter of 1993 was $.8 million. The Company's performance during the remainder of 1994 will determine what, if any, RDM revenue adjustments may be earned. Revenues from sales to other utilities in the second quarter of 1994 amounted to $1.7 million, an increase of $.2 million from a year ago. Sales to such utilities totaled 69,662 Mwh, compared with 50,833 Mwh in the second quarter a year ago. Because revenues from these sales are primarily a recovery of costs in accordance with applicable tariff regulations, they have little impact on the Company's annual earnings. Gas operating revenues during the quarter were $25.8 million compared to $24.3 million for the second quarter of 1993, an increase of $1.5 million. The components of the changes in gas operating revenues for the quarter ended June 30, 1994 as compared to the same quarter of 1993 are as follows: (Millions of Dollars) Sales to firm customers: Base revenues $ .5 Gas cost recoveries 1.4 Sales volume changes (.3) Subtotal 1.6 Sales to interruptible (.1) Total $ 1.5 Gas sales to firm customers during the second quarter of 1994 totaled 2,829 million cubic feet ("Mmcf"), compared with 2,916 Mmcf during the same period a year ago. Gas revenues from firm customers were $24.2 million, compared with $22.6 million in the second quarter of 1993. Fuel, Purchased Electricity and Purchased Gas Costs, Excluding Gas Marketing The cost of fuel used in the production of electricity and purchased electricity costs increased by $.2 million during the second quarter of 1994 when compared to the same quarter of 1993. The components of the change are as follows: (Millions of Dollars) Prices paid for fuel and purchased power $ (1.7) Changes in kilowatt-hours generated or purchased 1.5 Deferred fuel charge .4 Total $ .2 The average cost per kilowatt-hour generated and purchased was 2.50 cents for the quarter ended June 30, 1994 compared to 2.64 for the same quarter of 1993. Purchased gas costs for utility operations were $15.1 million in the second quarter of 1994 compared to $13.6 million in 1993, an increase of $1.5 million. The components of the changes in purchased gas costs are as follows: (Millions of Dollars) Prices paid for gas supplies* $(2.3) Deferred fuel charges 3.8 Total $ 1.5 *Net of refunds received from gas suppliers. The average cost per thousand cubic feet ("Mcf") purchased for the second quarter of 1994 including transportation and storage costs, was $4.67 compared to $5.35 in the second quarter of 1993. Other Operating and Maintenance Expenses The Company's total operating and maintenance expenses excluding fuel, purchased power and gas purchased for resale for the second quarter, increased by $3.1 million compared with a year ago. The increase in expenses associated with utility operations accounted for $2.5 million of this increase. This increase is primarily due to the NYPSC's recent decision which resulted in a non-recurring accounting adjustment as well as a reduction in the amount of operating expenses reconciled in the RDM of $2.8 million, increase in taxes of $.8 million offset by a reduction in other operating and maintenance expenses of $1.1 million. Diversified Activities The Company's diversified activities consist of gas marketing, gas production, land development and communications businesses conducted by its wholly owned non-utility subsidiaries. Revenues from diversified activities increased by $12.4 million for the second quarter of 1994 as compared to the same quarter of 1993, as a result of the gas marketing subsidiary's success in adding customers and increasing its sales volume. These revenues were offset by increases in operating expenses for all diversified activities of $12.0 million, which is the result of increased gas purchases of $11.5 and increases in maintenance, depreciation, taxes, and other operating expenses of $.6 million. Other Income, Deductions and Interest Charges - Net Other income, net of interest charges and other deductions, decreased by $1.6 million during the second quarter of 1994 when compared to the same quarter of 1993. This decrease is primarily the result of an increase in outside professional and consultative services related to the previously referenced ongoing investigation. YEAR TO DATE COMPARISON Earnings per average common share outstanding for the six months ended June 30, 1994 amounted to $1.17 per share as compared to $1.48 for the same period of 1993. This decrease reflects the expenses associated with the most recent NYPSC decision and the continuing investigation and litigation costs. These costs were partially offset by higher electric and gas sales and improved operating results of the Company's gas marketing subsidiary as compared with the same period a year ago. Electric and Gas Revenues Electric and gas operating revenues, including fuel cost and purchased gas cost recoveries, increased by $16.2 million for the first six months of 1994 as compared to the same period of 1993. Electric operating revenues during the current period were $230.9 million as compared to $226.8 million for the comparable period of 1993, an increase of $4.1 million. The components of the changes in electric operating revenues for the six months ended June 30, 1994 as compared to the same period in 1993 are as follows: (Millions of Dollars) Retail sales: Base rates* $ 1.8 Fuel cost recoveries (.4) Sales volume changes 5.8 Subtotal 7.2 Sales for resale 1.6 Other operating revenues: RDM revenue reconciliation and DSM incentives (4.4) Other (.3) Total $ 4.1 *Includes miscellaneous surcharges and revenue tax recoveries. Electric revenues include an over-earnings adjustment reducing 1994 year-to- date revenues by $1.2 million (Reference is made to "Quarterly Comparison" in this Item 1). Actual total sales of electric energy to retail customers during the first six months of 1994 were 2,150,019 Mwh, compared with 2,076,512 Mwh during the comparable period a year ago. Before reflecting the effect of the RDM and the DSM incentives in the Company's New York jurisdiction, electric revenue associated with these sales was $230.9 million during the current period compared to $223.7 million during the first six months of 1993, an increase of $7.2 million. New York electric revenue targets under the Company's RDM, as established in a base rate case, amounted to $104.7 million for the first six months of 1994. In accordance with RDM procedures, deviations between revenue targets and actual sales revenue are deferred and either recovered from or returned to customers. The variation between the target revenue and the Company's actual sales revenue of $110.3 million for the first six months of 1994 was $5.6 million, which is recorded as a reduction to revenue. For the first six months of 1993, the Company recorded a reduction in revenues of $2.5 million. With regard to the DSM goal achievement incentives provided for in the RDM agreement, the Company's performance during the first six months of 1994 allowed it to record $.2 million of incentive related revenue compared to $1.5 million of incentive revenue recorded during the comparable period of 1993. The Company's performance during the remainder of 1994 will determine what, if any, additional RDM revenue adjustments may be recorded. Revenues from sales to other utilities in the first six months of 1994 amounted to $4.8 million compared to $3.2 million a year ago. Such sales totaled 174,175 Mwh compared with 110,688 Mwh in the first six months of 1993. Because revenues from these sales are primarily a recovery of costs in accordance with applicable tariff regulations, they have little impact on the Company's annual earnings. Gas operating revenues during the first six months of 1994 were $107.2 million compared to $95.1 million for the first six months of 1993, an increase of $12.1 million. The components of the changes in gas operating revenues for the six months ended June 30, 1994 as compared to the same period in 1993 are as follows: (Millions of Dollars) Sales to firm customers: Base rates* $(1.2) Gas cost recoveries 10.1 Sales volume changes 2.3 Subtotal 11.2 Sales to interruptibles 1.3 Sales for resale (.1) Other operating revenue (.3) Total $12.1 Firm gas sales amounted to 13,357 Mmcf during the first six months of 1994, an increase of 6.1% from the 1993 level of 12,590 Mmcf. Gas revenues from firm customers were $101.7 million in the current period compared to $90.5 million during the first six months of 1993. Sales of interruptible gas for the first six months of 1994 amounted to 736 Mmcf, an increase of 272 Mmcf from 1993. Revenues from these sales were $3.1 million as compared to $1.8 million for the same period of 1993. Fuel, Purchased Electricity and Purchased Gas Costs, Excluding Gas Marketing The cost of fuel used in the production of electricity and purchased electricity costs increased by $2.7 million for the first six months of 1994 when compared to the $66.3 million recorded during the same period of 1993. The components of the changes in electric energy costs are as follows: (Millions of Dollars) Prices paid for fuel and purchased power $(1.6) Changes in kilowatt-hours generated or purchased 4.3 Total $ 2.7 The average cost per kilowatt-hour generated and purchased was 2.64 cents in the first six months of 1994 and 2.70 cents for the same period of 1993. Purchased gas costs for utility operations, excluding the cost of gas purchased for the Company's diversified activities which is discussed in this year-to-date comparison under the heading "Diversified Activities", were $65.3 million for the first six months of 1994 compared to $55.6 million for the comparable period of 1993. The components of the change are as follows: (Millions of Dollars) Prices paid for gas suppliers* $2.5 Gas sendout volume 4.5 Deferred fuel charges 2.7 Total $ 9.7 *Net of refunds received from gas suppliers The average cost per Mcf purchased for the first six months of 1994, including transportation and storage costs, was $3.40 as compared to $3.23 for the same period of 1993. Other Operating and Maintenance Expenses The Company's total operation and maintenance expenses excluding fuel, purchased power and gas purchased for resale, increased by $7.9 million compared to a year ago. Expenses from Diversified Activities accounted for $1.7 million of this increase, as described below. The increase associated with utility operations was $6.2 million. This increase is the result of the NYPSC recent rate decision, which resulted in a non-recurring accounting adjustment as well as a reduction in the amount of operating expenses reconciled in the RDM of $2.8 million and increases in taxes primarily as a result of increased revenue taxes of $3.4 million. Other operating and maintenance expense remained virtually unchanged when compared to the same period of 1993. Diversified Activities Revenues from diversified activities increased by $27.0 million for the first six months of 1994 as compared to the same period of 1993. The increase is primarily the result of increased sales from gas marketing activities. While revenues from gas marketing activities were significantly higher during the first six months of 1994 compared to the first six months of 1993, an extremely competitive market resulted in narrower profit margins during the current period. These revenues were offset by increases in operating expenses for all diversified activities of $25.8 million, which is the result of increased gas purchases of $24.1 million and increases in maintenance, depreciation, taxes and other operating expenses of $1.7 million. Other Income, Deductions and Interest Charges - Net Other income, net of interest charges and other deductions, decreased by $3.1 million during the first six months of 1994 when compared to the first six months of 1993. This decrease is primarily the result of the costs of the investigation and litigation involving former officers and others, partially offset by a decrease in interest expense which resulted from lower interest rates on debt refinancings. PART II. OTHER INFORMATION Item 1. Legal Proceedings Investigation Related Litigation Reference is made to Part II, Item 1. Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for descriptions of (i) an action entitled Orange and Rockland Utilities, Inc. v. Smith ("Smith"), which was filed by the Company in New York State Supreme Court, Rockland County against James F. Smith, former Chief Executive Officer and Chairman of the Board of Directors of the Company; and (ii) the termination for cause of the employment of Mr. Smith as Chief Executive Officer of the Company and his removal as Chairman of the Board of Directors. (Reference is made to Part II, Item 4. Submissions of Matters to a Vote of Security Holders, for information regarding Mr. Smith's removal from the Board of Directors of the Company.) Mr. Smith had the right under his employment agreement with the Company to contest his termination for cause in an arbitration proceeding. On May 5, 1994, Mr. Smith filed a motion demanding arbitration of his termination for cause and the Company's claims asserted against him in the Smith litigation. On June 17, 1994, the Court issued an Order granting Mr. Smith's motion to compel arbitration. A meeting was held on July 26, 1994 with parties agreeing to file their demands for arbitration with the American Arbitration Association. On May 12, 1994, James F. Smith v. Orange and Rockland Utilities, Inc., was commenced in New York State Supreme Court, Rockland County through the filing of a Summons and Complaint and an Order to Show Cause. Through this action, Mr. Smith sought a preliminary injunction restraining the Company from accepting any votes cast by shareholders after 1:00 p.m. on May 11, 1994 on proposals brought before the Company's 1994 Annual Meeting of Shareholders which was convened on May 11, 1994 and adjourned to June 10, 1994. On June 7, 1994, Judge Howard Miller issued an Order denying Mr. Smith's request for a preliminary injunction. On June 7, 1994, Mr. Smith filed a second Order to Show Cause seeking to restrain the Company from defaming him in connection with any shareholder solicitation efforts by or on behalf of the Company with regard to a resolution seeking his removal as a Director of the Company. The hearing on that Order to Show Cause has been adjourned to August 16, 1994. At a hearing held on June 30, 1994 before Judge Miller, Mr. Smith advised the Court that he intended to file a motion for summary judgment with regard to his action against the Company. Judge Miller directed that any such motion be filed and served within seven to ten days of June 30, 1994. To date, the Company has not been served with any motion papers with regard to this matter. Reference is made to Part II, Item 1. Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for descriptions of (i) an action entitled Orange and Rockland Utilities, Inc. v. Winikow et al. ("Winikow"), which was filed under the Federal Racketeer Influenced and Corrupt Organizations Act by the Company in the United States District Court, Southern District of New York against a former Vice President and several former employees of the Company; (ii) Gross v. Orange and Rockland Utilities, Inc. ("Gross"), a purported shareholder class action complaint, filed against the Company in the United States District Court, Southern District of New York; and (iii) Patents Management Corporation v. Orange and Rockland, Inc., et al. ("Patents Management"), a purported shareholder derivative complaint filed against the Company in the Supreme Court of the State of New York, County of New York. Conferences scheduled for July 22, 1994 with Judge Brieant in the Winikow and Gross cases, respectively, have been adjourned to September 2, 1994. Plaintiff's attorney in Patents Management has agreed to proceed in this litigation according to the schedule set by Judge Brieant with regard to the Gross suit. Reference is made to Part II, Item 1. Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for a description of an action entitled Feiner, et al. v. Orange and Rockland Utilities, Inc., a purported ratepayer class action complaint against the Company which was filed in the United States District Court, Southern District of New York. As stated therein, on February 18, 1994 the Company filed a motion to dismiss this case. On April 22, 1994 a hearing on this motion was held before Judge Brieant followed by a second hearing before Judge Brieant on June 22, 1994. To date, there has been no decision issued with regard to the Company's motion. A conference scheduled for July 22, 1994 with Judge Brieant with respect to the Feiner litigation has been adjourned to September 2, 1994. Reference is made to Part II, Item 1. Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for a description of an action entitled Bernstein v. Orange and Rockland Utilities, Inc. and James F. Smith, a purported shareholder class action complaint against the Company and a former Chairman of the Board of Directors and Chief Executive Officer of the Company which was filed in the United States District Court, Southern District of New York. On April 28, 1994, the Company filed its answer in this suit. On May 23, 1994, Mr. Smith filed his answer and a cross-claim against the Company claiming, among other things, that the Company is obligated to indemnify him with regard to this action. On June 10, 1994, the Company filed a Notice of Motion seeking leave from the Court to amend the Company's April 28, 1994 answer to assert a cross-claim against Mr. Smith. The Company does not believe it is obligated to indemnify Mr. Smith with regard to this litigation. A conference scheduled for July 22, 1994 with Judge Brieant with respect to the Bernstein litigation has been adjourned to September 2, 1994. Other Litigation Reference is made to Part II, Item 1. Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, for a description of an action entitled Carpenters Local No. 964 Pension Fund v. DiGiacinto, et al., filed in the Supreme Court of the State of New York, County of New York. As stated therein, the Company is a third party defendant in this action which is based on the claim of residents of a subdivision that the deterioration of wallboard materials buried at the subdivision site has resulted in a continuous release of hydrogen sulfide gas thereby rendering their homes unfit for dwelling. At this time, the Company does not believe that this litigation will have a material effect on the business or financial condition of the Company. Regulatory Matters Reference is made to Part II, Item 1. Legal Proceedings, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, for a description of an electric rate case filed by the Company with the NYPSC on January 29, 1993 (Case 93-E-0082). On June 10, 1994, the NYPSC issued an Order terminating this case. Further information regarding Case 93-E-0082 and its termination is contained under the caption "Rate Activities" in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations", and under the caption "Reports on Form 8-K" in Part II, Item 6. "Exhibits and Reports on Form 8-K" of this Quarterly Report on Form 10-Q. Item 4. Submission of Matters to a Vote of Security Holders (a) The Company's Annual Meeting of Shareholders was convened on May 11, 1994, and adjourned to June 10, 1994. (b) The following Directors were elected on May 11, 1994 for three-year terms expiring at the Annual Meeting of Shareholders in 1997: J. Fletcher Creamer, Kenneth D. McPherson and Linda C. Taliaferro. The following Directors have continued in office after the meeting: Ralph M. Baruch, Victor J. Blanchet, Jr., Michael J. Del Giudice, Frank A. McDermott, James F. O'Grady, and H. Kent Vanderhoef. On June 10, 1994, by a vote of the holders of 82.5% of the outstanding shares of the Company, James F. Smith, a Director of the Company, was removed from the Board of Directors for cause. (c) The following matters were submitted to a vote of security holders at the Company's Annual Meeting of Shareholders held on May 11, 1994: 1. The nominees for election as Directors were elected by the following vote: Shares Shares Broker For Withheld Non-Votes J. Fletcher Creamer 11,908,257 292,164 N/A Kenneth D. McPherson 11,877,937 322,484 N/A Linda C. Taliaferro 11,837,065 363,356 N/A 3. A proposal to appoint the firm of Arthur Andersen & Co., independent public accountants, to audit the books, records and accounts of the Company and its subsidiaries for the year 1994 was approved by the following vote: Shares Shares Shares Broker For Against Abstaining Non-Votes 11,807,759 181,285 211,377 N/A The following matter was submitted to a vote of security holders at the Company's Annual Meeting of Shareholders held on May 11, 1994, the polls remained open on this proposal until the adjourned date on June 10, 1994: 2. A proposal to remove James F. Smith from the Board of Directors for cause was approved by the following vote: Shares Shares Shares Broker For Against Abstaining Non-Votes 11,175,063 272,564 285,153 914,350 Item 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K Reference is made to Item 6.(b), Reports on Form 8-K, in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, for a description of a Current Report on Form 8-K dated March 31, 1994, filed by the Company with the SEC on April 13, 1994. On June 17, 1994, the Company filed with the SEC a Current Report on Form 8-K dated June 10, 1994, disclosing the shareholder vote resulting in the removal of James F. Smith from the Board of Directors of the Company. On June 22, 1994, the Company filed with the SEC a Current Report on Form 8-K dated June 3, 1994, disclosing (i) the NYPSC Order terminating the Company's Electric Rate Case 93-E-0082 and (ii) the NYPSC Order suspending the second stage increase in the Company's gas rates and service charges. On July 18, 1994, the Company filed with the SEC a Current Report on Form 8-K dated July 14, 1994, disclosing the election of D. Louis Peoples as Vice Chairman of the Board of Directors and Chief Executive Officer of the Company. 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: August 12, 1994 By TERRY L. DITTRICH Terry L. Dittrich Acting Controller Date: August 12, 1994 By ROBERT J. McBENNETT Robert J. McBennett Treasurer -----END PRIVACY-ENHANCED MESSAGE-----