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, 1997
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 13,654,668 shares
(Class) (Outstanding at July 31, 1997)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at
June 30, 1997 and December 31, 1996 1
Consolidated Statements of Income (Unaudited)
for the three months and six months ended
June 30, 1997 and June 30, 1996 3
Consolidated Cash Flow Statements (Unaudited)
for the six months ended June 30, 1997
and June 30, 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 5. Other Information 22
ITEM 6. Exhibits and Reports on Form 8-K 22
Signatures 23
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
June 30, December 31,
1997 1996
(Thousands of Dollars)
Utility Plant:
Electric $1,031,927 $1,023,796
Gas 222,990 219,712
Common 60,847 59,589
Utility Plant in Service 1,315,764 1,303,097
Less accumulated depreciation 457,917 440,333
Net Utility Plant in Service 857,847 862,764
Construction work in progress 54,714 36,879
Net Utility Plant 912,561 899,643
Non-utility Property:
Non-utility property 11,681 17,818
Less accumulated depreciation, depletion
and amortization 1,040 2,344
Net Non-utility Property 10,641 15,474
Current Assets:
Cash and cash equivalents 4,821 3,321
Temporary cash investments 520 1,289
Customer accounts receivable, less allowance for
uncollectible accounts of $2,391 and $2,391 54,706 60,992
Accrued utility revenue 20,442 22,773
Other accounts receivable, less allowance for
uncollectible accounts of $396 and $258 8,932 7,648
Materials and supplies (at average cost) 29,609 35,595
Prepaid property taxes 11,803 20,051
Prepayments and other current assets 39,136 21,540
Total Current Assets 169,969 173,209
Deferred Debits:
Income tax recoverable in future rates 73,896 74,198
Deferred revenue taxes 13,110 14,271
Deferred pension and other postretirement benefits 9,145 9,922
IPP settlement costs 19,425 24,065
Unamortized debt expense (amortized over term
of securities) 11,011 10,046
Other deferred debits 24,387 37,072
Total Deferred Debits 150,974 169,574
Total $1,244,145 $1,257,900
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
June 30, December 31,
1997 1996
(Thousands of Dollars)
Capitalization:
Common stock (13,654,783 & 13,654,121 shares
outstanding) $ 68,274 $ 68,271
Premium on capital stock 133,627 133,616
Capital stock expense (6,110) (6,097)
Retained earnings 169,461 192,060
Total 365,252 387,850
Non-redeemable preferred stock (428,443 shares
outstanding) 42,844 42,844
Non-redeemable cumulative preference stock
(11,723 and 12,180 shares outstanding) 382 397
Total Non-Redeemable Stock 43,226 43,241
Long-term debt 276,648 281,622
Total Capitalization 685,126 712,713
Non-current Liabilities:
Reserve for claims and damages 3,967 3,843
Postretirement benefits 14,802 15,213
Pension costs 39,761 37,421
Obligations under capital leases 1,721 -
Total Non-current Liabilities 60,251 56,477
Current Liabilities:
Notes payable and obligations due within one year 185,740 161,963
Accounts payable 51,593 67,449
Accrued Federal income and other taxes 1,267 1,024
Refundable fuel and gas costs 6,314 4,943
Refunds to customers 2,481 1,816
Other current liabilities 41,394 35,800
Total Current Liabilities 288,789 272,995
Deferred Taxes and Other:
Deferred Federal income taxes 185,418 185,156
Deferred investment tax credits 14,895 15,292
Accrued IPP settlement agreements - 2,000
Accrued Order 636 transition costs 1,390 11,620
Other deferred credits 6,419 7,983
Total Deferred Taxes and Other 208,122 222,051
Net Liabilities (Assets) of Discontinued
Operations (Note 8) 1,857 (6,336)
Total $1,244,145 $1,257,900
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(Thousands of Dollars)
Operating Revenues:
Electric $111,879$120,772 $218,980$228,791
Gas 25,146 31,148 103,052 110,092
Total Utility Revenues 137,025 151,920 322,032 338,883
Diversified Activities 170 333 482 675
Total Operating Revenues 137,195 152,253 322,514 339,558
Operating Expenses:
Operations:
Fuel used in electric production 15,770 12,456 28,184 20,201
Electricity purchased for resale 14,004 18,291 32,860 44,227
Gas purchased for resale 13,800 18,011 61,917 65,648
Other expenses of operation 36,321 43,010 68,908 75,775
Maintenance 9,028 8,689 17,987 18,442
Depreciation and amortization 8,838 5,964 18,215 13,890
Taxes other than income taxes 23,435 25,002 49,587 50,844
Federal income taxes 2,931 3,366 10,394 11,049
Total Operating Expenses 124,127 134,789 288,052 300,076
Income from Operations 13,068 17,464 34,462 39,482
Other Income and (Deductions):
Investigation costs - (800) (3,390) (800)
Other - net 759 (2,486) 786 (2,300)
Taxes other than income taxes (66) (92) (132) (148)
Federal income taxes (19) 428 1,390 462
Total Other Income &(Deductions) 674 (2,950) (1,346) (2,786)
Income Before Interest Charges 13,742 14,514 33,116 36,696
Interest Charges:
Interest on long-term debt 6,011 5,867 12,161 12,103
Other interest 1,773 1,579 3,315 2,853
Amortization of debt premium,
expense-net 412 366 808 731
Allowance for borrowed funds used
during construction (165 (128) (393) (275)
Total Interest Charges 8,031 7,684 15,891 15,412
Income from Continuing Operations 5,711 6,830 17,225 21,284
(continued)
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(continued)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(Thousands of Dollars)
Discontinued Operations (Note 8):
Loss from discontinued operations
net of related income taxes (2,140) (510) (6,738) (409)
Estimated net loss on disposal of
discontinued operations (4,565) - (4,565) -
Loss with respect
to discontinued operations (6,705) (510) (11,303) (409)
Net Income (Loss) (994) 6,320 5,922 20,875
Dividends on preferred and preference
stock, at required rates 699 757 1,399 1,513
Earnings applicable to common stock $ (1,693)$ 5,563 $ 4,523$ 19,362
Avg. number of common shares
outstanding (000's) 13,654 13,654 13,654 13,654
Earnings Per Average Common Share
Outstanding:
Continuing Operations $ .37$ .45 $ 1.16$ 1.45
Discontinued Operations (.16) (.04) (.49) (.03)
Estimated net loss on disposal (.34) - (.34) -
Total $ (.13)$ .41 $ .33$ 1.42
Dividends declared per common share
outstanding $ 1.29$ 1.29 $ 1.94$ 1.94
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Cash Flow Statements (Unaudited)
Six Months Ended
June 30,
1997 1996
(Thousands of Dollars)
Cash Flow from Operations:
Net income $ 5,922 $20,875
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,991 15,610
Deferred Federal income taxes (873) (717)
Deferred investment tax credit (397) (405)
Deferred and refundable fuel and gas costs 1,371 5,528
Allowance for funds used during constructio n (427) (284)
Other non-cash charges 2,000 2,470
Changes in certain current assets and liabilities:
Accounts receivable (net) and
accrued utility revenues 7,333 7,417
Materials and supplies 5,986 3,002
Prepaid property taxes 8,248 8,045
Prepayments and other current assets (17,596) (6,386)
Operating accounts payable (15,856) (14,660)
Accrued Federal Income and other taxes 243 (603)
Accrued interest (432) (464)
Refunds to customers 665 (11,019)
Other current liabilities (3,451) (2,006)
Discontinued operations 8,193 693
Other-net 11,901 7,339
Net Cash Provided from Operations 30,821 34,435
Cash Flow from Investing Activities:
Additions to plant (29,982) (20,423)
Temporary cash investments 769 (21)
Allowance for funds used during construction 427 284
Net Cash Used in Investing Activities (28,786) (20,160)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt 20,089 -
Retirements of:
Preference and preferred stock (1,390) -
Long-term debt (25,243) (139)
Capital lease obligations (129) (275)
Net borrowings (repayments) under
short-term debt arrangements* 25,181 3,950
Dividends on preferred and common stock (19,043) (19,126)
Net Cash Used in Financing Activities 535 (15,590)
Net Change in Cash and Cash Equivalents 1,500 (1,315)
Cash and Cash Equivalents at Beginning of Period 3,321 3,189
Cash and Cash Equivalents at End of Period $ 4,821 $ 1,874
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $15,858 $14,788
Federal income taxes $10,000 $9,531
*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 June 30, 1997, the
consolidated statements of income for the three month and
six month periods ended June 30, 1997 and 1996, 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 normal
recurring adjustments and the adjustments necessitated by
the discontinued operations) necessary to fairly present the
financial position and results of operations at June 30,
1997, and for all periods presented, have been made. The
amounts in the consolidated balance sheet as of December 31,
1996 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
the 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, 1996 Annual Report to
Shareholders. The results of operations for the period
ended June 30, 1997 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 June 30, 1997 are substantially the same as
the contingencies described in the "Notes to Consolidated
Financial Statements" included in the Company's December 31,
1996 Annual Report to Shareholders, which material is
incorporated by reference to the Company's December 31, 1996
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, 1996, except changes in the status of
regulatory matters which are updated in Part I, Item 2 under
the caption "Rate Activities" and the status of certain
Legal Proceedings which are updated in Part II, Item I,
"Legal Proceedings".
5. In February 1997, the Financial Standards Board issued
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). This statement
simplifies the computation of earnings per share ("EPS").
Basic EPS includes no dilution and is computed by dividing
income available to common stockholders by the weighted-
average number of common shares outstanding for the period.
SFAS No. 128 will be effective for financial statements for
periods ending after December 15, 1997, and the Company
plans to adopt the statement for year-end 1997. If adopted
currently, SFAS No. 128 would have a negligible impact on
the Company's reported EPS.
6. The Company experienced a major storm on April 1, 1997. On
June 27, 1997, the Company filed a petition with the New
York Public Service Commission ("NYPSC") to defer and
recover the $2.8 million of incremental costs incurred
during this event. The Company has deferred these charges
pending final resolution by the NYPSC.
7. The Company has entered into a strategic alliance with US
Generating Company, an independent power production company
based in Bethesda, MD. This alliance, the terms of which
are set forth in agreements dated as of May 1, 1997, is
primarily designed to expand the wholesale markets for the
Company's excess generation and create operating
efficiencies and market penetration unattainable by each
company individually.
8. NORSTAR Management, Inc. ("NMI"), a wholly-owned indirect
subsidiary of the Company has solicited bids to sell certain
of the assets of NORSTAR Energy Limited Partnership
("NORSTAR"),a natural gas services and marketing company of
which NMI is the general partner. The assets to be sold
consist primarily of customer contracts and accounts
receivable. NMI's plans call for winding up the remaining
portion of the NORSTAR business prior to December 31, 1997.
In accordance with Accounting Principles Board Opinion No.
30, the financial results for this segment are reported as
"Discontinued Operations." The total losses related to
discontinued operations were $(6,705,222)and $(509,970) for
the quarters ended June 30,1997 and June 30, 1996,
respectively. The 1997 loss includes an estimated loss of
$(4,565,370) to be incurred in connection with the disposal
of the NORSTAR business. The impact of NORSTAR as reported
in "Discontinued Operations" is as follows:
Three Months Ended June 30,
1997 1996
Gross Revenue $16,176,631 $60,474,049
Cost and Expenses 20,409,473 61,336,409
Loss Before Income Taxes (4,232,842) (862,360)
Provision for Taxes (2,092,990) (352,390)
Loss from Discontinued
Operations (2,139,852) (509,970)
Estimated Loss on Disposal
(net of tax benefits
of $751,495) (4,565,370) -
Total Loss Related to
Discontinued Operations $(6,705,222) $ (509,970)
June 30, 1997 Dec. 31, 1996
Assets:
Current Assets $17,416,665 $49,515,807
Fixed Assets 2,426,178 1,532,565
Other Assets 1,715,041 2,416,712
Total Assets 21,557,884 53,465,084
Liabilities:
Current Liabilities 22,480,513 46,054,645
Other Liabilities 934,565 1,073,987
Net Liabilities (Assets)
of Discontinued Operations $ 1,857,194 $(6,336,452)
9. On July 18, 1997 the Company filed a petition with the NYPSC
for approval to repurchase up to 700,000 shares of its
common stock and to issue up to $25 million of unsecured
debt obligations. The proceeds from the issuance of debt
will be used to finance the common stock purchase. If the
petition is approved, the Company will repurchase stock from
time to time, not later than December 31, 1999 in the open
market or through privately negotiated transactions.
10. An indirect subsidiary of the Company, Millbrook Holdings,
Inc.("Millbrook"), pursuant to a long-term leasehold
agreement, holds for sale or lease, approximately twelve
acres of non-utility real estate in Morris County, New
Jersey. In June 1997 the Company wrote off the land leased
by Millbrook. The impact of this write-off resulted in an
after tax charge to income of $(563,000).
11. On April 24, 1997, O&R Development Inc., a land development
subsidiary of the Company, completed the sale of one of its
buildings located in Harriman, New York to Kingston Realty
Group LLC. The sale produced net income after tax of
$465,000.
12. The Company and the members of Local 503 of the
International Brotherhood of Electrical Workers have agreed
to a new labor contract effective June 1, 1997. Under the
terms of the contract, bargaining unit wages will increase
by 10 percent over the three-year period covered by the
agreement. The agreement calls for pension plan and other
retirement-related improvements as well as employee
contributions for health care costs and work rule changes
which will essentially offset the cost increases.
13. Certain amounts reported for the prior year 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 from continuing operations for the second quarter of
1997 were $0.37 as compared to $0.45 for the second quarter of
1996. The Company's consolidated earnings per average common
share outstanding from discontinued operations for the second
quarter of 1997 were $(0.50) as compared to $(0.04) for the
second quarter of 1996. The Company's combined total consolidated
earnings per average common share outstanding for the second
quarter of 1997 were $(0.13) as compared to $0.41 for the second
quarter of 1996. Fluctuations within the components of earnings
are discussed in the "Results of Operations". The average number
of common shares outstanding were 13.7 million for the three and
six month periods of both 1997 and 1996.
The current quarterly dividend rate of $0.645 is equivalent to an
annual dividend rate of $2.58 per share. Dividends declared
during the twelve months ended June 30, 1997 amounted to $2.58
with a dividend payout ratio of 124.0% as compared to $2.58 a
year ago with a payout ratio of 94.5%. The dividend payout ratio
excluding discontinued operations was 85.4% and 91.8%,
respectively, for the twelve months ended June 30, 1997 and 1996.
The return on average common equity for the twelve months ended
June 30, 1997 was 7.45% as compared to 9.84% for the twelve
months ended June 30, 1996.
Capital Resources and Liquidity
At June 30, 1997, the Company and its utility subsidiaries had
unsecured bank lines of credit totaling $110 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, a non-utility
subsidiary had a line of credit that provided for borrowing based
on the availability of collateral which, at June 30, 1997,
amounted to $2,370,000. The average daily balance of short-term
borrowings for the six months ended June 30, 1997 amounted to
$95.1 million at an effective interest rate of 5.7% as compared
to $58.9 million at an effective interest rate of 5.8% for the
same period of 1996. The average daily balance of temporary cash
investments for the six months ended June 30, 1997 was $1.0
million with an effective interest rate of 5.2% compared to $1.4
million at an effective interest rate of 5.4% for the same period
of 1996.
The NYPSC has authorized the Company to issue up to 750,000
shares of common stock under its Dividend Reinvestment and Stock
Purchase Plan ("DRP") and its Employee Stock Purchase and
Dividend Reinvestment Plan ("ESPP"). Under an option of the
Company, common stock used to satisfy the requirements of the DRP
and ESPP is being purchased by the agent under the plans on the
open market.
On July 18, 1997, the Company filed a petition with the NYPSC for
approval to repurchase up to 700,000 shares of its common stock
and to issue up to $25 million of unsecured debt obligations. If
the petition is approved, the Company will repurchase stock from
time to time, not later than December 31, 1999 in the open market
or through privately negotiated transactions. The proceeds of
the debt issue will be used to provide funds for the common stock
repurchase. The Company currently has no other plans for the
issuance of additional debt or equity securities, with the
exception of the expected refinancing of $78 million of long-term
debt which will mature during 1997. It is expected that all
other capital requirements will be met with funds from
operations, supplemented with short-term debt as required.
Rate Activities
New York
The Company and the Staff of the NYPSC entered into a settlement
agreement("Orange and Rockland Agreement")on March 25, 1997 in
Case 96-E-0900, the NYPSC Competitive Opportunities Proceeding.
Reference is made to the Company's Form 8-K dated March 25, 1997
for a discussion of the Orange and Rockland Agreement.
On July 2, 1997, the Administrative Law Judge ("ALJ") issued his
recommended decision in this proceeding. The ALJ recommended
that the NYPSC not approve the Orange and Rockland Agreement as
submitted. Although the ALJ supported the Orange and Rockland
Agreement's retail access implementation schedule and the
proposed rate reductions, he was critical of the proposed
corporate restructuring provisions of the Agreement, the proposed
increase in return on equity revenue sharing threshold and
operation of the stranded cost recovery mechanism. Under the
current schedule, the Company anticipates that the NYPSC will
rule on the Orange and Rockland Agreement in September 1997. The
Company is unable to predict the outcome of the NYPSC proceeding
or its effect on the Company's consolidated financial position or
results of operations, if any.
On June 5, 1997, the NYPSC issued an Order Requiring the
Filing of Proposals to Ameliorate Gas Price Volatility and
Requesting Comments in Case 97-G-0600, In the Matter of the
Commission's Request for Gas Distribution Companies to
Reduce Gas Cost Volatility and Provide for Alternative Gas
Purchasing Mechanisms. Under the Order, gas utilities in
New York are required to submit proposals for fixed price
gas sales options to be available for use by all customers
during the 1997-1998 heating season. In addition, the NYPSC
directed the utilities to review their gas procurement
practices and to develop an acquisition strategy to include
a mix of purchase options comprised of, but not limited to,
indices, spot purchases and financial transactions with a
view toward fostering gas price stability.
On August 4, 1997, the Company filed a multi-part proposal
in response to the NYPSC's Order. The proposal provides for
the Company to use financial derivatives to hedge an
unspecified portion of its system gas supply for the
upcoming winter with the costs associated with the hedging
activity to be recovered by the Company through its gas
adjustment clause. The proposal also includes a new tariff
which would allow the Company to negotiate the commodity
price of gas with its larger customers. The Company
anticipates a ruling on its filing prior to December, 1997.
The Company's filing may be accepted or significantly
modified by the NYPSC before becoming effective. It is not
possible to predict the outcome of this proceeding or its
effect on the Company's consolidated financial position or
results of operations.
New Jersey
On April 30, 1997, the New Jersey Board of Public Utilities
("NJBPU") issued an 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 the Company's subsidiary,
Rockland Electric Company ("RECO"), and other New Jersey investor
owned electric utilities each to file unbundled rates, a stranded
cost proposal and a restructuring plan by July 15, 1997. As part
of its stranded cost proposal, the NJBPU has recommended that
each utility should provide a 5-10% rate reduction.
RECO's filing was made on July 15, 1997. The filing includes a
Restructuring Plan, a Stranded Costs Filing and an Unbundled
Rates Filing. The Restructuring Plan calls for RECO to remain a
regulated transmission and distribution company within a
registered holding company structure. Standards of Conduct and
Affiliate Rules have been proposed in order to promote effective
competition and ensure that regulated operations do not subsidize
unregulated operations. RECO has proposed to implement full
retail competition (energy and capacity) for all customers by May
1, 1999. Under this schedule, full retail access will be
achieved 13 months ahead of the NJBPU's proposed phase-in
schedule.
In its Stranded Costs Filing, RECO has identified two categories
of potential stranded costs: generation investment and power
purchase contracts with non-utility generators ("NUGS"). RECO
proposes to recover stranded generation investment through
regulated delivery rates by means of a two-part Market Transition
Charge ("MTC"). The MTC would be in effect for an initial four
year period during which RECO would recover 90-100% of its annual
stranded costs. At the end of the four year period, a market
valuation of the generation assets would be performed. Any
difference between market and net book value then would be
recovered over an appropriate period of time. Stranded NUG
contract payments are proposed to be recovered over the remaining
life of the contracts through the MTC. RECO has proposed to
reduce its annual net revenue (revenue net of fuel, purchased
power and gross receipts taxes) by $4.7 million or 5.6% effective
in October 1998.
RECO also made an Unbundled Rates Filing which separates the
components of existing tariffs into production, transmission,
distribution and customer cost categories. The Unbundled Rates
Filing would serve as the basis to segregate the costs of the
generation function from rates in order to facilitate customer
choice. In addition, the MTC mechanism would be added to the
existing rate structure to allow for recovery of stranded costs,
and a non-bypassable societal benefits charge would be created as
a billing mechanism for mandated public policy programs.
The NJBPU has indicated that it will rule on these filings by
October 1998. RECO's filing may be accepted or significantly
modified by the NJBPU before becoming effective. It is not
possible to predict the outcome of the NJBPU proceeding or its
effect 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 second quarter of 1997 were $(0.13) as
compared to $0.41 for the second quarter of 1996.
The majority of this quarter's decline resulted from the
operating losses incurred by NORSTAR and the estimated loss to
dispose of NORSTAR's discontinued operations. The earnings
decrease from continuing operations was the result of lower
revenue, higher short-term interest charges and lower income from
other diversified activities.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and
purchased gas cost recoveries, decreased by $14.9 million during
the second quarter of 1997 as compared to the same quarter of
1996, as a result of the timing of fuel cost recoveries and the
regulatory adjustments, recorded in the second quarter of 1996
required by the May 3, 1996 NYPSC Order issued by the NYPSC in
Cases 95-E-0491 and 93-6-0779, ("May 3, 1996 Order").
Electric operating revenues during the current quarter were
$111.9 million as compared to $120.8 million for the second
quarter of 1996. The 1996 revenues also reflect the regulatory
adjustments required by the NYPSC's May 3, 1996 Order. The
timing of fuel cost recoveries and lower base rate revenues also
contributed to this decrease.
Total sales of electric energy to retail customers during the
second quarter of 1997 were 1,107,458 megawatt hours ("Mwh"),
compared with 1,103,959 Mwh during the comparable period a year
ago. Revenues from these sales were $110.5 million for the
second quarter compared with $107.5 million for the same period
in 1996. The 1996 revenues reflect the impact of the Company's
Revenue Decoupling Mechanism ("RDM") then in effect. In
accordance with the NYPSC's May 3, 1996 Order, electric revenues
are no longer governed by an RDM agreement. Sales to other
utilities for the second quarter of 1997 amounted to 29,589 Mwh
with revenues of $0.6 million compared to 34,172 Mwh and $0.5
million in 1996. 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 second quarter of 1997 were
$25.1 million compared to $31.1 million for the second quarter of
1996. This decrease is primarily the result of lower gas cost
recoveries.
Sales to firm customers totaled 3,081 million cubic feet
("Mmcf"), compared with 3,169 Mmcf during the same period a year
ago. Gas revenues from firm customers were $21.1 million,
compared with $25.3 million in the second quarter of 1996.
Interruptible gas sales were 844 Mmcf for the second quarter of
1997 compared to 886 Mmcf for the same period of 1996. Revenues
from interruptible customers were $3.0 million in 1997 compared
to $3.4 million in 1996.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs decreased by $1.0 million during the
second quarter of 1997 when compared to the same quarter of 1996.
This decrease reflects the lower cost of fuel used in generation
and lower purchased power costs.
Purchased gas costs for utility operations were $13.8 million in
the second quarter of 1997 compared to $18.0 million in 1996, a
decrease of $4.2 million. This decrease is the result of
decreases in the cost of purchased gas coupled with a decrease in
the volume of gas purchased for resale and deferred costs.
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 decreased by $5.5 million compared with the same period
in 1996. Utility operating expenses decreased $6.2 million.
Diversified operating expenses increased by $0.7 million.
The net decrease in utility operating and maintenance expenses of
$6.2 million is primarily the result of the implementation of the
May 3, 1996 NYPSC Order, which, among other things, provided for
the elimination of substantially all of the expense
reconciliation items under the previously mandated Revenue
Decoupling Mechanism and the recognition of a higher level of
Independent Power Producer contract termination costs in the
second quarter of 1996. Additionally, depreciation expense
increased in the current period as a result of a regulatory
adjustment made in the second quarter of 1996 which resulted in a
temporary reduction in depreciation expense and tax expense
decreased by $1.8 million, primarily as a result of decreased
property and revenue taxes.
Diversified Activities
The Company's diversified activities, excluding the discontinued
gas marketing operations, consist of energy related services and
business ventures and land development conducted through wholly-
owned non-utility subsidiaries.
Revenues from continuing diversified activities decreased by
$163,000 for the second quarter compared with the same period in
1996.
The net loss resulting from the discontinued operations of
NORSTAR amounted to $6.7 million or 50 cents per average common
share outstanding during the second quarter of 1997 compared to a
loss of $0.5 million or 4 cents per share during the second
quarter of 1996.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions,
increased by $3.3 million during the second quarter of 1997 when
compared to the same quarter of 1996 as a result of reversals on
cumulative RDM balances and lower investigation costs, partially
offset by higher interest charges.
YEAR TO DATE COMPARISON
Results of Operations
Earnings per average common share outstanding from continuing
operations for the first half of 1997 amounted to $1.16 per share
as compared to $1.45 per share for the first six months of 1996.
Earnings per average common share outstanding from discontinued
operations for the first half of 1997 amounted to $(0.83) per
share as compared to $(0.03) per share for the first six months
of 1996. The Company's combined total consolidated earnings per
average common share outstanding for the first half of 1997 were
$0.33 as compared to $1.42 for the first half of 1996.
The majority of this year's decline was the impact of the
operating losses incurred by NORSTAR's gas marketing activities
and the estimated loss to dispose of NORSTAR's discontinued
operations.
The six-month decrease in earnings from continuing operations is
primarily the result of lower energy sales during the mild winter
and the balance of costs associated with the arbitration
settlement with the Company's former Chief Executive Officer in
February 1997.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and
purchased gas cost recoveries, decreased by $16.9 million in the
first six months of 1997 as compared to the same period of 1996.
Electric operating revenues during the current period were $219.0
million as compared to $228.8 million for the first six months of
1996, a decrease of $9.8 million. This decrease is the result of
regulatory adjustments required by the May 3, 1996 NYPSC Order
approving the settlement agreement in the Company's electric and
investigation cases as well as decreased sales and the timing of
fuel cost recoveries.
Actual total sales of electric energy to retail customers during
the first six months of 1997 were 2,224,176 Mwh, compared to
2,232,657 Mwh during the comparable period a year ago. This
decrease is attributable to decreased usage when compared to the
same period a year ago. Revenues from these sales during the
first six months of 1997 were $215.2 as compared to $215.7 for
the same period in 1996. The 1996 revenues reflect the impact of
the Company's RDM then in effect. In accordance with the NYPSC's
May 3, 1996 Order electric revenues are no longer governed by an
RDM agreement. Sales to other utilities for the first six months
of 1997 amounted to 97,513 Mwh with revenues of $2.1 million
compared to 71,664 Mwh and $1.0 million in 1996.
Gas operating revenues during the first six months of 1997 were
$103.1 million compared to $110.1 million for the first six
months of 1996, a decrease of $7.0 million. Revenues were
decreased by lower gas cost recoveries and lower sales volumes
from a mild winter.
Gas sales to firm customers during the first six months of 1997
totaled 12,077 Mmcf, compared with 13,112 Mmcf during the same
period a year ago. Gas revenues from firm customers were $93.7
million, compared with $98.1 million in the first six months of
1996.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs decreased by $3.4 million during the
first six months of 1997 when compared to the same period of
1996. This decrease reflects the decrease in the cost of fuel
and purchased power offset by increased demand.
Purchased gas costs for utility operations were $61.9 million in
the first six months of 1997 compared to $65.6 million in 1996, a
decrease of $3.7 million. This decrease in gas costs is
attributable to a lower volume of gas purchased for resale offset
by higher prices.
Other Operating and Maintenance Expenses
The Company's total operating and maintenance expenses, excluding
fuel, purchased power and gas purchased for resale for the first
six months of 1997 decreased by $4.9 million compared with the
same period in 1996. The decrease in expenses associated with
utility operating expenses amounted to $5.8 million. The change
in diversified operation and maintenance expenses was an increase
of $0.9 million.
The net decrease in utility operating expenses is primarily the
result of the implementation of the provisions of the May 3, 1996
NYPSC Order, which, among other things, provided for the
elimination of substantially all of the expense reconciliation
items under the previously mandated RDM and the recovery of
Independent Power Producer contract termination costs. In
addition, depreciation expense increased because of a regulatory
adjustment made in the first quarter of 1996 which resulted in a
temporary reduction in depreciation expense.
Diversified Activities
Revenues from diversified activities decreased by $193,000 for
the first six months of 1997 as compared to the same period of
1996. Revenues for 1996 have been restated to exclude the
discontinued operations and estimated loss on disposal of
NORSTAR.
The net loss resulting from the discontinued operations of
NORSTAR amounted to $11.3 million or 83 cents per average common
share outstanding during the first six months of 1997 compared to
a loss of $0.4 million or 3 cents per share during the same
period in 1996.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions,
increased by $1.0 million during the first six months of 1997
when compared to the same period of 1996. The increase reflects
the impact of the reversals of RDM balances and the increase in
investigation costs associated with an arbitration settlement,
signed in February 1997, with a former Chief Executive Officer.
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 fiscal year ended December 31,
1996 and to Item I, Legal Proceedings, in the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1997, for a description of the litigation entitled Crossroads
Cogeneration Corporation v. Orange and Rockland Utilities, Inc.
By Opinion and Order ("Order") dated June 30, 1997, the Court
dismissed Crossroads' Complaint in its entirety with prejudice
and dismissed Crossroads cross-motion for partial summary
judgment as moot. On July 23, 1997, Crossroads filed an appeal
from the Order.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the fiscal year ended December
31,1996 for a description of the litigation entitled Town of
Wallkill and State of New York v. Tesa Tape, Inc., et al. On
July 23, 1997 the Company reached a settlement in principle with
the State of New York which, if finalized and approved by the
Court, will result in the Company being dismissed from this
litigation. Pursuant to the settlement in principle, the Company
will pay $125,000 to the State of New York and the State will
release the Company, dismiss the litigation and will grant
"contribution protection" as to the pending third-party claims
and cross-claims asserted by other potentially responsible
parties. The settlement will be subject to certain standard
limited re-openers. The settlement is in the process of being
documented and will be subject to approval of the Court.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the fiscal year ended December
31,1996 for a description of a remedial investigation of a
property owned by the Company in West Nyack, New York. The
Company estimates that the remediation related to the
contamination of soils for the West Nyack site will cost
approximately $1.5 million. This amount has been deferred in the
Company's financial statements as approved by the May 3, 1996
NYPSC Order. In addition, the New York State Department of
Environmental Conservation will separately address the potential
remediation related to groundwater contamination at a later date.
The Company does not believe that this matter will have a
material effect on the financial condition of the Company.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996, and to Item 5, Other Events, in the Company's Current
Report on Form 8-K dated March 25, 1997, for a description of the
New York Public Service Commission ("NYPSC") Competitive
Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900), and
a Settlement Agreement entered into on March 25, 1997 between the
Company and the Staff of the NYPSC in Case No. 96-E-0900 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 Administrative Law Judge's
recommended decision in this proceeding issued on July 2, 1997.
The Company is unable to predict the outcome the NYPSC proceeding
or its 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 fiscal year ended December 31,
1996 for a description of the New Jersey Board of Public
Utilities ("NJBPU") Energy Master Plan proceedings 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 April 30, 1997 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. EX94120585Y) and the filing made by
the Company's subsidiary, Rockland Electric Company on July 15,
1997 in response thereto. It is not possible to predict the
outcome of the NJBPU proceeding or its effect on the Company's
consolidated financial position or results of operations.
Reference is made 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
June 5, 1997 NYPSC Order Requiring the Filing of Proposals
to Ameliorate Gas Price Volatility and Requesting Comments
(Case 97-G-0600) and the filing made by the Company on
August 4, 1997, in response thereto. It is not possible to
predict the outcome of this proceeding or its effect on the
Company's consolidated financial position or results of
operations.
Item 5. Other Information
On August 8, 1997, the Company issued a press release announcing
the departure of the Company's President and Chief Operating
Officer. A copy of the press release is attached as an Exhibit
to this Form 10-Q Quarterly Report and is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
+10.11 Officers' Supplemental Retirement Plan, as amended
and restated on June 5, 1997 effective July 1,
1997.
+10.20 Orange and Rockland Utilities, Inc. Post Director
Service Retainer Continuation Program, as amended
on June 5, 1997 and restated effective July 1,
1997.
+10.40 Long-Term Performance Share Unit Plan as amended
effective July 1, 1997.
+10.48 Eligible Employees' Insurance Program, effective
July 1, 1997.
99.6 Press Release dated August 8, 1997.
+ Denotes executive compensatory plans and
arrangements.
(b) Reports on Form 8-K
On June 17, 1997, the Company filed a Current Report on Form
8-K dated June 17, 1997 relating to a press release of the
Company dated June 17, 1997.
On July 1, 1997, the Company filed a Current Report on Form
8-K dated July 1, 1997 relating to a press release of the
Company dated July 1, 1997.
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 8, 1997 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer
Date: August 8, 1997 By EDWARD M. McKENNA
Edward M. McKenna
Controller
SIGNATURES