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 September 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 13,654,859 shares
(Class) (Outstanding at October 31, 1997)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at
September 30, 1997 and December 31, 1996 1
Consolidated Statements of Income (Unaudited)
for the three months and nine months ended
September 30, 1997 and September 30, 1996 3
Consolidated Cash Flow Statements (Unaudited)
for the nine months ended September 30, 1997
and September 30, 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 24
ITEM 6. Exhibits and Reports on Form 8-K 27
Signatures 28
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
September 30, December 31,
1997 1996
(Thousands of Dollars)
Utility Plant:
Electric $1,036,481 $1,023,796
Gas 229,207 219,712
Common 62,348 59,589
Utility Plant in Service 1,328,036 1,303,097
Less accumulated depreciation 466,100 440,333
Net Utility Plant in Service 861,936 862,764
Construction work in progress 58,323 36,879
Net Utility Plant 920,259 899,643
Non-utility Property:
Non-utility property 11,702 17,818
Less accumulated depreciation, depletion
and amortization 1,078 2,344
Net Non-utility Property 10,624 15,474
Current Assets:
Cash and cash equivalents 2,985 3,321
Temporary cash investments - 1,289
Customer accounts receivable, less allowance for
uncollectible accounts of $2,391 and $2,391 57,237 60,992
Accrued utility revenue 14,587 22,773
Other accounts receivable, less allowance for
uncollectible accounts of $303 and $258 9,004 7,648
Materials and supplies (at average cost) 38,452 35,595
Prepaid property taxes 32,547 20,051
Prepayments and other current assets 34,000 21,540
Total Current Assets 188,812 173,209
Deferred Debits:
Income tax recoverable in future rates 74,187 74,198
Deferred revenue taxes 12,697 14,271
Deferred pension and other postretirement benefits 9,580 9,922
IPP settlements 16,655 24,065
Unamortized debt expense (amortized over term
of securities) 10,617 10,046
Other deferred debits 27,588 37,072
Total Deferred Debits 151,324 169,574
Total $1,271,019 $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
September 30, December 31,
1997 1996
(Thousands of Dollars)
Capitalization:
Common stock (13,654,752 & 13,654,121 shares
outstanding) $ 68,274 $ 68,271
Premium on capital stock 133,627 133,616
Capital stock expense (6,111) (6,097)
Retained earnings 182,029 192,060
Total 377,819 387,850
Non-redeemable preferred stock (428,443 shares
outstanding) 42,844 42,844
Non-redeemable cumulative preference stock
(11,746 and 12,180 shares outstanding) 383 397
Total Non-Redeemable Stock 43,227 43,241
Long-term debt 276,642 281,622
Total Capitalization 697,688 712,713
Non-current Liabilities:
Reserve for claims and damages 4,130 3,843
Postretirement benefits 15,014 15,213
Pension costs 42,078 37,421
Obligations under capital leases 1,681 -
Total Non-current Liabilities 62,903 56,477
Current Liabilities:
Notes payable and obligations due within one year 177,755 161,963
Accounts payable 82,360 67,449
Accrued Federal income and other taxes 1,120 1,024
Refundable fuel and gas costs 5,462 4,943
Refunds to customers 1,386 1,816
Other current liabilities 29,446 35,800
Total Current Liabilities 297,529 272,995
Deferred Taxes and Other:
Deferred Federal income taxes 190,140 185,156
Deferred investment tax credits 14,697 15,292
Accrued IPP settlement agreements - 2,000
Accrued Order 636 transition costs 1,340 11,620
Other deferred credits 5,810 7,983
Total Deferred Taxes and Other 211,987 222,051
Net Liabilities (Assets) of Discontinued
Operations (Note 6 ) 912 (6,336)
Total $1,271,019 $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 Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(Thousands of Dollars)
Operating Revenues:
Electric $145,244 $144,506 $364,224 $373,297
Gas 14,364 15,589 117,415 125,681
Total Utility Revenues 159,608 160,095 481,639 498,978
Diversified Activities 120 433 602 1,108
Total Operating Revenues 159,728 160,528 482,241 500,086
Operating Expenses:
Operations:
Fuel used in electric production 25,149 21,615 53,332 41,816
Electricity purchased for resale 14,568 14,719 47,428 58,946
Gas purchased for resale 7,978 8,592 69,896 74,240
Other expenses of operation 37,790 35,038 106,697 110,813
Maintenance 8,724 8,400 26,711 26,842
Depreciation and amortization 8,871 9,164 27,087 23,054
Taxes other than income taxes 24,592 25,220 74,179 76,064
Federal income taxes 8,315 10,954 18,707 22,003
Total Operating Expenses 135,987 133,702 424,037 433,778
Income from Operations 23,741 26,826 58,204 66,308
Other Income and (Deductions):
Allowance for other funds used during
construction 30 4 64 13
Investigation costs 625 (200) (2,765) (1,000)
Other - net (88) 81 663 (2,228)
Taxes other than income taxes (68) (33) (200) (181)
Federal income taxes 65 42 1,455 504
Total Other Income and (Deductions) 564 (106) (783) (2,892)
Income Before Interest Charges 24,305 26,720 57,421 63,416
Interest Charges:
Interest on long-term debt 5,957 6,040 18,118 18,143
Other interest 1,586 1,215 4,901 4,068
Amortization of debt premium, expense-net 412 366 1,221 1,097
Allowance for borrowed funds used
during construction (347) (118) (740) (393)
Total Interest Charges 7,608 7,503 23,500 22,915
Income from Continuing Operations 16,697 19,217 33,921 40,501
(continued)
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(continued)
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(Thousands of Dollars)
Discontinued Operations (Note 6):
Loss from discontinued operations
net of related income taxes - (541) (6,738) (950)
Estimated net loss on disposal of
discontinued operations (4,129) - (8,694) -
Loss with respect to
discontinued operations (4,129) (541) (15,432) (950)
Net Income 12,568 18,676 18,489 39,551
Dividends on preferred and preference
stock, at required rates 700 755 2,099 2,268
Earnings applicable to common stock $11,868 $17,921 $16,390 $37,283
Avg. number of common shares
outstanding(000's) 13,654 13,654 13,654 13,654
Earnings Per Average Common Share
Outstanding:
Continuing Operations $1.17 $1.35 $2.33 $2.80
Discontinued Operations - (.04) (.49) (.07)
Estimated net loss on disposal (.30) - (.64) -
Total $ .87 $1.31 $1.20 $2.73
Dividends declared per common share
outstanding $ - $ - $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)
Nine Months Ended
September 30,
1997 1996
(Thousands of Dollars)
Cash Flow from Operations:
Net income $18,489 $39,551
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 26,751 24,658
Deferred Federal income taxes 4,637 5,504
Deferred investment tax credit (595) (607)
Deferred and refundable fuel and gas costs 519 (372)
Allowance for funds used during construction (804) (406)
Other non-cash charges 2,833 3,172
Changes in certain current assets and liabilities:
Accounts receivable (net) and accrued utility rev. 10,585 8,384
Materials and supplies (2,857) (3,533)
Prepaid property taxes (12,496) (8,536)
Prepayments and other current assets (12,460) (1,713)
Operating accounts payable 14,911 22,754
Accrued Federal Income and other taxes 96 (375)
Accrued interest (2,834) (2,767)
Refunds to customers (430) (11,019)
Other current liabilities (3,491) (2,152)
Discontinued operations 7,248 1,668
Other-net 13,379 (10,785)
Net Cash Provided from Operations 63,481 63,426
Cash Flow from Investing Activities:
Additions to plant (47,822) (31,938)
Temporary cash investments 1,289 1,335
Allowance for funds used during construction 804 406
Net Cash Used in Investing Activities (45,729) (30,197)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt 20,089 26
Retirements of:
Preference and preferred stock (1,390) -
Long-term debt (25,252) (167)
Capital lease obligations (166) (275)
Net borrowings (repayments) under
short-term debt arrangements* 17,180 (1,234)
Dividends on preferred and common stock (28,549) (28,687)
Net Cash Used in Financing Activities (18,088) (30,337)
Net Change in Cash and Cash Equivalents (336) 2,892
Cash and Cash Equivalents at Beginning of Period 3,321 3,189
Cash and Cash Equivalents at End of Period $ 2,985 $ 6,081
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $25,825 $24,088
Federal income taxes $10,000 $14,281
*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 September 30, 1997, the
consolidated statements of income for the three month and
nine month periods ended September 30, 1997 and 1996, and
the consolidated cash flow statements for the nine 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 September
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 periods
ended September 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 September 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 "Regulatory 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. NORSTAR Management, Inc. ("NMI"), a wholly-owned indirect
subsidiary of the Company sold certain of the assets of NORSTAR
Energy Limited Partnership ("NORSTAR"), a natural gas services
and marketing company of which NMI is the general partner. The
assets sold consist primarily of customer contracts and accounts
receivable. NMI is expected to wind 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 $(4,128,911) or $(0.30) per share for the quarter ended
September 30, 1997 and $(540,814) or $(0.04) per share for the
quarter ended September 30, 1996. The impact of NORSTAR as
reported in "Discontinued Operations" is as follows:
Three Months Ended Sept. 30,
1997 1996
Gross Revenue $ - $55,723,001
Cost and Expense - 57,345,980
Loss Before Income Taxes - (1,622,979)
Provision for Taxes - (1,082,165)
Loss from Discontinued
Operations - (540,814)
Estimated Loss on Disposal
(net of tax benefits
of $1,934,301) (4,128,911) -
Total Loss Related to
Discontinued Operations $(4,128,911) $ (540,814)
Sept. 30, 1997 Dec. 31, 1996
Assets:
Current Assets $ 7,893,167 $ 49,515,807
Fixed Assets 295,479 1,532,565
Other Assets 643,736 2,416,712
Total Assets 8,832,382 53,465,084
Liabilities:
Current Liabilities 8,709,723 46,054,645
Other Liabilities 1,034,966 1,073,987
Net Liabilities (Assets)
of Discontinued Operations $ 912,307 $ (6,336,452)
7. 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 in
its New York service area during this event. The Company
continues to defer these charges pending final resolution by
the NYPSC.
8. Certain amounts from prior years have been reclassified to
conform with the current year presentation.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition:
Financial Performance
The Company's consolidated earnings per average common share
outstanding from continuing operations for the third quarter of
1997 were $1.17 as compared to $1.35 for the third quarter of
1996. The Company's consolidated loss per average common share
outstanding from discontinued operations for the third quarter of
1997 was $(0.30) as compared to $(0.04) for the third quarter of
1996. Fluctuations within the components of earnings are
discussed in the "Results of Operations". The average number of
common shares outstanding was 13.7 million for the third quarters
of both 1997 and 1996.
The return from continuing operations on average common equity
for the twelve months ended September 30, 1997 was 10.32% as
compared to 11.49% for the twelve months ended September 30,
1996.
Capital Resources and Liquidity
At September 30, 1997, the Company and its utility subsidiaries
had unsecured bank lines of credit totaling $100.0 million.
During October 1997, unsecured bank lines of credit were
increased to $200 million. The Company may borrow under the
lines of credit through the issuance of promissory notes to
commercial banks or use such lines of credit to support fully
commercial paper borrowings, which are issued through dealers.
The aggregate amount of borrowings through the issuance of
promissory notes and commercial paper cannot exceed the Company's
aggregate lines of credit. Through September 30, 1997, such
lines of credit were used to support fully the Company's
commercial paper borrowing; however, during October the Company
issued $78.0 million of promissory notes to banks to finance
temporarily maturing issues of long-term debt, as described
below. The Company's authority to issue promissory notes and
commercial paper was increased by the Federal Energy Regulatory
Commission, effective October 1, 1997 through September 30, 1999,
to up to $200 million, at any one time outstanding, from $125
million at September 30, 1997. The average daily balance of
short-term borrowings for the nine months ended September 30,
1997 amounted to $99.0 million at an effective interest rate of
5.8% as compared to $58.5 million at an effective interest rate
of 5.7% for the same period of 1996. The average daily balance
of temporary cash investments for the nine months ended September
30, 1997 was $0.9 million with an effective interest rate of 5.2%
compared to $1.4 million at an effective interest rate of 5.1%
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, however, common stock used to satisfy the requirements
of the DRP and ESPP is being purchased on the open market.
On October 1, 1997 the Company's First Mortgage Bonds, Series I,
6 1/2% (the "Series I Bonds") in the principal amount of $23
million were repaid at maturity. The Series I Bonds were the
final series of bonds outstanding under the Orange and Rockland
Utilities, Inc. First Mortgage Indenture. The indenture under
which the Company's debentures are issued contains a covenant
restricting the issuance by the Company of secured indebtedness
while any securities are outstanding under the debenture
indenture. The covenant prohibits the Company from issuing
additional bonds under the First Mortgage Indenture. In
addition, on October 15, 1997 the Company's Debentures, Series B,
6 1/2% (the "Series B Debentures") in the principal amount of $55
million were repaid at maturity. Funds required for the
repayment of the Series I Bonds and the Series B Debentures,
which totaled $78 million, were provided by the issuance of
promissory notes, pending the anticipated issuance by the Company
of $80 million of debentures during the fourth quarter of 1997,
the proceeds of which will be primarily used to repay such
promissory notes.
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 issuance of debentures discussed above.
It is expected that all other capital requirements will be met
with funds from operations, supplemented with short-term debt as
required.
Regulatory Activities
New York
On November 6, 1997, the Company, the New York State Department
of Public Service (the "Staff") and other parties entered into,
and filed with the NYPSC, an Electric Rate and Restructuring Plan
(the "Restructuring Plan") in Case 96-E-0900, the NYPSC
Competitive Opportunities Proceeding, which provides for the sale
of all of its generating assets (i.e., all units at the Lovett
and Bowline Generating Stations, hydro-electric facilities and
gas turbines) and for lower electric rates. The Restructuring
Plan supersedes the settlement agreement the Company entered into
on March 25, 1997 with the Staff and other parties in this case.
The NYPSC had found the March 25, 1997 settlement agreement
unacceptable and on September 10, 1997, directed the Company, the
Staff and other parties to resume negotiations to modify it. The
Company anticipates that the Restructuring Plan will be addressed
by the NYPSC on November 25, 1997.
Under the terms of the Restructuring Plan, which covers a four-
year period commencing with NYPSC approval, the Company has
agreed to commence immediately the process of auctioning all of
its generating assets. The Company will not be a bidder in the
auction. The Restructuring Plan provides that if the Company
selects a winning bidder prior to May 1, 1999, the New York share
of any net book gains associated with the sale are to be
allocated between shareholders and customers on a 25/75 basis,
respectively, and any net book losses are to be allocated between
shareholders and customers on a 5/95 basis, respectively. If the
Company selects a winning bidder on or after May 1, 1999, the New
York share of the net book gains or losses associated with sale
are to be allocated between shareholders and customers on a 20/80
basis, respectively. The Restructuring Plan further provides for
a $20 million cap on the New York share of net book gains
allocable to shareholders from the sale of generating assets. In
addition, the terms of the Restructuring Plan permit the Company
to defer and recover up to $7.5 million (New York electric share)
of prudent and verifiable non-officer employee costs, such as
retraining, outplacement, severance, early retirement and
employee retention programs associated with the divestiture.
Under the terms of the Restructuring Plan, the Company will be
authorized to petition the NYPSC for recovery of employee costs
in excess of $7.5 million.
In addition, the terms of the Restructuring Plan permit the
Company to retain all earnings up to an 11.4% return on equity
and further provide that earnings in excess of 11.4% are to be
shared, with 75% to be used to offset NYPSC approved deferrals or
otherwise inure to the Company's customers, and 25% to be
retained by the Company's shareholders. The Restructuring Plan
further provides that full retail access to a competitive energy
and capacity market will be available for all customers by
May 1, 1999. The Company's existing PowerPick(TM) Program,
whereby customers can purchase energy (but not capacity) from
suppliers other than the Company, would be expanded to all
customers on May 1, 1998.
The Restructuring Plan also provides for electric price
reductions of approximately $32.4 million over its four-year term
and for recovery of above market generation costs should the
transfer of title to the Company's generating assets not occur
before May 1, 1999, through a Competitive Transition Charge (the
"CTC"). Should a CTC be required, the Company would be
authorized to recover the difference between its non-variable
costs of generation, including 75% of fixed production labor
expenses and property taxes, and the revenues, net of fuel and
variable operating and maintenance ("O&M") expenses, derived from
the operation of the Company's generating assets in a deregulated
competitive market. If title to the generating assets has not
transferred as of May 1, 2000, the CTC would be modified so as to
allow a maximum recovery of only 65% of fixed production labor
expenses and property taxes. The modified CTC would remain
effective until the earlier of the date title to the generating
assets is transferred or October 31, 2000. In the event title to
the generating assets is not to be transferred by October 31,
2000, the Company would be authorized to petition the NYPSC for
permission to continue a CTC until the date title to the
generating assets is transferred. The CTC does not allow for the
recovery of inflationary increases in non-fuel O&M production
costs, property tax increases, wage rate increases, or increased
costs associated with capital additions or changes in the costs
of capital applicable to production costs.
The Restructuring Plan also provides that the Company and its
utility subsidiaries are to apply to the appropriate regulatory
authorities for the permission required to form a new holding
company, which would be a registered holding company under the
Public Utility Holding Company Act of 1935 (the "1935 Act"). The
Company currently is an exempt holding company under the 1935
Act. The new holding company structure would provide for
separate regulated electric distribution companies in the New
York, New Jersey and Pennsylvania service territories, as well as
an unregulated energy services company. The Company would
continue as the New York regulated electric distribution company.
The formation of the holding company is conditioned upon
shareholder and regulatory approval, including approval of the
Securities and Exchange Commission, the Federal Energy Regulatory
Commission, the NYPSC, the New Jersey Board of Public Utilities
and the Pennsylvania Public Utility Commission. The unregulated
energy services company would be able to market electricity and
unbundled energy services (e.g., metering) to wholesale and
retail customers on a competitive basis using the Company's name
without a royalty payment.
Reference is made to Exhibit 99.7 of this Form 10-Q Quarterly
Report which contains the full text of the Restructuring Plan.
It is not possible to predict whether the NYPSC will approve the
Restructuring Plan in its present form, or with modifications, or
to predict the outcome of the New York Competitive Opportunities
proceeding or its effect on the Company's consolidated financial
position or results of operations.
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 were 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 provided, in part,
for the Company to use financial derivatives to hedge an
unspecified portion of its gas supply portfolio 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 included a new tariff which would allow the Company
to negotiate the commodity price of gas with its larger
customers. Pursuant to further direction of the NYPSC, the
Company revised its proposal in this proceeding on September 26,
1997. The revised proposal provides for a five-month, fixed-
price option to be available to firm sales customers for the 1997-
1998 heating season. The fixed-price option will lock in only
the commodity cost of gas. The option will be limited to ten
percent of customers in each eligible customer class. By order
issued October 7, 1997, the NYPSC provided that costs associated
with any variations between gas utilized by customers electing
the fixed price option and volumes locked in by the Company, to
the extent prudently incurred, will be recoverable. The October
7 Order requires the Company to file tariff sheets implementing
its fixed price option. The tariff sheets will become effective
in November 1997 but will be subject to NYPSC review.
On September 4, 1997, the NYPSC issued a Notice Inviting Comments
on Staff's Report in Case 97-G-1380, In the Matter of Issues
Associated with the Future of the Natural Gas Industry and the
Role of Local Gas Distribution Companies ("LDCs"). The Notice
invites comments by November 20, 1997, on the Staff's Position
Paper entitled "The Future of the Natural Gas Industry."
The primary conclusion of the Staff's Position Paper is that over
the next five years, LDCs in New York should transition out of
the business of selling gas. Staff believes that this action is
necessary in order to encourage competition and provide gas
customers with choice in the marketplace. The Position Paper
sets forth Staff's recommendations towards accomplishing the goal
of removing LDCs from the merchant function. In addition, the
Paper identifies, discusses and requests comments on the
following three impediments to LDCs terminating their gas
merchant role: (1) upstream pipeline capacity held by LDCs; (2)
the LDCs' supplier of last resort and obligation to serve
responsibilities; and (3) system reliability and operational
integrity issues.
The Company anticipates filing comments on the Position Paper by
November 20, 1997. 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.
On October 1, 1997, the ALJ issued a modified prehearing order in
the Stranded Costs and Unbundled Rates Proceedings. Hearings
will be held from February 24 through March 2, 1998, and initial
and reply briefs will be due on March 13 and 27, 1998,
respectively. The ALJ will issue his decision by May 15, 1998.
The NJBPU has not yet established a hearing schedule for the
Restructuring Proceeding.
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. The NYPSC's
action with respect to the Restructuring Plan filed in the NYPSC
Competitive Opportunities Proceeding, as described in this
section under the caption "New York," could change RECO's
filings. 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.
Pennsylvania
On September 30, 1997, in accordance with the requirements of the
Pennsylvania Electricity Generation Customer Choice and
Competition Act, the Company's subsidiary, Pike County Light &
Power Company ("Pike"), submitted its restructuring filing to the
Pennsylvania Public Utility Commission ("PPUC"). In this filing,
Pike proposed that full retail competition be implemented for all
customers by May 1, 1999. With the implementation of retail
competition, Pike proposes to continue to serve as the "provider
of last resort" for those consumers who do not choose an
alternate provider, or whose alternate provider defaults. Pike
proposed to remain a regulated transmission and distribution
company within a registered holding company structure.
Pike also submitted proposed unbundled rates which separate the
components of existing tariffs into production, transmission,
distribution and customer cost categories.
It is expected that the PPUC will rule on Pike's restructuring
filing by June 1998. Pike's filing may be accepted or
significantly modified by the PPUC before becoming effective.
The NYPSC's action with respect to the Restructuring Plan filed
in the NYPSC Competitive Opportunities Proceeding, as described
in this section under the caption "New York," could change Pike's
filings. It is not possible to predict the outcome of the PPUC
proceeding; however, it is not expected that this proceeding will
have a material 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 third quarter of 1997 amounted to $0.87
per share as compared to $1.31 per share for the third quarter of
1996.
The majority of this quarter's decline resulted from the
provision of additional losses for NORSTAR to dispose of its
discontinued operations. In addition, earnings from continuing
operations decreased as a result of a shift in the electric sales
mix, resulting in lower margin, slightly offset by higher
electric sales of 1.3 percent as well as increases in certain
operating expense when 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, decreased by $0.5 million. The
timing of fuel cost recoveries had a negative effect on revenues
in the third quarter of 1997 as compared to the same quarter of
1996.
Electric operating revenues during the current quarter were
$145.2 million as compared to $144.5 million for the third
quarter of 1996, an increase of $0.7 million. This increase was
the result of higher fuel cost recoveries, slightly higher sales
and higher sales to other utilities.
Actual total sales of electric energy to retail customers during
the third quarter of 1997 were 1,298,466 megawatt hours ("Mwh"),
compared with 1,281,021 Mwh during the comparable period a year
ago. Revenues associated with these sales were $141.2 million
during the current quarter compared to $141.9 million during the
third quarter of 1996. This decrease in revenue is attributable
to changes in the sales mix offset by higher fuel cost recoveries
and slightly higher sales. Sales to other utilities for the
third quarter of 1997 amounted to 124,585 Mwh with revenues of
$2.8 million compared to 84,258 Mwh and revenues of $1.6 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 quarter were $14.4 million
compared to $15.6 million for the third quarter of 1996, a
decrease of $1.2 million. This decrease is primarily the result
of the timing of fuel cost recoveries.
Gas sales to firm customers during the third quarter of 1997
totaled 1,566 million cubic feet ("Mmcf"), compared with 1,563
Mmcf during the same period a year ago. Gas revenues from firm
customers were $10.8 million, compared with $11.7 million in the
third quarter of 1996. Interruptible gas sales were 802 Mmcf for
the third quarter of 1997 compared to 773 Mmcf for the same
period of 1996. Revenues from interruptible customers were $2.7
million for the third quarters of both 1997 and 1996.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs increased by $3.4 million during the
third quarter of 1997 when compared to the same quarter of 1996.
This increase reflects higher volumes of fuel and purchased power
to satisfy increased demand (including sales for resale), offset
slightly by a decrease in the cost of fuel.
Purchased gas costs amounted to $8.0 million in the third quarter
of 1997 compared to $8.6 million in 1996, a decrease of $0.6
million. This decrease in gas costs is primarily attributable to
lower commodity prices for gas, partially offset by an increase
in the volume of gas purchased.
Other Operating and Maintenance Expenses
The Company's total operating expenses excluding fuel, purchased
power and gas purchased for resale for the third quarter
decreased by $0.5 million compared with the same period in 1996.
Utility operating expenses decreased $0.6 million, offset by an
increase in diversified operations expenses of $0.1 million.
The decrease in utility operating expenses is primarily the
result of reductions in payroll taxes, property taxes and sales
taxes of $0.3 million, reductions in revenue taxes of $0.3
million, lower depreciation and amortization of $0.3 million and
lower Federal income tax expense of $2.6 million. These
decreases were offset by increases in other operation and
maintenance expenses of $2.9 million.
Diversified Activities
The Company's diversified activities, excluding the discontinued
gas marketing operations, consist of energy related services and
business ventures and land development businesses conducted
through wholly-owned non-utility subsidiaries.
Revenues from continuing diversified activities decreased by
$313,000 for the third quarter of 1997 as compared to the same
quarter of 1996.
The estimated net loss provision to dispose of the discontinued
operations of NORSTAR is $(4.1) million or $(0.30) per average
common share outstanding during the third quarter of 1997
compared to an operating loss of $(0.5) million or $(0.04) per
share during the third quarter of 1996.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions,
increased by $0.6 million during the third quarter of 1997 when
compared to the same quarter of 1996. This is primarily the
result of lower investigation charges.
YEAR TO DATE COMPARISON
Results of Operations
Earnings per average common share outstanding from continuing
operations for the first nine months of 1997 amounted to $2.33
per share as compared to $2.80 per share for the first nine
months of 1996. The loss per average common share outstanding
from discontinued operations for the first nine months of 1997
amounted to $(1.13) per share as compared to $(0.07) per share
for the first nine months of 1996. The Company's combined total
consolidated earnings per average common share outstanding for
the first nine months of 1997 were $1.20 as compared to $2.73 for
the first nine months of 1996.
The majority of the decline in earnings for the first nine months
of 1997 resulted from the operating losses incurred by NORSTAR's
gas marketing activities and the estimated loss to dispose of
NORSTAR's discontinued operations.
The nine-month decrease in earnings from continuing operations is
primarily the result of lower revenue on a slightly higher level
of electric sales, lower gas sales and revenue, and the
recognition of 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 $17.3 million in the
first nine months of 1997 as compared to the same period of 1996.
Electric operating revenues during the current nine-month period
were $364.2 million as compared to $373.3 million for the first
nine months of 1996, a decrease of $9.1 million. This decrease
is primarily the result of base rate reductions and the timing of
fuel cost recoveries.
Actual total sales of electric energy to retail customers during
the first nine months of 1997 were 3,522,642 Mwh, compared with
3,513,678 Mwh during the comparable period a year ago. Electric
revenues associated with these sales were $356.8 million compared
to $361.9 million during the first nine months of 1996 a decrease
of $5.1 million. This decrease is attributable to reductions in
base rates, changes in the sales mix and the timing of fuel cost
recoveries. Sales to other utilities for the first nine months
of 1997 amounted to 222,098 Mwh with revenues of $5.0 million
compared to 155,922 Mwh and $2.6 million in 1996. Revenue from
these sales is primarily a recovery of costs, which under the
applicable tariff regulations, has a minimal impact on earnings.
Gas operating revenues during the first nine months were $117.4
million compared to $125.7 million for the first nine months of
1996, a decrease of $8.3 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 nine months of 1997
totaled 13,643 Mmcf, compared with 14,675 Mmcf during the same
period a year ago. Gas revenues from firm customers were $104.5
million, compared with $109.8 million in the first nine months of
1996.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs remained level during the first nine
months of 1997 when compared to the same period of 1996. A
decrease in the commodity cost of fuel and purchased power was
offset by increased demand.
Purchased gas costs for utility operations were $69.9 million in
the first nine months of 1997 compared to $74.2 million in 1996,
a decrease of $4.3 million. This decrease in gas costs is
attributable to the lower volume of gas purchased for resale and
lower commodity prices.
Other Operating and Maintenance Expenses
The Company's total operating expenses, excluding fuel, purchased
power and gas purchased for resale for the first nine months
decreased by $5.4 million compared with the same period in 1996.
The decrease in expenses associated with utility operating
expenses amounted to $6.4 million. Diversified operation and
maintenance expenses increased $1.0 million.
The decrease in utility operating expenses is primarily the
result of the reduction in the amortization of recoverable IPP
costs of $6.5 million and a decrease in payroll taxes, property
taxes and sales taxes of $0.8 million, reductions in revenue
taxes of $1.2 million and Federal income tax of $3.0 million,
offset by an increase in other operating and maintenance expenses
of $1.0 million and an increase in depreciation of $4.1 million.
The increase in depreciation is primarily the result of a
regulatory adjustment made during 1996 which resulted in a
reduction, in that year, in depreciation expense.
Diversified Activities
Revenues from diversified activities decreased by $506,000 for
the first nine 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 $(15.4) million or $(1.13) per average common
share outstanding during the first nine months of 1997 compared
to a loss of $(1.0) million or $(0.07) 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 $1.5 million during the first nine months of 1997
when compared to the same period of 1996. The increase reflects
the impact of the reversals of previously deferred balances
implemented as part of the May 3, 1996 NYPSC Order issued by the
NYPSC in cases 95-E-0491 and 93-G-0779 which, among other things,
provided for the elimination of substantially all of the expense
reconciliation items under the previously mandated Revenue
Decoupling Mechanism. Partially offsetting the increase is
higher investigation costs associated with an arbitration
settlement, signed in February 1997, with a former Chief
Executive Officer and higher interest expense on short term debt.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
and to Part II, Item I, Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, for a description of litigation entitled Town of Wallkill
and State of New York v. Tesa Tape, Inc., et al. On September 18,
1997, the parties reached a global settlement of the above case.
As part of that global settlement, the Company's settlement
amount was increased from $125,000 to $135,000. The Court has
formally approved the Consent Decree incorporating the Company's
settlement(which, except for the increased settlement amount,
contains the provisions described in Item I, Legal Proceedings,
in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
and to Part II, Item 1, Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, for a description of a remedial investigation of a property
owned by the Company in West Nyack, New York. On or about August
28, 1997, the New York State Department of Environmental
Conservation ("NYSDEC") issued a Proposed Remedial Action Plan
("PRAP") which, inter alia, approved a Feasibility Study Report
submitted by the Company in November 1996 and proposed a remedy
for clean-up of the soil contamination at the site. A public
meeting was held on September 9, 1997 to discuss the PRAP, and
the deadline for submission of written comments to the NYSDEC was
September 29, 1997 (no comments were submitted to the NYSDEC).
The NYSDEC has issued a Record of Decision ("ROD"), dated October
20, 1997, which provides for the removal and off-site disposal of
soils contaminated with polychlorinated biphenyls and other
petroleum-related contaminants, as well as the post-remedial
monitoring of groundwater. The Company and the NYSDEC are
negotiating a Consent Order to implement the clean-up provided
for by the ROD. 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 year ended December 31, 1996,
for a description of a petition filed by the Company, the six
other New York State investor-owned electric utilities, and the
Energy Association of New York State ("Petitioners") in the New
York State Supreme Court pursuant to Article 78 of the New York
Civil Practice Law and Rules challenging the NYPSC's May 20, 1996
Order in the Competitive Opportunities Proceeding, NYPSC Case 94-
E-0952. On or about October 31, 1997, the Supreme Court of the
State of New York, Appellate Division, Third Department, granted
the Petitioners' motion for an extension of time to perfect the
appeal for a period of six months through and including
March 24, 1998.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996
and to Part I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, for a description of the NYPSC Competitive Opportunities
Proceeding (Case Nos. 94-E-0952 and 96-E-0900). Reference is
also made to the earlier discussion in this Form 10-Q Quarterly
Report under the caption "Regulatory Activities" in Part I, Item
2, Management's Discussion and Analysis of Financial Condition
and Results of Operations, concerning the Rate and Restructuring
Plan entered into by the Company, the Staff and other parties and
filed with the NYPSC on November 6, 1997 in the NYPSC Competitive
Opportunities Proceeding. The Company is unable to predict the
outcome of this regulatory proceeding or the effect on the
Company's consolidated financial position or results of
operations.
Reference is made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
and to Part I, Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997
and in this Form 10-Q Quarterly Report, for a description of the
New Jersey Board of Public Utilities ("NJBPU") Energy Master
Plan proceedings and RECO's filing on July 15, 1997 of a
Restructuring Plan, a Stranded Costs Proposal and Proposed
Unbundled Rates. Reference is also made to the earlier discussion
in this Form 10-Q Quarterly Report under the caption "Regulatory
Activities" in Part I, Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations,
concerning the Rate and Restructuring Plan entered into by the
Company, the Staff and other parties and filed with the NYPSC on
November 6, 1997 in the NYPSC Competitive Opportunities
Proceeding. Depending upon the NYPSC's action with respect to
the Restructuring Plan, RECO may be required to amend its July
15, 1997 Restructuring Plan, Stranded Cost proposal and Unbundled
Rates filings. 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 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
and to Part I, 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 Pennsylvania
Electricity Generation Customer Choice and Competition Act and
the September 30, 1997 Submission by Pike County Light & Power
Company ("Pike") to the Pennsylvania Public Utility Commission
("PPUC") of its restructuring filing. Reference is also made to
the earlier discussion in this Form 10-Q Quarterly Report under
the caption "Regulatory Activities" in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, concerning the Rate and Restructuring Plan
entered into by the Company, the Staff and other parties and
filed with the NYPSC on November 6, 1997 in the NYPSC Competitive
Opportunities Proceeding. Depending upon the NYPSC's action with
respect to the Restructuring Plan, Pike may be required to amend
its restructuring filing. It is not possible to predict the
outcome of the PPUC proceeding, however, it is not expected that
this proceeding will have a material effect on the Company's
consolidated financial position or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
+10.49 Agreement and General Release dated
August 27, 1997 between Orange and Rockland
Utilities, Inc. and Larry S. Brodsky.
99.7 Settlement Agreement dated November 6, 1997
among the Registrant, the New York State
Department of Public Service, the New York
State Department of Economic Development, the
National Association of Energy Service
Companies, the Joint Supporters, the
Industrial Energy Users Association,
Independent Power Producers of New York, Inc.
and Pace Energy Project in Case 96-E-0900 - In
the Matter of Orange and Rockland Utilities,
Inc.'s Plans for Electric Rate/ Restructuring
Pursuant to Opinion No. 96-12.
+ Denotes executive compensatory plans and
arrangements.
(b) Reports on Form 8-K
None.
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: November 12, 1997 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer
Date: November 12, 1997 By EDWARD M. McKENNA
Edward M. McKenna
Controller