UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
New York 13-1727729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip code)
(914) 352-6000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the close of the latest practicable date.
Common Stock - $5 Par Value 13,518,779 shares
(Class) (Outstanding at April 30, 1998)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income (Unaudited)
for the three months ended March 31, 1998
March 31, 1997 3
Consolidated Cash Flow Statements (Unaudited)
for the three months ended March 31, 1998
and March 31, 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 15
ITEM 4. Submission of Matters to a Vote of Security Holders 18
ITEM 6. Exhibits and Reports on Form 8-K 19
Signatures 21
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
March 31, December 31,
1998 1997
(Thousands of Dollars)
Utility Plant:
Electric $1,048,587 $1,047,857
Gas 232,771 232,206
Common 64,570 64,570
Utility Plant in Service 1,345,928 1,344,633
Less accumulated depreciation 480,773 471,865
Net Utility Plant in Service 865,155 872,768
Construction work in progress 70,121 63,445
Net Utility Plant 935,276 936,213
Non-utility Property:
Non-utility property 11,653 11,651
Less accumulated depreciation, depletion
and amortization 1,148 1,109
Net Non-utility Property 10,505 10,542
Current Assets:
Cash and cash equivalents 4,253 3,513
Temporary cash investments 518 518
Customer accounts receivable, less allowance for
uncollectible accounts of $2,628 and $2,530 60,555 61,817
Accrued utility revenue 19,848 22,869
Other accounts receivable, less allowance for
uncollectible accounts of $306 and $258 9,690 20,450
Materials and supplies (at average cost) 25,213 35,269
Prepaid property taxes 22,301 21,575
Prepayments and other current assets 23,605 21,469
Total Current Assets 165,983 187,480
Deferred Debits:
Income tax recoverable in future rates 75,353 74,731
Deferred revenue taxes 10,466 10,923
Deferred pension and other postretirement benefits 8,051 9,334
IPP settlements 12,625 14,238
Unamortized debt expense (amortized over term
of securities) 10,979 11,153
Other deferred debits 31,176 29,705
Total Deferred Debits 148,650 150,084
Net Assets of Discontinued Operations 1,476 1,645
Total $1,261,890 $1,285,964
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
March 31, December 31,
1998 1997
(Thousands of Dollars)
Capitalization:
Common stock (13,518,737 & 13,589,011 shares
outstanding) $ 67,594 $ 67,945
Premium on capital stock 132,300 132,985
Capital stock expense (6,056) (6,084)
Retained earnings 183,625 181,473
Total 377,463 376,319
Non-redeemable preferred stock (428,443 shares
outstanding) 42,844 42,844
Non-redeemable cumulative preference stock
11,548 and 11,639 shares outstanding) 376 379
Total Non-Redeemable Stock 43,220 43,223
Long-term debt 356,637 356,637
Total Capitalization 777,320 776,179
Non-current Liabilities:
Reserve for claims and damages 4,187 4,591
Post-retirement benefits 13,207 15,334
Pension costs 44,841 43,618
Obligations under capital leases 1,603 1,646
Total Non-current Liabilities 63,838 65,189
Current Liabilities:
Notes payable and obligations due within one year 121,398 130,609
Accounts payable 38,830 57,630
Accrued Federal income and other taxes 10,591 2,929
Refundable fuel and gas costs 6,018 3,848
Refunds to customers 1,292 986
Other current liabilities 25,044 30,678
Total Current Liabilities 203,173 226,680
Deferred Taxes and Other:
Deferred Federal income taxes 191,927 192,514
Deferred investment tax credits 14,289 14,482
Accrued Order 636 transition costs 1,340 1,340
Other deferred credits 10,003 9,580
Total Deferred Taxes and Other 217,559 217,916
Total $1,261,890 $1,285,964
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months
Ended March 31,
1998 1997
(Thousands of Dollars)
Operating Revenues:
Electric $106,096 $107,101
Gas 58,826 77,906
Total Utility Revenues 164,922 185,007
Diversified Activities 159 312
Total Operating Revenues 165,081 185,319
Operating Expenses:
Operations:
Fuel used in electric production 16,274 12,414
Electricity purchased for resale 15,987 18,856
Gas purchased for resale 30,955 48,117
Other expenses of operation 34,225 32,586
Maintenance 7,292 8,959
Depreciation and amortization 8,561 9,377
Taxes other than income taxes 23,804 26,152
Federal income taxes 6,501 7,463
Total Operating Expenses 143,599 163,924
Income from Operations 21,482 21,395
Other Income and (Deductions):
Allowance for other funds used during
construction (3) 15
Investigation costs - (3,390)
Other - net 621 12
Taxes other than income taxes (70) (66)
Federal income taxes (51) 1,409
Total Other Income and (Deductions) 497 (2,020)
Income Before Interest Charges 21,979 19,375
Interest Charges:
Interest on long-term debt 5,945 6,150
Other interest 2,557 1,542
Amortization of debt premium, expense-net 283 397
Allowance for borrowed funds used
during construction (610) (228)
Total Interest Charges 8,175 7,861
Income from Continuing Operations 13,804 11,514
(continued)
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(continued)
Three Months
Ended March 31,
1998 1997
(Thousands of Dollars)
Discontinued Operations:
Loss from discontinued operations
net of related income taxes $ - $ (4,598)
Net Income 13,804 6,916
Dividends on preferred and preference
stock, at required rates 700 700
Earnings applicable to common stock $13,104 $ 6,216
Average number of common shares
outstanding(000's) 13,520 13,654
Basic Earnings Per Average Common Share
Outstanding:
Continuing Operations $ .97 $ .79
Discontinued Operations - (.33)
Total $ .97 $ .46
Dividends declared per common share
outstanding $ .645 $ .645
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Cash Flow Statements (Unaudited)
Three Months Ended
March 31,
1998 1997
(Thousands of Dollars)
Cash Flow from Operations:
Net income $13,804 $6,916
Adjustments to reconcile net income to net cash provided
by (used in)operating activities:
Depreciation and amortization 8,449 9,265
Deferred Federal income taxes (1,333) (2,252)
Deferred investment tax credit (193) (198)
Deferred and refundable fuel and gas costs 2,170 4,781
Allowance for funds used during construction (607) (244)
Other non-cash charges 705 752
Changes in certain current assets and liabilities:
Accounts receivable (net) and
accrued utility revenues 15,043 (4,859)
Materials and supplies 10,056 8,059
Prepaid property taxes (726) (977)
Prepayments and other current assets (2,136) (300)
Operating accounts payable (18,800) (23,741)
Accrued Federal income and other taxes 7,662 10,260
Accrued interest (2,362) (2,771)
Refunds to customers 306 506
Other current liabilities (3,271) (4,461)
Discontinued operations 169 1,804
Other-net 1,481 5,871
Net Cash Provided from Operations 30,417 8,411
Cash Flow from Investing Activities:
Additions to plant (8,357) (12,082)
Temporary cash investments -- 769
Allowance for funds used during construction 607 244
Net Cash Used in Investing Activities (7,750) (11,069)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt -- 20,056
Retirements of:
Common Stock (3,225) --
Preference and preferred stock -- (1,390)
Long-term debt (10) (20,114)
Capital lease obligations (39) --
Net borrowings (repayments) under
short-term debt arrangements* (9,215) 16,530
Dividends on preferred and common stock (9,438) (9,536)
Net Cash Used in Financing Activities (21,927) 5,546
Net Change in Cash and Cash Equivalents 740 2,888
Cash and Cash Equivalents at Beginning of Period 3,513 3,321
Cash and Cash Equivalents at End of Period $ 4,253 $ 6,209
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $10,226 $10,456
Federal income taxes $3,000 --
*Debt with maturities of 90 days or less.
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of March 31, 1998, the consolidated
statements of income for the three month periods ended March 31, 1998 and
1997, and the consolidated cash flow statements for the three month periods
then ended have been prepared by Orange and Rockland Utilities, Inc. (the
"Company") without an audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments and the adjustments
necessitated by the discontinued operations) necessary to fairly present
the financial position and results of operations at March 31, 1998, and for
all periods presented, have been made. The amounts in the consolidated
balance sheet as of December 31, 1997 have been derived from audited
financial statements.
2. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these unaudited
consolidated financial statements, notes to consolidated financial
statements and management's discussion and analysis of financial condition
and results of operations be read in conjunction with the consolidated
financial statements, the review of the Company's results of operations and
financial condition and the notes to consolidated financial statements
included in the Company's December 31, 1997 Annual Report to Shareholders.
The results of operations for the period ended March 31, 1998 are not
necessarily indicative of the results of operations for the full year.
3. The consolidated financial statements include the accounts of the Company,
all subsidiaries and the Company's pro-rata share of an unincorporated
joint venture. All intercompany balances and transactions have been
eliminated.
4. Contingencies at March 31, 1998 are substantially the same as the
contingencies described in the "Notes to Consolidated Financial Statements"
included in the Company's December 31, 1997 Annual Report to Shareholders,
which material is incorporated by reference to the Company's December 31,
1997 Form 10-K Annual Report, and in Item 3, Legal Proceedings of the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1997, except changes in the status of regulatory matters which are updated
in Part I, Item 2 under the caption "Regulatory Activities" and the status
of certain Legal Proceedings which are updated in Part II, Item I, "Legal
Proceedings".
5. In August 1997, Norstar Management, Inc. ("NMI"), a wholly owned indirect
subsidiary of the Company, sold certain of the assets of NORSTAR Energy
Limited Partnership ("NORSTAR"), a natural gas services and marketing
company of which NMI is the general partner. During the first quarter of
1998, NMI continued to wind down the remaining portion of the NORSTAR
business. All activity has been completed with the exception of
finalizing the remaining accounts receivable and payable balances. The
resolution of these items is not expected to have a material effect on the
Company's 1998 consolidated financial position or results of operations.
6. Certain amounts from prior years have been reclassified to conform with the
current year presentation.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition:
Financial Performance
The Company's consolidated earnings per average common share outstanding for the
first quarter of 1998 were $0.97 as compared to $0.46 for the first quarter of
1997. Discontinued operations had no effect on the first quarter of 1998 and
accounted for a loss of $(0.33) per share for the first quarter of 1997.
Settlement costs related to litigation with the Company's former Chairman had no
effect on the first quarter of 1998 and accounted for a loss of $(0.16) per
share for the first quarter of 1997. Fluctuations within the components of
earnings are discussed in the "Results of Operations." The average number of
common shares outstanding was 13.5 million for the first quarter of 1998 and
13.7 for the first quarter of 1997.
The return on average common equity from continuing operations for the twelve
months ended March 31, 1998 was 11.81% as compared to 11.35% for the twelve
months ended March 31, 1997. The return on average common equity, including the
effect of discontinued operations, for the twelve months ended March 31, 1998
was 8.99% as compared to 9.33% for the twelve months ended March 31, 1997.
Capital Resources and Liquidity
At March 31, 1998, the Company and its utility subsidiaries had unsecured bank
lines of credit totaling $140.0 million. The Company borrows under the lines of
credit through the issuance of promissory notes to the banks. However, the
Company primarily utilizes such lines of credit to fully support commercial
paper borrowings. The aggregate amount of borrowings through the issuance of
promissory notes and commercial paper cannot exceed the aggregate lines of
credit. The average daily balance of short-term borrowings for the three months
ended March 31, 1998 amounted to $125.5 million at an effective interest rate of
5.9% as compared to $93.7 million at an effective interest rate of 5.8% for the
same period of 1997. The average daily balance of temporary cash investments
for the three months ended March 31, 1998 was $0.5 million with an effective
interest rate of 5.1% compared to $1.3 million at an effective interest rate of
5.2% for the same period of 1997. The non-utility subsidiaries of the Company
and of Rockland Electric Company ("RECO"), a wholly owned utility subsidiary of
the Company, had no bank lines of credit at March 31, 1998.
On December 18, 1997, the Company issued $80 million of 6 1/2% Debentures due
2027 (Series E)(the "Series E Debentures"). The proceeds of the Series E
Debentures were used to repay promissory notes issued for the purpose of
redeeming two series of the Company's long term debt aggregating $80 million
principal amount which matured during October 1997. The Series E Debentures
were not registered under the Securities Act of 1933 (the "1933 Act") and
were sold to qualified institutional buyers pursuant to Rule 144A of the 1933
Act. Pursuant to an agreement in connection with the sale of the Series E
Debentures, the Company, in January 1998, registered $80 million of 6 1/2%
Debentures due 2027 (Series F)(the "Series F Debentures") under the 1933 Act.
The Series F Debentures are substantially identical to the Series E Debentures
and were offered to holders of the Series E Debentures in exchange for the
Series E Debentures. On March 3, 1998, all of the Series E Debentures were
exchanged for the Series F Debentures.
During December 1997,the Company initiated a Common Stock Repurchase Program.
Pursuant to an Order of the New York Public Service Commission ("NYPSC"), the
Company has authority to repurchase up to 700,000 shares of its common stock not
later than December 31, 1999 in the open market or through privately negotiated
transactions. During February, 1998, the Company temporarily suspended the
Common Stock Repurchase Program. Through March 31, 1998, 136,300 shares of the
Company's common stock have been repurchased at an average price of $45.75 per
share.
The Company currently has no plans for the issuance of additional debt or equity
securities.
Regulatory Activities
New York Competitive Opportunities Proceeding
Electric:
Reference is made to Item 3, Legal Proceedings, under the caption "New York
Competitive Opportunities Proceeding" in the Company's Annual Report on Form
10-K for the year ended December 31, 1997, for a description of the NYPSC
Competitive Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900). On
February 13, 1998, in accordance with the Settlement in the Company's
Competitive Opportunities Proceeding(Case E-0900), the Company filed proposed
unbundled tariffs. The unbundled filing separates the Company's existing
tariffs into production, transmission, distribution and customer cost
categories. The Company expects this phase of the Competitive Opportunities
proceeding to continue throughout the remainder of 1998.
In addition, on April 16, 1998, the NYPSC issued an order (the "April 16, 1998
Order") authorizing the process for auctioning the Company's generating assets.
The NYPSC required that the Company and Consolidated Edison Company of New York,
Inc. ("Con Edison") modify their agreement for the joint auction of the Bowline
Plant. The Company and Con Edison had agreed that the gross proceeds from the
auction of the Bowline Plant, including those from the sale of an adjacent 97
acre parcel of land, would be allocated 70% to Con Edison and 30% to the
Company, until Con Edison receives a maximum premium of $9 million. The premium
would be calculated by multiplying the difference between 70% and 66 2/3% (i.e.,
3 1/3%) by the gross proceeds. Once the maximum premium is reached, any
additional gross proceeds would be allocated two-thirds to Con Edison and one-
third to the Company.
The NYPSC found this arrangement to be unreasonable. According to the NYPSC,
such a premium would be appropriate, however, if it is triggered when proceeds
from the sale of the plant exceed the Company's total costs (book value, taxes
and auction transaction costs). In addition, the Commission ruled that since
the Company is the sole owner of the adjacent 97 acre parcel of land, that
parcel should be treated as a Company asset. Con Edison should not share in the
proceeds from the sale of that parcel.
On May 1, 1998, the Company and Con Edison filed with the NYPSC a revised
agreement, dated April 30, 1998, which complies with the requirements of the
April 16, 1998 Order for the joint auction of the Bowline Plant. The Company
requested that the NYSPC review and approve expeditiously this revised
agreement, in order that the Company can commence its auction process.
The April 16, 1998 Order also required that the Company submit to the NYPSC a
written statement of unconditional acceptance of the modifications and
conditions to the Company's proposed process for auctioning its generating
assets, set forth in the April 16, 1998 Order. By letter dated April 30, 1998,
the Company unconditionally accepted those modifications and conditions.
The Company is unable to predict the outcome of this regulatory proceeding or
its effect on the Company's consolidated financial position or results of
operations. However, the Company anticipates that it will commence the auction
of the generating assets during 1998.
Gas:
Reference is made to Item 3, Legal Proceedings, of the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, under the caption "Regulatory
Matters - Competition," for a discussion of the transition to a competitive
natural gas market. On April 1, 1998, the Company filed "Plans of Orange and
Rockland Utilities, Inc. to Mitigate Stranded Costs" in Case 93-G-0932, the New
York gas restructuring proceeding. The Company's plan indicates that the
Company has not incurred stranded costs to date as a result of its natural gas
restructuring program. As the transition to a competitive retail market
develops, the Company will determine what supply, transportation and storage
contracts it will maintain. Whether the Company incurs stranded costs in the
future will depend upon the continuing development of the gas transportation
market on the Company's distribution system and further NYPSC action in
restructuring the New York gas market. The NYPSC has not yet acted on the
Company's filing. The Company is unable to predict the outcome of regulatory
initiatives undertaken in this regard or the effect on the Company's
consolidated financial position or results of operations.
New Jersey Energy Master Plan
Reference is made to Items 3, Legal Proceedings under the caption "New Jersey -
Energy Master Plan" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, for information regarding the New Jersey Board of
Public Utilities ("NJBPU") Order "Adopting and Releasing Final Report in its
Energy Master Plan Phase II Proceeding to Investigate the Future Structure of
the Electric Power Industry (Docket No. EX 94120585Y)." The Order required RECO
and other New Jersey investor owned electric utilities each to file unbundled
rates, a stranded cost proposal and a restructuring plan. Hearings were
conducted in the stranded cost and unbundled rates phases before an
Administrative Law Judge. The NJBPU issued an order modifying the return date
for a decision from the Administrative Law Judge in the stranded cost and
unbundled rates phases from May 15, 1998 to June 30, 1998. Hearings in the
restructuring phase scheduled for May, 1998 will be heard directly by the NJBPU.
The NJBPU has indicated that it will rule on these filings by October 1998. It
is not possible to predict the outcome of the NJBPU proceeding or its effect, if
any, on the Company's consolidated financial position or results of operations.
QUARTERLY COMPARISON
Results of Operations
The Company's total consolidated earnings per average common share outstanding
for the first quarter of 1998 amounted to $0.97 per share as compared to $0.46
per share for the first quarter of 1997.
The lower earnings experienced during the first quarter of 1997 were primarily
the result of the loss of $(0.33) per share experienced by the Company's now
discontinued gas marketing subsidiary operations as well as a loss of $(0.16)
per share due to settlement costs related to litigation with a former Chairman
and Chief Executive Officer of the Company. During the first quarter of 1998,
utility operating gas revenues were adversely affected by the below-normal sales
resulting from the warm winter weather, the effect of which was somewhat
mitigated by the Company's gas weather normalization clause as described below.
Also partially offsetting the effect of lower gas sales was the Company's
continued success in containing utility operation and maintenance expenses.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and purchased gas cost
recoveries, decreased by $20.1 million during the first quarter of 1998 as
compared to the same quarter of 1997, as a result of lower fuel cost recoveries,
lower gas sales and the reduction in electric base rates effective December,
1997.
Electric operating revenues during the current quarter were $106.1 million as
compared to $107.1 million for the first quarter of 1997, a decrease of $1.0
million.
Actual total sales of electric energy to retail customers during the first
quarter of 1998 were 1,129,511 megawatt hours ("Mwh"), compared with 1,116,718
Mwh during the comparable period a year ago. Revenues associated with these
sales were $101.7 million during the current quarter compared to $104.7 million
during the first quarter of 1997. This decrease in revenue was the result of
base rate reductions and lower fuel cost recoveries partially offset by slightly
higher sales. Sales to other utilities for the first quarter of 1998 amounted to
120,977 Mwh with revenues of $3.4 million compared to 67,924 Mwh and $1.5
million of revenue in 1997. Revenue from these sales are primarily a recovery
of costs, and under the applicable tariff regulations, have a minimal impact on
earnings.
Gas operating revenues during the current quarter were $58.8 million compared to
$77.9 million for the first quarter of 1997, a decrease of $19.1 million. This
decrease is primarily the result of a decrease in the volume of gas sold and the
timing of fuel cost recoveries.
Record warm weather conditions during the first quarter of 1998 resulted in a
decrease in gas sales when compared to the first quarter of 1997. Sales to firm
customers during the first quarter of 1998 totaled 7,860 million cubic feet
("Mmcf"), compared with 8,996 Mmcf during the same period a year ago. Gas
revenues from firm customers were $54.7 million, compared with $72.6 million in
the first quarter of 1997. The level of revenues from gas sales in New York is
subject to a weather normalization clause that compares actual gas heating
season sales levels as measured by heating degree days to the number of
forecasted degree days used to establish gas base revenue requirements. To the
extent that actual degree days differ from forecasted degree days by more than
2.2%, a revenue adjustment is recorded and the difference is either refunded to
or collected from firm gas customers. Interruptible gas sales were 873 Mmcf for
the first quarter of 1998 compared to 878 Mmcf for the same period of 1997.
Revenues from interruptible customers were $2.9 million for the first quarter of
1998 compared to $3.9 million for the first quarter of 1997.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in electric production and purchased electricity costs
amounted to $32.3 million for the first quarter of 1998 compared to $31.3
million for the first quarter of 1997, an increase of $1.0 million. This
increase reflects the increase in demand for electricity, which was partially
offset by a decrease in fuel prices.
Purchased gas costs for utility operations were $31.0 million in the first
quarter of 1998 compared to $48.1 million in 1997, a decrease of $17.1 million.
This decrease in gas costs is attributable to the lower volume of gas purchased
for resale and a reduction in price.
Other Operating and Maintenance Expenses
The Company's total operating expenses excluding fuel, purchased power and gas
purchased for resale for the first quarter of 1998 decreased by $4.2 million
when compared with the same period in 1997. Utility operating expenses
decreased by $4.3 million. Diversified operations expenses increased by $0.1
million.
The decrease in utility operating expenses is the result of reductions in taxes
other than income taxes of $2.3 million, lower depreciation and amortization
expenses of $0.8 million and lower Federal income tax expense of $0.9 million.
The reduction in taxes other than income taxes is primarily due to the change
necessitated by the New Jersey Uniform Transitional Utilities Assessment Act
which, although it resulted in a change in the method of recording the tax, did
not effect the Company's tax liability or the Company's net income for the
period. Depreciation and amortization expense decreased due to the regulatory
adjustments approved in the New York Electric Restructuring Case. Federal
income tax expense decreased due to lower taxable income. Other operation and
maintenance expenses decreased by $0.3 million.
Diversified Activities
The Company's diversified activities consist of energy services and land
development businesses conducted through wholly owned non-utility subsidiaries.
Revenues from diversified activities were $159,000 for the first quarter of 1998
compared with $312,000 a year ago.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions, increased by $2.2
million during the first quarter of 1998 when compared to the same quarter of
1997. This is primarily the result of lower investigation charges, partially
offset by higher interest on a higher average level of short term borrowings.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of a
petition filed by the Company, the six other New York State investor-owned
electric utilities, and the Energy Association of New York State ("Petitioners')
in the New York State Supreme Court pursuant to Article 78 of the New York Civil
Practice Law and Rules challenging the NYPSC's May 20, 1996 Order in the NYPSC
Competitive Opportunities Proceeding, (Case Nos. 94-E-0952 and 96-E-0900). By
Decision and Order on Motion dated April 7, 1998, the Appellate Division has
granted a motion to extend the time to perfect appeals to July 6, 1998.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of matters
related to the Cottman Avenue/Metal Bank Superfund Site in Philadelphia,
Pennsylvania. The United States Environmental Protection Agency ("EPA") has
notified the Company and other potentially responsible parties ("PRP") that the
deadline for responding to the letter received by the Company on February 10,
1998 has been extended to May 26, 1998. In addition, the Company has received a
package of information from the Metal Bank Group which, inter alia, changes the
Company's allocated share to 4.34% and which sets forth an amount ($536,519.00)
which the Metal Bank Group believes the Company should pay for the Company's pro
rata share of past expenses incurred by the Group in conducting a remedial
investigation and feasibility study at the Site. The Company will negotiate
with the Metal Bank Group concerning these matters. The Company is unable at
this time to estimate the Company's share, if any, of past or future costs at
this site.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of six
former Manufactured Gas Plant ("MGP") sites which were owned or operated by the
Company or its predecessors. The Company has prepared revised work plans for
the initial three MGP sites based on comments received from the New York State
Department of Environmental Conservation ("DEC"), and is awaiting DEC approval
of the revised work plans. As to the two additional sites for which the Company
had submitted draft work plans to the DEC, the DEC has approved these work plans
and the Company has commenced the site investigation work at those sites. The
Company will be preparing reports relative to this site investigation work.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 for a description of a
litigation entitled Crossroads Cogeneration Corporation v. Orange and Rockland
Utilities, Inc., filed in the United States District Court for the District of
New Jersey. The United States Court of Appeals for the Third Circuit heard oral
argument on Crossroads' appeal on April 23, 1998, and has reserved decision.
The Company is unable to predict the outcome of this proceeding or its effect on
the Company's consolidated financial position or results of operations.
Reference is made to Item 5, Other Events, in the Company's Current Report on
Form 8-K dated March 9, 1998, for a description of a litigation entitled
Virgilio Ciullo, et al. v. Orange and Rockland Utilities, Inc., et al. In
response to the motion to dismiss filed by the O&R Defendants and the Company on
March 30, 1998, plaintiffs have filed a Verified Amended Complaint and a
Memorandum of Law in Support of Their Answer to Defendants' Motion to Dismiss
the Complaint. Plaintiffs take the position that the Verified Amended Complaint
moots the motion to dismiss. The Verified Amended Complaint essentially seeks
the same relief as the original Complaint (including a broader request for an
accounting and an increase in the $15 million claim (referred to in the Form 8-
K) to $23 million) and contains additional allegations which Plaintiffs claim
will cure any deficiencies in the original Complaint. In addition, the Verified
Amended Complaint adds Andersen Consulting LLP as a defendant. The O&R
Defendants and the Company plan to move to dismiss the Verified Amended
Complaint.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, and to Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in
this Form 10-Q Quarterly Report, for a description of the NYPSC Competitive
Opportunities Proceeding (Case Nos. 94-E-0952 and 96-E-0900). The Public Utility
Law Project of New York, Inc. ("PULP"), by complaint dated April 30, 1998, has
instituted an action against the NYPSC, the New York State Department of Public
Service ("NYDPS") and the Company. PULP contends that the NYPSC, in its Opinion
No. 97-20 approving the Company's Electric Rate and Restructuring Plan, exceeded
its statutory authority when it ordered the Company to file tariffs providing
for retail wheeling service to all customer classes. PULP claims that the
expenditure of state funds by the defendants NYPSC and NYDPS to implement the
provision of residential electric service by energy services companies violates
the Home Energy Fair Practices Act and is a wrongful application of state funds.
PULP also contends that Opinion No. 97-20 establishes rules for the provision of
retail energy services in violation of the State Administrative Procedure Act.
The Company plans to file a motion to dismiss. The Company is unable to predict
the outcome of this regulatory proceeding and the effect on the Company's
consolidated financial position or results of operations.
Reference is made to Item 3, Legal Proceedings, in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, and to Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, in
this Form 10-Q Quarterly Report, for a description of proceedings relating to
the transition to a competitive natural gas market. The Company is unable to
predict the outcome of regulatory initiatives undertaken in this regard or the
effect on the Company's consolidated financial position or results of
operations.
Forward-Looking Information
The Company has made forward-looking statements in this document with respect to
the financial condition, results of operations and business of the Company in
the future, which involve certain risks and uncertainties. Forward-looking
statements are included in Item 1 of Part I of this Form 10-Q in the Notes to
Consolidated Financial Statements as well as in this Item 1 under the caption
"Legal Proceedings" with respect to certain pending litigation matters. For all
of those statements, the Company claims the protections of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
Item 4. Submission of Matters to a Vote of Security Holders:
(a) The Company's Annual Meeting of Shareholders was held on April 8, 1998.
(b) At the Annual Meeting of Shareholders on April 8, 1998, the following
directors were elected for a three-year term expiring at the Annual Meeting
of Shareholders in 2001: Robert E. Mulcahy III, James F. O'Grady, Jr. and
D. Louis Peoples. The terms of office of the following Directors continued
after the meeting: Ralph M. Baruch, J. Fletcher Creamer, Michael J.
DelGiudice, Jon F. Hanson, Kenneth D. McPherson, Frederic V. Salerno and
Linda C. Taliaferro.
(c) The following matters were submitted to a vote of security holders at the
Company's Annual Meeting of Shareholders held on April 8, 1998:
1. The Company's nominees for election as Directors were approved by the
following vote:
Shares Shares Broker
For Withheld Non-Votes
Robert E. Mulcahy III 11,190,147 356,097 N/A
James F. O'Grady, Jr. 11,187,286 358,958 N/A
D. Louis Peoples 11,201,972 344,272 N/A
2. A proposal to appoint the firm of Arthur Andersen LLP, independent
public accountants, to audit the books, records and accounts of the
Company and its subsidiaries for the year 1998 was approved by the
following vote:
Shares Shares Shares Broker
For Against Abstaining Non-Votes
11,275,480 113,580 157,184 N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.52 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and G. D. Caliendo, dated
May 10, 1998, providing for the termination of Mr.
Caliendo's employment with the Company at the effective time
of the Merger and the payment of certain amounts in
accordance with the severance agreement between the Company
and G. D. Caliendo dated January 21, 1996.
10.53 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and R. Lee Haney, dated
May 10, 1998, providing for the termination of Mr. Haney's
employment with the Company at the effective time of the
Merger and the payment of certain amounts in accordance with
the severance agreement between the Company and R. Lee Haney
dated January 22, 1996.
10.54 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and Robert McBennett,
dated May 10, 1998, providing for the termination of Mr.
McBennett's employment with the Company at the later of the
effective time of the Merger or July 1, 1999 and the payment
of certain amounts in accordance with the severance
agreement between the Company and Robert McBennett dated
October 27, 1997.
10.55 - Agreement among the Company, Consolidated
Edison, Inc., C Acquisition Corp. and D. Louis Peoples,
dated May 10, 1998, providing for the termination of Mr.
People's employment with the Company at the effective time
of the Merger and the payment of certain amounts in
accordance with the severance agreement between the Company
and D. Louis Peoples dated January 22, 1996.
27 - Financial Data Schedule.
99.14 - The Company's Final Divestiture Plan as approved by the
NYPSC on April 8, 1998
(b) Reports on Form 8-K
On February 6, 1998, the Company filed a Current Report on Form 8-K
dated February 5, 1998 regarding the election of Michael J. Del
Giudice to the position of Chairman of the Company's Board of
Directors.
On April 1, 1998, the Company filed a Current Report on Form 8-K dated
March 9, 1998 regarding a lawsuit brought against the Company by three
alleged shareholders.
On April 9, 1998, the Company filed a Current Report on Form 8-K
dated April 8, 1998 regarding the approval by the NYPSC of the
Company's Final Divestiture Plan.
On May 12, 1998, the Company filed a Current Report on Form 8-K
dated May 10, 1998 regarding the definitive Agreement and Plan of
Merger, dated as of May 10, 1998, entered into on May 10, 1998 by and
among the Company, Consolidated Edison, Inc., a New York corporation
("CEI"), and C Acquisition Corp., a New York corporation and a wholly-
owned subsidiary of CEI.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
(Registrant)
Date: May 14, 1998 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer
Date: May 14, 1998 By EDWARD M. McKENNA
Edward M. McKenna
Controller