UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 13,519,349 shares
(Class) (Outstanding at July 31, 1998)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at
June 30, 1998 and December 31, 1997 1
Consolidated Statements of Income (Unaudited)
for the three months and six months ended
June 30, 1998 and June 30, 1997 3
Consolidated Cash Flow Statements (Unaudited)
for the six months ended June 30, 1998
and June 30, 1997 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 18
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
June 30, December 31,
1998 1997
(Thousands of Dollars)
Utility Plant:
Electric $1,050,008 $1,047,857
Gas 234,649 232,206
Common 93,868 64,570
Utility Plant in Service 1,378,525 1,344,633
Less accumulated depreciation 489,819 471,865
Net Utility Plant in Service 888,706 872,768
Construction work in progress 50,822 63,445
Net Utility Plant 939,528 936,213
Non-utility Property:
Non-utility property 11,663 11,651
Less accumulated depreciation, depletion
and amortization 1,187 1,109
Net Non-utility Property 10,476 10,542
Current Assets:
Cash and cash equivalents 7,047 3,513
Temporary cash investments 518 518
Customer accounts receivable, less allowance for
uncollectible accounts of $2,774 and $2,530 48,306 61,817
Accrued utility revenue 24,047 22,869
Other accounts receivable, less allowance for
uncollectible accounts of $212 and $258 12,171 20,450
Materials and supplies (at average cost) 27,703 35,269
Prepaid property taxes 12,467 21,575
Prepayments and other current assets 38,310 21,469
Total Current Assets 170,569 187,480
Deferred Debits:
Income tax recoverable in future rates 74,869 74,731
Deferred revenue taxes 11,340 10,923
Deferred pension and other post retirement benefits 8,455 9,334
IPP settlement costs 10,425 14,238
Unamortized debt expense (amortized over term
of securities) 10,701 11,153
Other deferred debits 31,111 29,705
Total Deferred Debits 146,901 150,084
Net Assets of Discontinued Operations 1,112 1,645
Total $1,268,586 $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
June 30, December 31,
1998 1997
(Thousands of Dollars)
Capitalization:
Common stock (13,519,327 & 13,589,011 shares
outstanding) $ 67,596 $ 67,945
Premium on capital stock 132,310 132,985
Capital stock expense (6,045) (6,084)
Retained earnings 169,853 181,473
Total 363,714 376,319
Non-redeemable preferred stock (428,443 shares
outstanding) (Note 7) - 42,844
Non-redeemable cumulative preference stock
(11,144 and 11,639 shares outstanding) (Note 7) - 379
Total Non-Redeemable Stock - 43,223
Long-term debt 356,636 356,637
Total Capitalization 720,350 776,179
Non-current Liabilities:
Reserve for claims and damages 4,613 4,591
Postretirement benefits 12,996 15,334
Pension costs 45,520 43,618
Obligations under capital leases 1,561 1,646
Total Non-current Liabilities 64,690 65,189
Current Liabilities:
Notes payable and obligations due within one year (Note 7) 178,108 130,609
Accounts payable 48,129 57,630
Accrued Federal income and other taxes 2,062 2,929
Refundable fuel and gas costs 3,177 3,848
Refunds to customers 1,613 986
Other current liabilities 35,857 30,678
Total Current Liabilities 268,946 226,680
Deferred Taxes and Other:
Deferred Federal income taxes 193,663 192,514
Deferred investment tax credits 14,097 14,482
Accrued Order 636 transition costs 1,340 1,340
Other deferred credits 5,500 9,580
Total Deferred Taxes and Other 214,600 217,916
Total $1,268,586 $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 Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
(Thousands of Dollars)
Operating Revenues:
Electric $115,748 $111,879 $221,844 $218,980
Gas 23,602 25,146 82,428 103,052
Total Utility Revenues 139,350 137,025 304,272 322,032
Diversified Activities 199 170 358 482
Total Operating Revenues 139,549 137,195 304,630 322,514
Operating Expenses:
Operations:
Fuel used in electric production 25,875 15,770 42,149 28,184
Electricity purchased for resale 10,183 14,004 26,170 32,860
Gas purchased for resale 12,510 13,800 43,465 61,917
Other expenses of operation 34,146 36,321 68,371 68,908
Maintenance 10,737 9,028 18,029 17,987
Depreciation and amortization 8,740 8,838 17,301 18,215
Taxes other than income taxes 21,532 23,435 45,336 49,587
Federal income taxes 3,114 2,931 9,615 10,394
Total Operating Expenses 126,837 124,127 270,436 288,052
Income from Operations 12,712 13,068 34,194 34,462
Other Income and (Deductions):
Allowance for other funds used during
construction 6 19 3 34
Investigation costs - - - (3,390)
Other - net 27 740 648 752
Taxes other than income taxes (68) (66) (138) (132)
Federal income taxes 143 (19) 92 1,390
Total Other Income &(Deductions) 108 674 605 (1,346)
Income Before Interest Charges 12,820 13,742 34,799 33,116
Interest Charges:
Interest on long-term debt 6,016 6,011 11,961 12,161
Other interest 1,927 1,773 4,484 3,315
Amortization of debt premium,
expense-net 285 412 568 808
Allowance for borrowed funds used
during construction (484) (165) (1,094) (393)
Total Interest Charges 7,744 8,031 15,919 15,891
Income from Continuing Operations 5,076 5,711 18,880 17,225
(continued)
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(continued)
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
(Thousands of Dollars)
Discontinued Operations (Note 5):
Loss from discontinued
operations, net of related income taxes $ - $(2,140) $ - $(6,738)
Estimated net loss on disposal of discontinued
operations - (4,565) - (4,565)
Loss with respect
to discontinued operations - (6,705) - (11,303)
Net Income (Loss) 5,076 (994) 18,880 5,922
Dividends on preferred and preference
stock, at required rates 699 699 1,399 1,399
Earnings applicable to common stock $4,377 $(1,693) $17,481 $ 4,523
Avg. number of common shares
outstanding (000's) 13,519 13,654 13,520 13,654
Basic Earnings Per Average Common Share
Outstanding:
Continuing Operations $ .32 $ .37 $ 1.29 $ 1.16
Discontinued Operations $ - $ (.50) $ - $ (.83)
Total $ .32 $ (.13) $ 1.29 $ .33
Dividends declared per common share
outstanding $ 1.29 $ 1.29 $ 1.94 $ 1.94
The accompanying notes are an integral part of these statements.
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Cash Flow Statements (Unaudited)
Six Months Ended
June 30,
1998 1997
(Thousands of Dollars)
Cash Flow from Operations:
Net income $18,880 $5,922
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,076 17,991
Deferred Federal income taxes 776 (873)
Deferred investment tax credit (385) (397)
Deferred and refundable fuel and gas costs (671) 1,371
Allowance for funds used during construction (1,098) (427)
Other non-cash charges 78 2,000
Changes in certain current assets and liabilities:
Accounts receivable (net) and
accrued utility revenues 20,612 7,333
Materials and supplies 7,566 5,986
Prepaid property taxes 9,108 8,248
Prepayments and other current assets (16,841) (17,596)
Operating accounts payable (9,501) (15,856)
Accrued Federal Income and other taxes (867) 243
Accrued interest 185 (432)
Refunds to customers 627 665
Other current liabilities (4,425) (3,451)
Discontinued Operations 533 8,193
Other-net 419 9,887
Net Cash Provided from Operations 42,072 28,807
Cash Flow from Investing Activities:
Additions to plant (21,740) (29,982)
Temporary cash investments - 769
Allowance for funds used during construction 1,097 427
Net Cash Used in Investing Activities (20,643) (28,786)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt - 20,083
Issuance of capital lease obligations - 2,020
Retirements of:
Common stock (3,225) -
Preference and preferred stock - (1,390)
Long-term debt (19) (25,243)
Capital lease obligations (79) (129)
Net borrowings (repayments) under
short-term debt arrangements* 4,285 25,181
Dividends on preferred and common stock (18,857) (19,043)
Net Cash Used in Financing Activities (17,895) 1,479
Net Change in Cash and Cash Equivalents 3,534 1,500
Cash and Cash Equivalents at Beginning of Period 3,513 3,321
Cash and Cash Equivalents at End of Period $ 7,047 $ 4,821
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $15,729 $15,858
Federal income taxes $14,500 $10,000
*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 June 30, 1998, the
consolidated statements of income for the three month and
six month periods ended June 30, 1998 and 1997, and the
consolidated cash flow statements for the six month periods
then ended have been prepared by Orange and Rockland
Utilities, Inc. (the "Company") without an audit. In the
opinion of management, all adjustments (which include normal
recurring adjustments and the adjustments necessitated by
discontinued operations) necessary to fairly present the
financial position and results of operations at June 30,
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 June 30, 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 inter-company
balances and transactions have been eliminated.
4. Contingencies at June 30, 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
1, "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 second 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. On May 10, 1998, the Company, Consolidated Edison, Inc.
("CEI") and C Acquisition Corp., a wholly owned subsidiary of
CEI, ("Merger Sub") entered into an Agreement and Plan of
Merger ("Merger Agreement")providing for a merger
transaction among the Company, CEI and the Merger Sub.
Pursuant to the Merger Agreement, Merger Sub will merge with
and into the Company (the "Merger"), with the Company
becoming the surviving corporation and becoming a wholly owned
subsidiary of CEI. The Merger is expected to occur shortly
after all of the conditions to the consummation of the
Merger, including the receipt of certain regulatory approvals,
are met or waived. The Company anticipates that regulatory
approvals can be obtained in twelve months.
7. The Merger Agreement requires the redemption of the
Company's Cumulative Preferred Stock and Cumulative Preference
Stock. The Company intends to redeem those issues as soon as
practicable, but in any event prior to the effective date of the
merger. These issues of stock are reflected on the Consolidated
Balance Sheet at June 30, 1998 as Current Liabilities. Effective
July 1, 1998, through the first half of 1999, the Company will
accrete the estimated call price over the carrying amount for the
Preferred and Preference Stock being redeemed.
8. Certain amounts reported for the prior year have been
reclassified to conform with the current year presentation.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition:
Financial Performance
The Company's consolidated basic earnings per average common
share outstanding for the second quarter of 1998 were $0.32 as
compared to $(0.13) for the second quarter of 1997. Discontinued
operations had no effect on the second quarter of 1998 and
accounted for a loss of $0.50 for the second 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 second quarter of 1998 and
13.7 million for the second quarter of 1997.
The return on average common equity from continuing operations
for the twelve months ended June 30, 1998 was 11.62% as compared
to 11.03% for the twelve months ended June 30, 1997. The return
on average common equity, including the effect of discontinued
operations, for the twelve months ended June 30, 1998 was 10.65%
as compared to 7.45% for the twelve months ended June 30, 1997.
Capital Resources and Liquidity
At June 30, 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. In addition, non-utility lines of
credit amounted to $20.0 million at June 30, 1997, and the non-
utility subsidiaries may undertake short-term borrowings or make
short-term investments.The average daily balance of short-term
borrowings for the six months ended June 30, 1998 amounted to
$119.7 million at an effective interest rate of 5.9% as compared
to $95.1 million at an effective interest rate of 5.7% for the
same period of 1997. The average daily balance of temporary cash
investments for the six months ended June 30, 1998 was $0.6
million with an effective interest rate of 5.2% compared to $1.0
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
June 30, 1998.
The Company has outstanding 428,443 shares of Non-Redeemable
Cumulative Preferred Stock and 11,144 shares of Non-Redeemable
Preference Stock (the "Preferred and Preference Stock") in
various series, which together amount to $43.2 million. As
provided in the Merger Agreement, the Company intends to call for
redemption all outstanding shares of the Preferred and Preference
Stock as soon as practicable, but not later than the effective
date of the merger. The Company intends to issue long-term debt
of approximately $45 million to provide funds for the redemption
of the Preferred and Preference Stock. The Company currently has
no other plans for the issuance of additional Company debt or
equity securities.
The Company's Pennsylvania subsidiary, Pike County Light & Power
Company ("Pike"), has outstanding an aggregate of $2,683,500 of
First Mortgage Bonds as follows: Series A, 9.00% due 2001 (the
"Series A Bonds") and Series B, 9.95% due 2020 (the "Series B
Bonds"). In light of current interest rates, it has been
determined that it may be economical to refund the Series A Bonds
and the Series B Bonds. On July 29, 1998, Pike filed a petition
with the Pennsylvania Public Utility Commission ("PPUC")
requesting authority to issue up to $3.5 million of First
Mortgage Bonds, the proceeds of which would be used primarily for
the refinancing of the Series A Bonds and the Series B Bonds,
with any remaining funds being used to finance capital
expenditures and for other corporate purposes. A decision on
this petition is expected during September 1998.
Regulatory Activities
New York Competitive Opportunities Proceeding
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,
and to Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations, in the Company's Form 10-Q
Quarterly Report for the quarter ended March 31, 1998, for a
description of the New York Public Service Commission's ("NYPSC")
Competitive Opportunities Proceeding (Case Nos. 94-E-0952 and
96-E-0900).
The Company and Consolidated Edison Company of New York, Inc.
("Con Edison") filed with the NYPSC a revised agreement dated May
18, 1998 which provides for the joint auction of the Bowline
Plant. The parties have agreed that the gross proceeds from the
sale of the Bowline Plant will be allocated on the basis of their
ownership interest (i.e., Con Edison's 66 2/3 percent interest
and the Company's 33 1/3 percent interest). In addition, in
consideration for Con Edison's agreement to a joint sale of the
Bowline Plant as part of the Company auction and to comply with
the Company's auction timetable, the parties agreed that Con
Edison will be entitled to a premium, which will be triggered
when the sale of the Bowline Plant results in a net gain to the
Company. When triggered, Con Edison's premium will be equal to
3 1/3 percent of the gross proceeds from the sale of the Bowline
Plant, but in no event shall Con Edison's premium exceed the
lesser of (i) $9 million or (ii) the Company's net gain on its
share of the Bowline Plant. In addition, the parties agreed that
Con Edison will not share in the proceeds from the sale of a 97
acre parcel of land, solely owned by the Company, adjacent to the
Bowline Plant.
The Company has commenced the process of auctioning its
generating assets. Final bids are expected to be submitted in
October 1998.
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.
New Jersey Energy Master Plan
Reference is made to Item 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 unbundling phases. The NJBPU
issued an order extending the return date for a decision from the
Administrative Law Judge until August 14, 1998. Hearings in the
restructuring phase scheduled for May 1998 were held before 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.
Pennsylvania - Competitive Legislation
Reference is made to Item 3, Legal Proceedings, under the caption
"Pennsylvania - Competition Legislation" in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 for a
description of the "Electricity Generation Customer Choice and
Competition Act." The Company's subsidiary, Pike, is a
Pennsylvania electric and gas utility company.
On July 23, 1998 the PPUC issued an Order approving the Joint
Petition for Complete Settlement of Pike's Proposed Restructuring
Plan. This Joint Petition, dated May 15, 1998, was supported by
all parties in Pike's electric restructuring proceeding and
provides for full retail access for all customers as of May 1,
1999. The settlement provides for the recovery, through a
competitive transition charge, of stranded costs relating to non-
utility generator ("NUG") contracts, NUG contract buyout costs
previously incurred and deferred fuel costs incurred to May 1,
1999. Pike's share of any net gains from the divestiture of the
Company's electric generating facilities will be used to offset
stranded costs.
Proposed Merger with Consolidated Edison, Inc.
Reference is made to the Company's Current Report on Form 8-K
dated May 12, 1998, for a description of the Agreement and Plan
of Merger, dated as of May 10, 1998, entered into among the
Company, CEI and Merger Sub. The Company has called a Special
Meeting of the Common Shareholders of the Company, to be held on
August 20, 1998, to consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Merger.
On June 22, 1998 the Company, CEI and Con Edison filed a Joint
Petition with the NYPSC requesting approval of the merger between
the Company and the Merger Sub (the "Merger"). The Parties have
requested that the NYPSC review and approve this Joint Petition
prior to March 31, 1999.
On July 2, 1998 the Company, CEI and Con Edison filed a Joint
Petition with the NJBPU requesting approval of the Merger. The
Parties have requested that the NJBPU review and approve this
Joint Petition on or before February 1, 1999.
On July 2, 1998 Pike filed an Application with the PPUC
requesting approval of the Merger. Pike requested that the PPUC
review and approve this Application prior to March 31, 1999.
QUARTERLY COMPARISON
Results of Operations
The Company's total consolidated basic earnings per average
common share outstanding for the second quarter of 1998 were
$0.32 as compared to $(0.13) for the second quarter of 1997.
The lower earnings experienced during the second quarter of 1997
were primarily the result of the loss of $0.50 per share
experienced by the Company's now discontinued gas marketing
subsidiary operations.
Earnings from continuing operations were $0.32 per share for
the second quarter of 1998, compared with $0.37 per share in
the same period a year ago. This decline is primarily the
result of higher property taxes and depreciation expense of
$0.8 million and $0.5 million, respectively, which increased,
after eliminating regulatory adjustments related to the
December 1, 1997 New York Electric Restructuring Plan. The
depreciation expense increase of $0.5 million is primarily the
result of an increase of $0.3 million of depreciation due to
various plant additions, with the balance related to the
Company's new Customer Information Management System which was
installed during June 1998. Also contributing to the decline
were lower firm gas sales volumes of 6.5 percent due primarily to
milder than normal weather. Partially offsetting the decline
were higher electric sales volumes (other than off-system sales)
of 5.3 percent in the second quarter of 1998. Comparative
results also reflect the Company's continued success in
containing other operating and maintenance expenses.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and
purchased gas cost recoveries, increased by $2.3 million during
the second quarter of 1998 as compared to the same quarter of
1997, as a result of higher electric sales and fuel cost
recoveries, offset by a reduction in base rates effective
December 1997.
Electric operating revenues during the current quarter were
$115.7 million as compared to $111.9 million for the second
quarter of 1997, an increase of $3.8 million.
Total sales of electric energy to retail customers during the
second quarter of 1998 were 1,166,031 megawatt hours ("Mwh"),
compared with 1,107,458 Mwh during the comparable period a year
ago. Revenues from these sales were $110.4 million for the
second quarter compared with $110.5 million for the same period
in 1997. Electric revenue was reduced by $1.9 million during the
second quarter of 1998 due to the change necessitated by the New
Jersey Uniform Transitional Utilities Assessment Act. This Act,
although it resulted in a change in the method of recording the
tax by lowering revenue and correspondingly lowering taxes other
than income taxes, did not affect the Company's tax liability or
the Company's net income for the period. In addition, partially
offsetting the effect of the higher sales was the impact of base
rate reductions effective December 1, 1997. Sales to other
utilities for the second quarter of 1998 amounted to 198,585 Mwh
with revenues of $4.7 million compared to 29,589 Mwh and $0.6
million in 1997. Revenues from these sales are primarily a
recovery of costs, and under the applicable tariff regulations,
have a minimal impact on earnings.
Gas operating revenues during the second quarter of 1998 were
$23.6 million compared to $25.1 million for the second quarter of
1997, a decrease of $1.5 million. This decrease is primarily the
result of a decrease in the volume of gas sold and the timing of
fuel cost recoveriesa.
Sales to firm customers totaled 2,878 million cubic feet
("Mmcf"), compared with 3,081 Mmcf during the same period a year
ago. Gas revenues from firm customers were $20.3 million,
compared with $21.1 million in the second quarter of 1997. The
level of revenue from gas sales in New York is subject to a
weather normalization clause that provides for revenue
adjustments, which are either collected from or refunded to
customer, for degree day variations of 2.2% or more from base
rate forecast levels. Interruptible gas sales were 696 Mmcf for
the second quarter of 1998 compared to 844 Mmcf for the same
period of 1997. Revenues from interruptible customers were $2.3
million in 1998 compared to $3.0 million in 1997.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs amounted to $36.1 million for the
second quarter of 1998 compared to $29.8 million for the second
quarter of 1997, an increase of $6.3 million. This increase
reflects the increased demand for electricity, including sales to
other utilities, which was partially offset by a decrease in fuel
and purchased power prices.
Purchased gas costs for utility operations were $12.5 million in
the second quarter of 1998 compared to $13.8 million in 1997, a
decrease of $1.3 million. This decrease in gas costs is
attributable to the lower volume of gas purchased for resale.
Other Operating and Maintenance Expenses
The Company's total operating and maintenance expenses excluding
fuel, purchased power and gas purchased for resale for the second
quarter of 1998 decreased by $2.3 million compared with the same
period in 1997. Utility operating expenses decreased $1.8
million. Diversified operating expenses decreased by $0.5
million.
The decrease in utility operating expenses is the result of
reductions in taxes other than income taxes of $1.9 million and
lower depreciation and amortization of $0.1 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 discussed above. The reduction was also
impacted by regulatory adjustments related to the New York
Electric Restructuring Plan partially offset by an increase in
property taxes of $0.8 million. Depreciation and amortization
also decreased due to the regulatory adjustments approved in the
New York Electric Restructuring Case. After eliminating the
regulatory adjustments, depreciation expense increased due to
normal plant additions and the amortization of the Company's new
customer accounting system. Other operating and maintenance
expenses increased by $0.2 million.
Diversified Activities
The Company's diversified activities consist of energy related
services and business ventures and land development conducted
through wholly owned non-utility subsidiaries.
Revenues from all diversified activities were $199,000 for the
second quarter of 1998 compared with $ 170,000 a year ago.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions,
decreased by $0.3 million during the second quarter of 1998 when
compared to the same quarter of 1997 due primarily to the gain on
disposition of property in 1997 by one of the Company's
diversified land development subsidiaries.
YEAR TO DATE COMPARISON
Results of Operations
Basic earnings per average common share outstanding for the
first half of 1998 amounted to $1.29 per share as compared to
$0.33 per share for the first six months of 1997. Discontinued
operations had no effect on the first half of 1998 but accounted
for a loss of $0.83 per share for the first half of 1997.
Settlement costs related to litigation with the Company's former
Chairman had no effect on the first half of 1998 but reduced
earnings by $0.16 per share for the first half of 1997. During
the first quarter of 1998, gas operating revenues were adversely
affected by below-normal sales resulting from the warm winter
weather, the effect of which was somewhat mitigated by the
Company's gas weather normalization clause.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and
purchased gas cost recoveries, decreased by $17.8 million in the
first six months of 1998 as compared to the same period of 1997.
Electric operating revenues during the current period were $221.8
million as compared to $219.0 million for the first six months of
1997, an increase of $2.8 million.
Total sales of electric energy to retail customers during the
first six months of 1998 were 2,295,542 Mwh, compared to
2,224,176 Mwh during the comparable period a year ago. This
increase is attributable to increased usage per customer when
compared to the same period a year ago. Revenues from these
sales during the first six months of 1998 were $212.0 million as
compared to $215.2 million for the same period in 1997. Electric
revenue was reduced due to a reduction in base rates effective
December 1997 as well as the change necessitated by the New
Jersey Uniform Transitional Utilities Assessment Act discussed
above. Sales to other utilities for the first six months of 1998
amounted to 319,563 Mwh with revenues of $8.1 million compared to
97,513 Mwh and $2.1 million in 1997. Revenues 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 first six months of 1998 were
$82.4 million compared to $103.1 million for the first six months
of 1997, a decrease of $20.7 million. Revenues decreased due to
lower gas cost recoveries and lower sales volumes from a mild
winter.
Record warm weather conditions during the first quarter of 1998
resulted in a decrease in gas sales as compared to the first
quarter of 1997. Sales to firm customers during the first six
months of 1998 totaled 10,738 Mmcf, compared with 12,077 Mmcf
during the same period a year ago. Gas revenues from firm
customers were $74.9 million, compared with $93.7 million in the
first six months of 1997. The level of revenue from gas sales in
New York is subject to a weather normalization clause that
provides for revenue adjustments, which are either collected from
or refunded to customers, for degree day variations of 2.2% or
more from base rate forecast levels.
Fuel, Purchased Electricity and Purchased Gas Costs
The cost of fuel used in the production of electricity and
purchased electricity costs increased by $7.3 million during the
first six months of 1998 when compared to the same period of
1997. This increase reflects increased demand which was
partially offset by a decrease in the price of fuel and
purchased power.
Purchased gas costs for utility operations were $43.5 million in
the first six months of 1998 compared to $61.9 million in 1997, a
decrease of $18.4 million. This decrease in gas costs is
attributable to a lower the volume of gas purchased for resale
and lower prices.
Other Operating and Maintenance Expenses
The Company's total operating and maintenance expenses, excluding
fuel, purchased power and gas purchased for resale for the first
six months of 1998 decreased by $6.4 million compared with the
same period in 1997. The decrease in expenses associated with
utility operating expenses amounted to $6.1 million. The change
in diversified operating and maintenance expenses was a decrease
of $0.3 million. The decrease in utility operating expenses is
the result of reductions in taxes other than income taxes of $4.2
million, lower depreciation and amortization expense of $0.9
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 discussed above, offset by a $1.4
million increase in property taxes for the first half of 1998 as
compared to the first half of 1997. Depreciation and amortization
expense decreased due to the regulatory adjustments approved in
the New York Electric Restructuring Case. After eliminating the
regulatory adjustments, depreciation expense increased due to
plant additions and the amortization of the Company's new
customer accounting system. Other operating and maintenance
expense decreased by $0.1 million.
Diversified Activities
Revenues from diversified activities decreased by $124,000 million
for the first six months of 1998 as compared to the same period
of 1997.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions,
increased by $1.9 million during the first six months of 1998
when compared to the same period of 1997. The increase is due
primarily to the absence of investigation costs in 1998.
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 July 14, 1998, the Appellate Division has granted a motion
to extend the time to perfect appeals to October 12, 1998.
Reference is made to Part II, Item 1, Legal Proceedings, in the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, for a description of the complaint filed by the
Public Utility Law Project of New York, Inc. against the NYPSC,
the New York State Department of Public Service and the Company
in the Company's Electric Restructuring Proceeding (Case 96-E-
0900). On May 26, 1998, the Company filed a motion to dismiss
the complaint. 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, 1997
and to Part II, Item I, Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, for a description of matters related to the Cottman
Avenue/Metal Bank Superfund Site ("Site") in Philadelphia,
Pennsylvania. On July 21, 1998, the Company joined the Metal
Bank Group by agreeing to pay $350,000. This amount represents
the Company's pro rata share of past expenses incurred by the
Group in conducting a remedial investigation and feasibility
study at the Site. On June 26, 1998, the United States
Environmental Protection Agency ("EPA") issued an Administrative
Order for Remedial Design and Remedial Action to the Company and
other potentially responsible parties ("PRPs"). This Order
requires the Company and the other PRPs to select a contractor,
prepare a remedial design work plan for the EPA's review and
approval, and remediate the Site. On July 23, 1998, the Company
and the other members of the Metal Bank Group met with the EPA to
discuss the Order. By letter dated July 28, 1998, the Company
and the other members of the Metal Bank Group notified the EPA of
their intent to proceed with the work required by the Order.
On June 25, 1998, Econo-Truck Inc. ("Econo-Truck") served the
Company with a Summons with Notice requesting total compensatory
and punitive damages of $28 million for, among other things,
trespass, nuisance and tortious interference with business. The
Company has not yet been served by Econo-Truck with a complaint
in this action. 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.
Forward-Looking Information
The Company has made forward-looking statements in this Form 10-Q
Quarterly Report 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 in the Notes to
Consolidated Financial Statements and in Item 2 of Part I,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, under the captions "Capital Resources and
Liquidity" and "Regulatory Activities" as well as in this Part II
Item I 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
+ 10.56 Agreement among the Company, Consolidated Edison,
Inc., C Acquisition Corp. and N. M Jakobs dated
July 15, 1998, providing for the termination of
Ms. Jakobs 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 N. M. Jakobs
dated October 27, 1997 as amended January 8, 1998.
+ 10.57 Severance Agreement entered into between Orange
and Rockland Utilities, Inc. and G. V. Bubolo, Jr.
effective April 10, 1998.
27 Financial Data Schedule
+ Denotes executive compensation plans and arrangements.
(b) Reports on Form 8-K
On July 10, 1998, the Company filed a Current Report on Form
8-K dated June 18, 1998 regarding litigation entitled
Virgilio Ciullo, et al. v. Orange and Rockland Utilities,
Inc., et al.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
(Registrant)
Date: August 11, 1998 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer
Date: August 11, 1998 By EDWARD M. McKENNA
Edward M. McKenna
Controller
SIGNATURES