UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10--K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1993
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission file number 2-36005
ROCKLAND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 13-1727720
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip Code)
(914) 352-6000
(Registrant's telephone number, including area code)
NONE
(Securities registered pursuant to Section 12(b) of the Act)
NONE
(Securities registered pursuant to Section 12(g) of the Act)
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
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
Aggregate market value of the voting stock held by nonaffiliates
of the registrant at February 28, 1994: None
At February 28, 1994, the registrant had 112,000 shares of Common
Stock ($100 par value) outstanding.
Documents Incorporated by Reference: None
TABLE OF CONTENTS
Page
PART I
Item 1. Business
General Development of Business 1
Financial Information about Industry Segments 1
Narrative Description of Business: 1
Principle Business 1
Events Affecting the Company 2
Electric Operations 3
Diversified Activities 7
Construction Program and Financing 8
Regulatory Matters 9
Utility Industry Risk Factors 10
Competition 10
Marketing 10
Environmental Matters 11
Research and Development 13
Franchises 14
Employee Relations 14
Item 2. Properties 14
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security Holders 21
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 21
Item 6. Selected Consolidated Financial Data 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 30
PART III
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 33
Item 12. Security Ownership of Certain Beneficial
Owners and Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 37
Signatures 40
- i -
PART I
ITEM 1. Business
General Development of Business:
Rockland Electric Company (the "Company") is a New Jersey
corporation which was incorporated in 1899 under an Act of the
Legislature of New Jersey and is engaged in the transmission,
distribution and sale of electricity. Its principal New Jersey office
is located at 82 East Allendale Road, Saddle River, New Jersey 07458.
The Company has a wholly owned non-utility subsidiary, Saddle River
Holdings Corp. ("SRH"), a Delaware corporation. SRH has two wholly
owned non-utility subsidiaries, O&R Energy, Inc. and Atlantic Morris
Broadcasting, Inc., both Delaware corporations. O&R Energy, Inc. has a
wholly owned non-utility subsidiary, Millbrook Holdings, Inc., also a
Delaware corporation. All of the Company's outstanding common stock is
owned by Orange and Rockland Utilities, Inc. (the "Parent"). The Parent
is a New York corporation, with its principal office at One Blue Hill
Plaza, Pearl River, New York 10965. The Parent has two wholly owned
utility subsidiaries, the Company and Pike County Light & Power Company
("Pike"), a Pennsylvania corporation, as well as three non-utility
subsidiaries.
Financial Information about Industry Segments:
Consolidated financial information regarding the Company's
principal business segments, Electric Utility Operations and Diversified
Activities, is contained in Note 11 of the Notes to Consolidated
Financial Statements - "Segments of Business" in Part II, Item 8 of this
Form 10-K Annual Report.
Narrative Description of Business:
Principal Business
The Company serves a territory with a population of approximately
155,000, located in parts of northern Bergen and Passaic Counties in the
northeastern corner of New Jersey (adjacent to the southeastern portion
of the territory served by its Parent in New York) and a small area in
Sussex County in the northwestern corner of New Jersey along the
Delaware River. At December 31, 1993, the Company served approximately
64,000 customers in 26 communities. There have been no significant
changes in either the population of the Company's service territory or
in the number of customers served since December 31, 1992. At that
time, service was provided to approximately 63,000 customers in 26
communities with an estimated population of 155,000. While the
territory served is predominantly residential, the Company also serves a
number of commercial and industrial customers in diversified lines of
business activities, from which significant electric revenues are
received. No customer accounts for more than 10% of sales. The
business of the Company is seasonal to the extent that sales of
electricity are higher during the summer, mainly due to air conditioning
requirements.
Events Affecting the Company
On August 16, 1993, the Rockland County, New York District Attorney
charged a then Vice President of the Parent and the Company with grand
larceny, commercial bribery and making illegal political contributions
and commenced a related investigation of the Parent. Two other former
employees of the Parent, who had reported to the Vice President were
also charged with grand larceny.
On August 20, 1993, the Parent's Board of Directors created a
Special Committee (the "Special Committee") of the Board, consisting
entirely of outside Directors, to conduct an independent investigation
of the issues raised by the Rockland County District Attorney and any
other matters discovered in the course of the investigation as the
Special Committee deems necessary or desirable. The Special Committee
was granted full and complete power and authority to take whatever steps
it deems necessary or desirable, including retention of counsel and
other advisors, presenting to the Parent's Board of Directors periodic
reports regarding its activities and at the appropriate time its full
findings, and making recommendations to the Parent's Board of Directors
with respect to any remedial measures it deems appropriate to prevent a
recurrence of any improprieties or irregularities discovered by the
investigation. The Special Committee has retained the law firm of
Stier, Anderson & Malone as investigative counsel, and Price Waterhouse
& Co. as accounting experts, to assist it in conducting its independent
investigation.
The Special Committee will present preliminary conclusions of its
investigation at the Parent's Annual Meeting of Shareholders on
May 11, 1994. The Special Committee intends to complete its
investigation as promptly as practicable after the Annual Meeting and
will report its final conclusions and recommendations to the Parent's
Board of Directors at that time.
In addition, during the fourth quarter, James F. Smith was
terminated for cause as Chief Executive Officer of the Parent and the
Company and removed as Chairman of the Parent's and the Company's Board
of Directors. President and Chief Operating Officer of the Parent and
the Company, Victor J. Blanchet, Jr. was appointed to serve as acting
Chief Executive Officer of the Parent and the Company. Details
concerning these events, including the cost incurred for legal counsel,
accounting services, and other professional and consultative services
related to the ongoing investigations and their effect of the Company's
Results of Operations are contained in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under the
caption "Events Affecting the Company" and in Note 10 of the Notes to
Consolidated Financial Statements under the caption "Legal Proceedings"
in this Form 10-K Annual Report. Reference is also made to Item 3,
"Legal Proceedings", of this Form 10-K Annual Report.
Electric Operations
The Company's electricity supply requirements, together with all
operating and service personnel, are furnished by its Parent pursuant to
contracts. The contract for the supply of electricity has been approved
by the Federal Energy Regulatory Commission (the "FERC") and the
contract for provision of operating and service personnel has been
approved by the New Jersey Board of Regulatory Commissioners (the
"NJBRC"). Such contracts provide, in general, for the reimbursement to
the Parent, by the Company, of costs allocable to electricity and
services furnished to the Company, and require additional payments to
the Parent of an amount sufficient to yield specified returns on its
investment in plant and other assets allocable to the Company under
certain formulae. During 1992, the Parent was a party to a proceeding
initiated by the FERC to determine the rate of return authorized for use
in establishing wholesale rates between the Parent, the Company and
Pike. Pursuant to an agreement which was approved by the FERC on
February 19, 1993, the Parent has been authorized to earn an 11.7%
return on equity effective as of January 1, 1993, which is a decrease
from the previously authorized 12.25% return on equity.
Generating Capacity and Purchased Power. As described more fully
in Item 2, "Properties", of this Form 10-K Annual Report, the capacity
of the Parent's plants provides the Parent and its utility subsidiaries
with a net generating capability of 1,032 megawatts ("Mw") in the winter
and 1,020 Mw in the summer. The maximum historical one-hour demand for
the Parent and its utility subsidiaries of 1,037 Mw occurred on July 8,
1993.
During 1993, the Parent's purchased power accounted for
approximately 42% of the total energy supply of the Company and its
utility subsidiaries. Purchased power is available to the Parent
primarily through its membership in the New York Power Pool (the
"NYPP"), through which member companies are able to coordinate inter-
utility transfers of bulk power in order to achieve economy and
efficiency. Through the NYPP control center, the Parent is able to
purchase power in order to optimize its generation/purchase mix, using
the lowest cost energy available to its interconnected system at any
time. During 1993, the Parent purchased 464,334 megawatt hours ("Mwh")
from or through the NYPP, which represents approximately 23% of the
total purchased power. By agreement with the NYPP, the Parent must
maintain capacity reserves including firm capacity purchases of not less
than 18% of its peak load.
In addition, the Parent has agreements with the New York Power
Authority (the "NYPA") and certain other utilities for the purchase of
firm power. During 1993, an agreement with the NYPA provided for firm
purchases of 25 Mw of year-round capacity from the Blenheim-Gilboa
pumped-storage generating facility ("Gilboa Facility") and firm power
purchase agreements with Central Hudson Gas & Electric Corporation
("Central Hudson") and Pennsylvania Power & Light Company ("PP&L"),
provided for an additional 225 Mw of capacity. Other agreements were in
effect from time to time throughout 1993 with several other utilities,
including an agreement with Philadelphia Electric Company pursuant to
which significant economy purchases were made during 1993, which
provided for short-term, firm purchases on an as-available, as-needed
basis. The NYPA agreement for firm purchases from the Gilboa Facility,
which provides for 25 Mw of year-round capacity, will be in effect
through April 2015. The firm purchase agreement with Central Hudson
will provide 50 Mw of capacity through April 1994, and the agreement
with PP&L will provide capacity ranging between 10 Mw and 125 Mw through
October 1995. In addition, a firm purchase power agreement with Public
Service Electric & Gas Company ("PSE&G") will provide between 75 Mw and
300 Mw of capacity during the base contract term which extends from May
1994 through April 1998, with an additional 100 MW available throughout
the base contract term at the option of the Parent. The contract also
provides that at the option of the Parent 100 Mw of additional capacity
would be available to the Parent between May 1992 and April 1994 and 400
Mw of additional capacity will be available from May 1998 through
October 2000. During 1994, the Company expects to purchase 50 Mw of
capacity above the base contract amount under these options. Other
agreements will continue to be in effect which will enable the Company
to take advantage of economic power purchases on an as available, as-
needed basis.
Additional information regarding the Parent's future power supply,
particularly capacity purchase contracts with Independent Power
Producers and Qualifying Facilities, is contained under the caption
"Future Energy Supply and Demand" in this Item I.
The Parent also maintains interconnections with Central Hudson,
PSE&G and Consolidated Edison Company of New York, Inc. ("Con Ed").
Through these interconnections, and as a member of the NYPP, the Parent
can exchange power directly with the above utilities and, through the
facilities of other members of the NYPP, the Parent can exchange power
with all members of the NYPP and with utilities in pools in neighboring
states.
Fuel Supply. The Parent's 1,032 Mw winter generating capacity is
available from various fuel sources including gas, coal, oil and hydro
power. Electricity available for sale is a mix of Company generation by
various fuel types, supplemented by purchased power when such power is
available at a price lower than the price of generation or is needed to
meet load requirements. Details for the years 1989 through 1993 are as
follows:
1989 1990 1991 1992 1993
Gas 25% 27% 22% 21% 16%
Coal 29 32 36 33 33
Oil 28 19 14 10 5
Hydro 3 4 3 3 4
Purchased Power 15 18 25 33 42
Total 100% 100% 100% 100% 100%
Gas - During 1993, the Parent was able to use significant volumes
of natural gas for boiler fuel at both its Lovett Plant and the Bowline
Point Plant. It also expects to be able to use natural gas in the
Lovett Plant and Bowline Point Plant during 1994, whenever such gas is
more economical than alternative fuels. In 1993, the Parent used 2.1
billion cubic feet ("Bcf") and 6.0 Bcf of gas, respectively, at the
Lovett Plant and the Bowline Point Plant. The annual average cost per
thousand cubic feet ("Mcf") of natural gas burned in the Parent's
generating plants during the years ended December 31, 1989 through 1993
was $2.79, $2.78, $2.64, $2.82 and $3.01, respectively. This is
equivalent to $2.71, $2.69, $2.56, $2.74 and $2.92, respectively, per
million British Thermal Unit ("MMBTU").
Coal - The low sulfur coal (1.0 lbs. SO2 per MMBTU) used in the
Parent's Lovett Plant Units 4 and 5 is supplied to the Parent primarily
through long term contracts with Massey Coal Sales, Inc. ("Massey") and
the Pittston Coal Sales Co., ("Pittston") as well as through spot market
purchases, which accounted for approximately 22% of the Parent's 1993
coal requirements. The Parent has the right, under the coal purchase
contracts, to suspend the purchase of coal if alternative fuel sources
become less expensive. The coal is fully washed and, as such, is low in
ash (typically 7%) and high in BTU content (26 MMBTU's per ton). The
annual average cost per ton of coal consumed at the Lovett Plant during
each of the years ended December 31, 1989 through 1993 was $58.53,
$58.40, $56.57, $55.95 and $55.25, respectively. This is equivalent to
$2.26, $2.25, $2.18, $2.16 and $2.14, respectively, per MMBTU. During
1993 coal was the predominant fuel burned at the Lovett Plant, and the
Parent expects it to be the predominant fuel burned during 1994. In
February 1994, the contract with Pittston was terminated by the Parent
because of Pittston's failure to meet the coal quality specification of
its contract. Alternative supplies have been obtained and arrangements
for longer term replacement coal are under review.
Oil - The Parent does not anticipate purchasing any significant
quantity of fuel oil for its Lovett Plant. Con Ed has undertaken the
supply of #6 fuel oil (0.37% maximum sulfur content by weight) to the
Bowline Point Plant, which is supplied under a contract between Con Ed
and the Parent. Pursuant to that contract, Con Ed has also undertaken
to provide a backup oil supply for the Company's Lovett Plant under
certain conditions. The Parent believes that it will be able to secure
sufficient oil supplies to meet the total requirements of #6 fuel oil
for the calendar year 1994. The annual average cost per barrel of oil
burned in the Parent's generating plants during the years ended
December 31, 1989 through 1993 was $19.21, $23.73, $21.23, $20.43 and
$21.27, respectively. This is equivalent to $3.09, $3.81, $3.40, $3.26
and $3.39, respectively, per MMBTU.
Hydro - Water for the operation of the Parent's Mongaup River Hydro
Plants is controlled by the Parent through the ownership of the
necessary land in fee or through easements. In the case of the Parent's
Grahamsville Plant, water is obtained under contract with the City of
New York Board of Water Supply. This contract, which expires in 2005,
entitles the Parent to 8.1 Bcf of free water each year. Water in excess
of the 8.1 Bcf, which amounted to 9.0 Bcf during 1993, is billed at
varying rates based on an average cost of all fuels used in power
generation.
Purchased Power - the Parent's practice regarding purchased power
is to supplement the Parent's electric generation by purchasing both
capacity and energy when needed to meet load and reserve requirements
and also when such power is available at a price lower than the cost of
production. Details regarding purchased power are contained under the
captions "Generating Capacity and Purchased Power" and "Future Energy
Supply and Demand" in this Item 1. In addition, information regarding
the cost of electric energy is contained under the caption "Energy
Costs" in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Form 10-K Annual Report.
Future Energy Supply and Demand. The Parent and the Company
continue to be committed to meeting customer energy needs by providing
reliable energy service at the lowest prudent cost and in an
environmentally sound manner. Through the Integrated Resource Plan the
Parent and the Company have responded to the changes that have occurred
in the utility industry and have incorporated a significant number of
conservation and demand reduction alternatives as well as purchased
power from both utility and non-utility generators, into their energy
strategy.
The Demand-Side Management ("DSM") program involves efforts to
control electric peak demand and energy usage, and addresses the need to
improve plant utilization by making customer demand more complementary
over time to the available capacity. DSM programs are available to all
market segments. Through December 31, 1993, DSM efforts have reduced
the annual need for increased generating capacity and energy by 97.9 Mw
and 173,104 Mwh, respectively, both through programs administered by the
Parent and the Company as well as through contracts with outside
consultants pursuant to the competitive bidding program. The New York
State Public Service Commission ("NYPSC") has consistently authorized
the recovery of DSM costs, and in New Jersey, the Company's DSM costs
are recoverable on a current basis.
The Parent's Supply-Side Management program involves the
acquisition of future increments of capacity and energy from both
investor-owned utilities and from non-utility generators. The Parent
has entered into several agreements in this regard.
In 1990, the Parent entered into a power supply agreement
("Wallkill Agreement") with Wallkill Generating, L.P. ("Wallkill
Generating"). The Wallkill Agreement was approved by the NJBRC in
October 1991, and in July 1991 the FERC approved the rates contained in
the Wallkill Agreement. Pursuant to the agreement, Wallkill Generating,
a limited partnership formed by PG&E/Bechtel Generating Company (now
U.S. Generating Company), has contracted to construct and operate a gas-
fired combined cycle generating facility in the Town of Wallkill, N.Y.
and sell 95 Mw of capacity and associated energy to the Parent. The
original target date for commercial operation of this project as set
forth in the Wallkill Agreement was April, 1994. Wallkill Generating
has reported that construction of the project will begin in the spring
of 1994 and it will be available for commercial operation in late 1995.
In 1990, the Parent entered into a long-term power supply agreement
("State Line Agreement") with State Line Power Associates Limited
Partnership ("State Line"). Under the terms of the State Line
Agreement, State Line contracted to construct and operate a gas-fired
combined cycle generating facility in the Borough of Ringwood, New
Jersey and sell 100 Mw of capacity and associated energy to the Parent.
In July 1992, the State Line Agreement was terminated by the Parent for,
among other things, State Line's failure to make a required milestone
payment pursuant to specified contract terms. On August 3, 1992, State
Line filed suit against the Parent in the United States District Court
for the Southern District of New York claiming that the Parent had
wrongfully terminated the State Line Agreement. On January 7, 1994,
State Line and the Parent settled all litigation relating to the State
Line Agreement.
In addition to the Wallkill Agreement, future increments of
purchased capacity and energy have been contracted from investor owned
utilities and the NYPA as previously described under the caption
"Generating Capacity and Purchased Power" in this Item 1. In addition,
the Parent has contracted to purchase approximately 90 Mw of capacity
and associated energy from various Public Utility Regulatory Policies
Act ("PURPA") Qualifying Facilities. These contracts include a contract
between the Parent and Harriman Energy Partners, Ltd., ("Harriman
Energy") a limited partnership, the general partner of which is Destec
Holding, Inc. (formerly PSE, Inc.). This contract provides for the
construction of a project that upon commercial operation, which Harriman
Energy has reported to be in late 1996, would provide the Parent with
approximately 57 Mw of capacity and associated energy for a period of 25
years. This contract has been approved by the NYPSC and the New Jersey
Board of Regulatory Commissioners ("NJBRC").
Construction has not been commenced on either the Wallkill
Generating or Harriman Energy projects and the Parent cannot predict
whether either of these projects will be constructed. If either or both
of these projects are not constructed, other economic sources of
capacity and energy should be available to the Parent and the Company.
Diversified Activities
The Company's wholly owned non-utility subsidiary, Saddle River
Holdings Corp. ("SRH"), was established for the purpose of investing in
non-utility business ventures and, through subsidiaries, is currently
engaged in natural gas marketing and radio broadcasting. Capital
contributions to SRH are borne by the Company's shareholder. Any losses
or profits from investments in SRH accrue to the shareholder and are not
included in the cost of service for ratemaking purposes. Gas marketing
activities are conducted through a subsidiary, O&R Energy, Inc., which
provides natural gas to industrial, commercial and institutional end
users, gas distribution companies and electric generating facilities in
38 states. A subsidiary of O&R Energy, Inc., Millbrook Holdings, Inc.,
holds approximately twelve acres of non-utility real estate in Morris
County, New Jersey. Broadcasting activities are conducted through
Atlantic Morris Broadcasting, Inc., a subsidiary of SRH, which owns
radio stations WKTU (FM) in Ocean City, New Jersey, WABT (FM) in Dundee,
Illinois, WALL (AM) and WKOJ (FM) in Middletown, New York and WCSO (FM)
and WLPZ (AM) in Portland, Maine.
The Company's Consolidated Financial Statements include the results of
operations of all diversified activities. The diversified activities,
which consist primarily of gas marketing activities, are considered to
be a reportable business segment. However, the net earnings realized
from diversified activities are less than 10% of total net earnings and
the identifiable assets of the diversified activities consist primarily
of gas marketing receivables which generally have corresponding gas
marketing payables. Based on these factors, the disclosure related to
the Company's diversified activities, as prescribed by Regulation S-K,
has, with few exceptions, been omitted from other sections of this Form
10-K Annual Report.
Construction Program and Financing
Construction Program. The construction expenditures, excluding
allowance for funds used during construction ("AFDC"), of the Company
for the period 1994 through 1998 are presently estimated at
approximately $37 million, as set forth in the table below. The
Company's construction program is under continuous review and the
estimated construction expenditures are, therefore, subject to periodic
revision to reflect, among other things, changes in energy demands,
economic conditions, environmental regulations, construction delays, the
level of internally generated funds and other modifications to the
construction program.
Forecasted Construction Expenditures (000's)
1994 1995 1996 1997 1998
Transmission & Substations $ 805 $1,270 $1,520 $3,565 $3,255
Electric Distribution 4,480 4,960 5,450 5,300 5,315
Electric General 115 25 25 25 530
Total Construction $5,400 $6,255 $6,995 $8,890 $9,100
The Company's forecasted construction expenditures for the five
year period 1994 through 1998 consists primarily of routine transmission
and distribution projects for capital replacements or system
betterments.
Information regarding the Company's construction program is
contained under the caption "Liquidity and Capital Resources" in the
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part II, Item 7 of this Form 10-K Annual Report, as
well as in Note 10 of the Notes to Consolidated Financial Statements -
"Construction Program" in Part IV, Item 14 of this Form 10-K Annual
Report.
Financing. During the three year period 1991-1993, the Company's
total construction expenditures were financed with internally generated
funds. It is expected that the construction expenditures for the years
1994-1998 will also be financed with internally generated funds.
Additional information regarding the Company's financing activities is
contained under the caption "Liquidity and Capital Resources" in the
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part I, Item 7 as well as in Note 7 of the Notes to
Consolidated Financial Statements - "Cash and Short-Term Debt" of this
Form 10-K Annual Report.
Regulatory Matters
Regulation. The Company is subject to the jurisdiction of the
NJBRC with respect to, among other things, rates, services, the issuance
of securities, and accounting and depreciation procedures. In addition,
approval by the NYPSC is required for the purchase of any securities of
the Company by the Parent or for any capital contribution made to the
Company by the Parent.
The Company is also subject to the jurisdiction of the FERC with
respect to the interstate transmission of electricity and certain other
matters, including accounting, recordkeeping and reporting.
The Company is also subject to regulation by various other Federal,
state, county and local agencies under numerous regulations dealing
with, among other things, environmental matters, energy conservation,
long-range planning, fuel use, plant siting and gas pricing.
Current Rate Activities. Information regarding the Company's rate
activities is contained under the caption "Rate Activities" in the
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part II, Item 7, as well as in "Legal Proceedings" in
Part I, Item 3 of this Form 10-K Annual Report.
Rate Relief. The amounts of rate relief approved by the NJBRC
during the last five years are set forth in the following table:
Historical Rate Relief
1989 - 1993
Annual Amount Overall Rate Return on
($000's) of Return Equity
Effective Date Requested Granted Granted (%) Granted (%)
1989-1991 - - - -
1/24/92 12,863 5,100 10.17 12.00
1/01/93 (A) 1,685 (A) (A)
(A) Rate increase as ordered by the NJBRC to reflect the effect of
revised legislation regarding gross receipts and franchise
taxes. Rate recovery with interest is permitted over a ten
year period.
Information regarding possible rate impacts of certain events
described under the caption "Events Affecting the Company" in this Item
1 is contained in Item 3 "Legal Proceedings", of this Form 10-K Annual
Report.
Utility Industry Risk Factors
The electric utility industry is exposed to risks relating to
increases in fuel costs, numerous regulatory and environmental
restrictions, delays in obtaining adequate rate relief, increases in the
costs of construction and construction delays, the effects of energy
conservation, the effect of weather-related sales and revenue
fluctuations and meeting the growth of energy sales. The Company is, to
some extent, experiencing all of these challenges. However, the impact
on the Company has been less than for the utility industry in general,
principally due to the Company's relatively low construction
expenditures and low external financing requirements. The problems
associated with nuclear energy have not affected the Company, as its
Parent has no operating nuclear plants, nor any under construction, and
has no plans for future participation in nuclear projects. Additional
information on the recovery by the Company of its investment in the
Parent's cancelled Sterling Nuclear Project, is contained in Note 3 of
the Notes to Consolidated Financial Statements - "Sterling Nuclear
Project" in Part IV, Item 14 of this Form 10-K Annual Report.
Competition
There are competitive factors present in the industry which affect
utility companies in varying degrees. Among these are the use by
interruptible or dual-fuel customers of lower priced alternative fuels;
the establishment of municipal distribution agencies; the presence of
cogenerating systems, small power producers and independent power
producers; and the increasing interest in, and research on, the
development of energy sources other than those now in use.
In recent years, changing laws and governmental regulation,
combined with growing interest in self-generation and an increase in
nonregulated energy suppliers has served to intensify the level of
competition experienced by regulated utilities. The National Energy
Policy Act of 1992 ("Energy Policy Act") is expected to bring major
changes to the electric utility industry, including increased
competition from a new category of wholesale electric generators which
are exempt from the Public Utility Holding Company Act of 1935. The
Energy Policy Act also empowers the FERC to require utilities, under
certain circumstances, to provide open access to electric wholesalers
for use of the utility's transmission systems.
The Parent and the Company recognize the changes in the regulated
utility environment and are committed to remain competitive in the core
business. The Parent's and the Company's five year strategic plan has
put forth as a corporate objective the achievement of a competitive edge
by providing the most economical and effective energy service to
customers. Such competitive factors are not expected to have a material
effect on either the Parent or the Company for the foreseeable future.
Marketing
The primary focus of the Company's marketing efforts is the
efficient use of energy by the Company's residential, commercial and
industrial customers. Existing programs being marketed include all
state approved DSM programs as well as other energy conservation
programs. The Company is also marketing the Job Development Rates
authorized by the NJBRC. These rates offer discounts to firms locating
to vacant buildings or expanding their operations.
Environmental Matters
The Parent and the Company are subject to regulation by Federal,
state, county and, to some extent, local authorities with respect to the
environmental effects of its operations, including regulations relating
to air and water quality, aesthetics, levels of noise, hazardous wastes,
toxic substances, protection of vegetation and wildlife and limitations
on land use. In connection with such regulation, various permits are
required with respect to the Parent's and the Company's facilities.
Generally, the principal environmental areas and requirements to which
the Parent is subject are as follows:
Water Quality. The Parent is required to comply with Federal and
state water quality statutes and regulations including the Federal Clean
Water Act ("Clean Water Act"). The Clean Water Act requires that the
Parent's generating stations be in compliance with state issued State
Pollutant Discharge Elimination System Permits ("SPDES Permits"), which
prescribe applicable conditions to protect water quality. On
May 18, 1992, the Parent applied to the State of New York Department of
Environmental Conservation (the "NYDEC") for the renewal of its SPDES
Permit for the Lovett Coal Ash Management Facility. The existing permit
expired on December 1, 1992, but remains in effect until issuance of a
new permit. The Parent also has an SPDES Permit, effective
October 1, 1991 for its Lovett generating station.
The Parent's Bowline Point generating station currently operates
under a SPDES permit which expired on October 1, 1992. This permit
remains in effect since a permit renewal application was filed on
April 3, 1992, which was within the statutory deadline for renewal
application. The Parent is now proceeding with the State Environmental
Quality Review Act process as part of the permit renewal procedure.
The Parent entered into a settlement with the United States
Environmental Protection Agency (the "EPA") and others that relieved the
Parent for at least 10 years from a regulatory agency requirement that,
in effect, would have required that cooling towers be installed at the
Bowline Point generating station. In return, the Parent agreed to
certain plant modifications, operating restrictions and other measures.
The settlement expired in May, 1991. On May 15, 1991, the Parent and
others entered into an Interim Agreement with the NYDEC to continue
specific operating conditions and other measures for a period from
May 15, 1991 to September 30, 1992. Several interveners to the original
settlement filed a civil action challenging the Interim Agreement's
legality. On March 23, 1992, the parties to the Interim Agreement and
interveners signed a Consent Order terminating litigation and agreeing
to certain operating limitations and biological monitoring requirements.
The Consent Order was due to expire on September 1, 1993. On August 5,
1993, the parties executed the First Amended Consent Order which extends
the agreement through September 1, 1994.
Air Quality. Under the Federal Clean Air Act, the EPA has
promulgated national primary and secondary air quality standards for
certain pollutants, including sulfur oxides, particulate matter and
nitrogen oxides. The NYDEC has adopted, and the EPA has approved, the
New York State Implementation Plan ("SIP") for the attainment,
maintenance and enforcement of these standards. In order to comply with
the SIP, the Parent burns #6 fuel oil at its Lovett and Bowline Point
generating stations with a 0.37% maximum sulfur content by weight.
Pursuant to the SIP, the Parent is governed by the following
limitations when it is burning coal at Lovett Units 4 and 5: if one
unit is burning, the Parent may emit sulfur dioxide at a rate not to
exceed 1.5 lb/MMBTU, and if two units are burning, the Parent may emit
sulfur dioxide at a rate not to exceed 1.0 lb/MMBTU per unit.
The Clean Air Act Amendments of 1990, which became law on
November 15, 1990, could restrict the Parent's ability to meet increased
electric energy demand after the year 2000 or could substantially
increase the cost to meet such demand. Regulations pertaining to
nitrogen oxide reduction and continuous emissions monitoring systems
will require increased capital expenditures by the Parent totaling $26.2
million during 1994 through 1996 as follows: $8.2 million in 1994,
$12.0 million in 1995 and $6.0 million in 1996. The Parent will
continue to assess the impact of the Clean Air Act Amendments of 1990 on
its power generating operations as additional regulations implementing
these Amendments are promulgated.
The NYDEC has proposed to revise the SIP to meet ozone attainment
standards and to provide a mechanism for Title V emissions fee billing.
Under the proposed fee revision, beginning in 1994, Title V sources
which include the Parent's Lovett Plant and Bowline Point Plant will be
required to pay an emission fee based upon actual air emissions reported
to NYDEC at a rate of approximately $25 per ton of air emissions. The
effect of the proposed revision, based on 1992 emissions would have been
approximately $450,000.
Toxic Substances and Hazardous Wastes. The Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986
("Superfund"), provides that both the owners and operators of facilities
where releases of hazardous substances into the environment have
occurred or are imminent, and the generators and transporters of
hazardous substances disposed of at the facilities, are, regardless of
fault, jointly and severally liable for all response, removal and
remedial action costs and also for damages to natural resources.
As part of its operations, the Parent generates materials which are
deemed to be hazardous substances under Superfund. These materials
include asbestos and dielectric fluids containing polychlorinated
biphenyls ("PCB's"), both of which are disposed of at licensed, off-site
locations not owned by the Parent. Other hazardous substances may be
generated in the course of the Parent's operations or may be present at
Parent-owned locations.
The Parent has from time to time, received process or notice of
claims under Superfund or similar state statutes relating to sites at
which it is alleged that hazardous substances generated by the Parent
(and, in most instances, by a large number of other potentially
responsible parties) were disposed of. Similar claims may be asserted
from time to time hereafter, involving additional sites. Typically,
many months, and sometimes years, are required to determine fully the
probable magnitude of the cleanup costs for a site, the extent, if any,
of the Parent's responsibility, the number and responsibility of other
parties involved, the financial ability of the other parties to pay
their proportionate share of any costs, and the probable ultimate
liability exposure, if any, of the Parent. This process is still under
way at most of the sites of which the Parent has notice, and the costs
at some of these sites may be substantial. However, based on the
information and relevant circumstances known to the Parent at this time,
the Parent's share of these costs is not expected to be material.
Environmental Expenditures. The Parent estimates that its
expenditures attributable, in whole or in substantial part, to
environmental considerations totaled $13.7 million in 1993.
Compliance with Federal, state and local laws and regulations which
have been enacted or adopted regulating the discharge of materials into
the environment or otherwise relating to the protection of the
environment is not anticipated to have a material financial impact on
the Parent or the Company.
Projected environmental expenditures are under continuous review
and are revised periodically to reflect changes in environmental
regulations, inflation, technology and other factors which are beyond
the control of the Parent. Although the Parent and the Company are
unable to predict the ultimate impact of environmental regulations on
existing or proposed facilities or on the operations of the Parent or
the Company, the Company believes that its expenditures for compliance
with environmental regulations will be given appropriate rate treatment.
Research and Development
The Company and its Parent support research and development
agencies involved in utility research, provide funds for joint utility
research projects and the Parent conducts its own internal program.
Electric research and development expenditures of the Parent, a portion
of which were borne by the Company based on the Company's use of the
consolidated electric system capacity, amounted to approximately $4.0
million in 1993, $3.1 million in 1992, and $2.7 million in 1991.
The Parent and the Company provide support to national agencies
such as the Electric Power Research Institute. At the state level, the
Parent and the Company support the Empire State Electric Energy Research
Corporation and the New York State Energy Research and Development
Authority.
Generally, the Parent's internal research and development program
concentrates on projects which uphold the corporate goal of providing
safe and reliable electric and gas service to customers at a minimum
price and in an environmentally acceptable manner. The program includes
projects which seek improvement of generation and distribution systems,
mitigation of environmental impacts of electric power generation, and
advancement in customer utilization and conservation. Current projects
include a demonstration of magnetic bearings on a power plant fan and
motor, the development of a new technique for locating faults in
underground cables, and the development of a methodology for measuring
the impact of commercial and industrial demand-side management programs.
Franchises
The Company has municipal consents or franchises covering
substantially all the territory in which it operates, which consents or
franchises have been approved by the NJBRC in every case in which such
approval is required. In certain areas served by the Company, the
original franchises were granted for limited periods, and have since
expired. The Company, however, has operated in these areas for many
years with the acquiescence of the municipal authorities and, in the
opinion of outside counsel, its continued operation in these areas is
lawful.
None of the municipal consents or franchises held by the Company
are exclusive. Under the present provisions of the public utility law
of the State of New Jersey, no other private corporation can commence
public utility operations in any part of the territory now served by the
Company without obtaining a certificate of public convenience and
necessity from the NJBRC. Such certificate would not be required with
respect to a municipality furnishing electric service under the
provisions of the statutes pertaining to municipalities. Municipal
corporations, upon compliance with the provisions of the municipal law,
are authorized to acquire the public utility service of any public
utility company by purchase or by condemnation.
Employee Relations
The Company does not have any employees other than officers.
Personnel for Company operations are furnished by the Parent on a
reimbursement basis. The Parent's current contract with Local 503 of
the International Brotherhood of Electrical Workers ("IBEW"),
representing 977 production, maintenance, commercial and service
employees of the Parent became effective June 1, 1991 and expires June
1, 1994. This contract does not include supervisory employees. At
December 31, 1993, the Company's non-utility subsidiary had 198
employees of which 51 were part-time employees, none of whom were
covered by the Parent's contract with the IBEW or any other collective
bargaining agreement.
ITEM 2. Properties
The Company's property consists primarily of electric transmission
and distribution facilities. These properties are required for the
continued operation of the Company's major business segment. In
addition, the Company maintains certain miscellaneous utility and non-
utility property. The Company's facilities are in satisfactory
condition, are suitable for the particular purpose for which they were
acquired, and are adequate for the Company's present operations.
Electric Generating Facilities. The Parent's generating plants, all of
which are located in New York State, are as follows:
Maximum Percent
Summer of Net Mwh
Net MW Total Generated
Plant Name Units Energy Source Capability Capability In 1993
Swinging Bridge, 8
Mongaup & Rio Hydroelectric 25.8 2.5% 60,437
Grahamsville 1 Hydroelectric 18.0 1.8 103,941
Hillburn 1 Jet Fuel/Gas 37.0 3.6 2,509
Shoemaker 1 Jet Fuel/Gas 37.0 3.6 5,048
Lovett 5 Coal/Oil/Gas 501.7 49.2 1,869,967
Bowline Point 2 Oil/Gas 400.6 (1) 39.3 850,930
1,020.1 100.0% 2,892,832
(1) Parent's share of maximum summer net megawatt capability.
Electric Transmission and Distribution Facilities. The Company
owns and operates 93 miles of transmission lines, 16 substations, 17,910
in-service line transformers and 1,160 miles of distribution lines. The
electric transmission and distribution facilities of the Company are
located within the Company's New Jersey service territory, which is
described under the caption "Principal Business" in Item 1 of this Form
10-K.
Miscellaneous Properties. The Company owns structures at different
locations within the Company's service territory which are used as
offices, service buildings, store houses and garages. The Company
leases its principal office in Saddle River, New Jersey, as well as
office space at other locations.
Character of Ownership. The Company's major electric substations
are located on land owned by the Company in fee.
Electric transmission facilities of the Company (including
substations) are, with minor exceptions, located on land owned in fee or
occupied pursuant to perpetual easements. Electric distribution lines
are located in, on or under public highways or private lands pursuant to
lease, easement, permit, municipal consent, agreement or license,
express or implied through use by the Company without objection by the
owners. In the case of distribution lines, the Company owns
approximately 60% of the poles upon which its wires are installed and
has a joint right of use in the remaining poles on which its wires are
installed, which poles are owned, in most cases, by telephone companies.
The Parent's electric and gas plants are owned by the Parent except
for the gas turbines at Hillburn and Shoemaker which are leased and the
Bowline Point Plant which is jointly owned with Consolidated Edison
Company of New York, Inc. and operated by the Parent.
Substantially all of the utility plant and other physical property
owned by the Company are subject to the lien of the indenture securing
the first mortgage bonds of the Company.
ITEM 3. Legal Proceedings
Investigations and Related Litigation:
On August 16, 1993, Linda Winikow, then a Vice President of the
Parent and the Company, was arrested by the Rockland County (New York)
District Attorney and charged with grand larceny, commercial bribery and
making campaign contributions under a false name. In essence, the
District Attorney alleged that Ms. Winikow (1) had been coercing or
inducing certain vendors of goods or services to the Parent to make
contributions to political candidates or causes, while arranging for
some of those contributions to be, in effect, reimbursed by means of
false or inflated invoices paid by the Parent, and (2) had used
advertising contracts to try to influence news reports about the Parent.
Two other former employees of the Parent who reported to Ms. Winikow
were charged with grand larceny. Ms. Winikow was immediately placed on
leave of absence by the Parent and the Company. The District Attorney
also announced that he would commence an investigation of the Parent and
the Parent announced that it would undertake its own investigation into
the matters cited by the District Attorney. The Company's Board of
Directors terminated Ms. Winikow's employment as of August 26, 1993. On
the same day, the Parent's Board of Directors terminated Ms. Winikow's
employment with the Parent.
On October 5, 1993, the independent Directors of the Parent
determined to terminate for cause the employment of James F. Smith as
Chief Executive Officer of the Parent and to remove him as Chairman of
the Board. On October 7, 1993, notice of such termination was delivered
to Mr. Smith and he was suspended from all duties effective immediately.
On the same day, the Board of Directors of the Parent appointed Victor
J. Blanchet, Jr. to serve as Acting Chief Executive Officer of the
Parent. Mr. Smith had certain rights under his employment agreement
with the Parent to take corrective action with respect to his
termination for cause which lapsed, without such action being taken, on
December 6, 1993. Mr. Smith also has the right to contest his
termination for cause in an arbitration proceeding. Also effective as
of October 7, 1993, the Parent, acting as sole shareholder of the
Company, removed Mr. Smith as a Director of the Company and the
Company's Board of Directors removed Mr. Smith from the offices of
Chairman of the Board of Directors and Chief Executive Officer of the
Company and appointed Mr. Blanchet to serve as Acting Chief Executive
Officer of the Company.
On October 6, 1993, Ms. Winikow pleaded guilty in the Supreme Court
of the State of New York, County of Rockland, to grand larceny (a class
D felony), commercial bribery (a class A misdemeanor) and making a
campaign contribution under a false name (an unclassified misdemeanor)
and, on November 10, 1993, the two former employees pleaded guilty to
grand larceny (a class D felony). In pleading guilty to the felony
count, Ms. Winikow stated she had been acting on behalf of the Parent.
The presiding judge informed Ms. Winikow that her sentence would be
based on her assistance to the prosecution in its investigation. Ms.
Winikow's sentencing on these pleas is currently scheduled for
April 7, 1994.
On March 22 1994, a Rockland County Grand Jury indictment was
returned charging Mr. Smith with eight felony counts of grand larceny
and two misdemeanor counts of petit larceny. According to the press
release issued by the Rockland County District Attorney on March 22,
1994, the ten count indictment charges Mr. Smith with stealing from the
Parent by charging personal expenses to the Parent, including (i)
approximately $7,300 to rent four vans and a panel truck that were used
by Mr. Smith's son's film production company, including approximately
$780 worth of parking summonses issued to the rental van and a car owned
by the Parent that was being used by Mr. Smith's son' (ii) approximately
$3,037 in moving costs to have Mr. Smith's daughter's belongings moved
to Westchester County on two separate occasions and to have other
belongings moved to Mr. Smith's summer home in Kennebunkport, Maine;
(iii) approximately $4,600 for assorted graphic printing, consisting of
engagement invitations for both of his children, a hand-colored wedding
program for his daughter, as well as printed directions to his
Kennebunkport, Maine summer home; (iv) approximately $7,000 for holiday
baskets for Mr. Smith's family members, friends and his Maine Realtor;
(v) approximately $1,100 for assorted holiday plants delivered to Mr.
Smith's home; (vi) approximately $1,760 to have Mr. Smith's home cleaned
following a boiler replacement; (vii) approximately $1,098 for printed
materials associated with Mr. Smith's wife's election campaign for
village trustee (which Mr. Smith subsequently repaid to the Parent after
Ms. Winikow's arrest); (viii) approximately $2,000 for a surprise 50th
birthday party for Mr. Smith's wife at the Parent's conference center
facilities; (ix) approximately $300 worth of auto repairs made to Mr.
Smith's son-in-law's automobile; and (x) approximately $600 worth of
watches given by Mr. Smith to his children and their spouses. Mr. Smith
was arraigned in Rockland County Supreme Court on March 22, 1994, and
entered a plea of not guilty.
On November 3, 1993, the Parent and the District Attorney executed
a Joint Cooperation Agreement (the "Agreement"). As part of the
Agreement, the District Attorney confirmed that, in light of the
Parent's cooperation, as reflected by its undertakings in the Agreement,
and in light of the clear demonstration by the Parent's Board of
Directors of its determination to uncover all past improper activities
of the types being investigated by the District Attorney and the New
York State Public Service Commission ("NYPSC"), no criminal charge of
any kind will be filed against the Parent or any of its affiliates or
subsidiaries in connection with the District Attorney's investigation.
The Agreement is annexed as Exhibit 99.1 to the Parent's Form 10-Q
Quarterly Report for the quarter ended September 30, 1993.
On November 3, 1993, the New Jersey Board of Regulatory
Commissioners ("NJBRC") commenced its periodic management audit of the
Company. As a result of the events and investigations described above,
the NJBRC audit includes, in addition to a standard review of operating
procedures, policies and practices, a review of the posture of Company
management regarding business ethics and a determination regarding the
effect of such events on Company ratepayers.
Under an agreement with the NJBRC to return to customers funds
misappropriated by employees in connection with the events described
above, the Company refunded to New Jersey ratepayers $94,100 through
reductions in the applicable fuel adjustment charges in February and
March 1994. The Parent has also pledged to return any other funds that
are discovered to have been misappropriated.
On August 18, 1993, Feiner v. Orange and Rockland Utilities, Inc.,
a purported ratepayer class action complaint against the Parent, the
Company, Ms. Winikow and others was filed in the United States District
Court, Southern District of New York. The complaint names a number of
"John Does" who are described as officers and directors of the Parent
but does not identify any current or former officer or director by name
except Ms. Winikow. The Feiner complaint alleges that the defendants
violated RICO and New York common law by using false and misleading
testimony to obtain rate increases from the NYPSC and used funds
obtained from ratepayers in furtherance of an alleged scheme to make
illegal campaign contributions and other illegal payments. Plaintiffs
seek damages in the amount of $900 million (which they seek to treble
pursuant to the RICO statute). The Parent and the Company intend to
vigorously contest these claims and the Parent filed a motion to dismiss
them on February 19, 1994.
On August 31, 1993, Patents Management Corporation v. Orange and
Rockland Utilities, Inc., et al. ("Patents Management"), a purported
shareholder derivative complaint, was filed in the Supreme Court of the
State of New York, County of New York, against the Parent, all but one
of the Directors and several other named defendants by an alleged
shareholder of the Parent. Plaintiff claims that the named Directors
breached their fiduciary duties by condoning the wrongful acts of Ms.
Winikow or failing to exercise appropriate supervisory control over Ms.
Winikow. Plaintiff requests that the Court require each Director to
indemnify the Parent against all losses sustained by the Parent as a
result of these alleged wrongful acts of Ms. Winikow. The defendants
intend to vigorously contest these claims.
On November 23, 1993, Gross v. Orange and Rockland Utilities, Inc.
("Gross"), a purported shareholder class action complaint, was filed in
the United States District Court, Southern District of New York.
Plaintiff alleges that various Securities and Exchange Commission
filings of the Parent during the period March 2, and November 4, 1993,
contained false and misleading information, and thereby violated
Sections 11 and 12(2) of the Securities Act of 1933, by failing to
disclose what the plaintiff alleges was a "scheme" by the Parent to make
illegal political payments and campaign contributions to various public
officials and politicians. As a result, plaintiff claims, during such
period persons who purchased the Parent's stock through the Company's
Dividend Reinvestment and Stock Purchase Plan did so at artificially
inflated prices. The complaint seeks unspecified money damages. The
Parent intends to vigorously contest these claims.
On July 31, 1992, State Line Power Associates, Limited Partnership
v. Orange and Rockland Utilities, Inc., a complaint brought by a New
Jersey partnership, was filed against the Parent in the United States
District Court, Southern District of New York. The plaintiff had,
pursuant to an Agreement dated October 11, 1990 (the Agreement), agreed
to build a gas-fired combined cycle generating facility in Ringwood, New
Jersey and sell 100 Mw of capacity and associated energy to the Parent.
The complaint, which alleged that the Parent had improperly terminated
the Agreement, sought compensatory damages in excess of $50 million and
a declaratory judgment to the effect that the Parent remained obligated
to purchase 100 Mw of capacity and associated energy from the plaintiff
pursuant to the terms of the Agreement. In its answer to the complaint,
the Parent denied the plaintiff's allegations. On January 7, 1994, the
parties entered into a settlement agreement pursuant to which the
Parent, without any admission of liability, paid to the plaintiff an
amount that is not material to the financial condition of the Parent,
and the plaintiff delivered to the Parent a release of all outstanding
claims against the Parent. The Company will be responsible for payment
of a portion of the settlement and related costs pursuant to the Power
Supply Agreement.
Environmental
The Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and certain similar state statutes authorize
various governmental authorities to issue orders compelling responsible
parties to take cleanup action at sites determined to present an
imminent and substantial danger to the public and to the environment
because of an actual or threatened release of hazardous substances. The
Parent is a party to a number of administrative proceedings involving
potential impact on the environment. Such proceedings arise out of,
without limitation, the operation and maintenance of facilities for the
generation, transmission and distribution of electricity and natural
gas. Such proceedings are not, in the aggregate, material to the
business or financial condition of the Parent or the Company.
Pursuant to the Clean Air Act Amendments of 1990, which became law
on November 15, 1990, a permanent nationwide reduction of 10 million
tons in sulfur dioxide emissions from 1980 levels, as well as a
permanent reduction of 2 million tons of nitrogen oxide emissions from
1980 levels must be achieved by January 1, 2000. In addition,
continuous emission monitoring systems will be required at all affected
facilities. The Parent has two base load generating stations that burn
fossil fuels that will be impacted by the legislation in the year 2000.
These generating facilities already burn low sulfur fuels, so additional
capital costs are not anticipated for compliance with the sulfur dioxide
emission requirements. However, installation of low nitogren oxide
burners at Lovett Plant and operational modifications at Bowline Plant
are expected to be required. Additional emission monitoring systems
will be installed at both facilities. The Parent's construction
expenditures for this work is estimated to be approximately $28.2
million from 1993 to 1996. Beginning with calendar year 1994, Title V
sources (Bowline Point and Lovett) will be required to pay an emission
fee. Each facility's fee will be based upon actual air emissions
reported to NYSDEC at a rate of approximately $25 per ton of air
emissions. (If this fee was in effect in 1992, the Parent's obligation
would have been approximately $.5 million). The Company will continue
to assess the impact of the Clean Air Act Amendments of 1990 on its
power generating operations as the regulations implementing these
Amendments are promulgated.
The Company will be responsible for a portion of the costs to
comply with such regulations.
Regulatory Matters:
On December 30, 1992, in connection with the Company's 1991
electric rate case (Docket No. ER910303565), the NJBRC issued a Decision
and Order dealing with the appropriateness of additional tax liability
placed on New Jersey utilities pursuant to New Jersey's June 1, 1991 tax
legislation. Pursuant to this legislation the Company will be required
to pay an additional combined approximate $16 million of gross receipts
and franchise taxes in 1993 and 1994. In its Decision and Order, the
NJBRC allowed the Company to recover this amount over a ten year period
with interest on the unamortized balance at an annual rate of 7.5%. On
February 26, 1993, Rate Counsel filed a Notice of Appeal from the NJBRC
Decision and Order with the Superior Court of New Jersey, Appellate
Division, stating as grounds for the appeal that the Decision is
arbitrary and capricious and would result in unjust and unreasonable
rates. On August 9, 1993, Rate Counsel filed its initial brief with
regard to its appeal. Thereafter, on October 12, 1993, the Company
filed its initial brief and on October 27, 1993 Rate Counsel filed its
reply brief in this matter. Oral argument was held on March 7, 1994, on
March 21, 1994 the Superior Court affirmed the NJBRC's December 20, 1992
Decision and Order.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
As more fully described in Part III, Item 12, "Security Ownership
of Certain Beneficial Owners and Management" of this Form 10-K Annual
Report, all of the outstanding common stock of the Company is owned by
the Parent. There is no trading in any market for such common stock.
As described in Note 4 of the Notes to Consolidated Financial
Statements - "Retained Earnings" in Part IV, Item 14 of this Form 10-K
Annual Report, the Company has various restrictions on the use of
retained earnings for cash dividends, which are contained in or result
from covenants in the Company's Mortgage Trust Indenture dated as of
July 1, 1954, as supplemented. As of December 31, 1993 and 1992,
approximately $7,501,600 was so restricted.
It has not been the practice of the Company to pay quarterly common
stock dividends to the Parent since 1984 although the Company has had
sufficient unrestricted retained earnings and cash available for the
payment of such dividends.
ITEM 6. Selected Consolidated Financial Data
ROCKLAND ELECTRIC COMPANY
(A Wholly Owned Subsidiary of Orange and
Rockland Utilities, Inc.)
Summary of Selected Financial Data
(000's except per share data)
Year Ended December 31,
1993 1992 1991 1990 1989
Operating Revenues $459,130 $364,620 $276,592 $207,501 $131,818
Operating Expenses 450,090 356,606 266,708 199,609 121,326
Operating Income $ 9,040 $ 8,014 $ 9,884 $ 7,892 $ 10,492
Net Income $ 4,717 $ 4,442 $ 6,387 $ 5,775 $ 7,740
Dividends on Preferred Stock - - - 243 336
Earnings Applicable to
Common Stock 4,717 4,442 6,387 5,532 7,404
Balance to Retained Earnings $ 4,717 $ 4,442 $ 6,387 $ 5,532 $ 7,404
Average Common Shares
Outstanding 112,000 112,000 112,000 112,000 112,000
Earnings Per Share $ 42.12 $ 39.66 $ 57.02 $ 49.39 $ 66.11
Utility Plant $140,584 $134,365 $129,143 $110,908 $102,345
Less Accumulated
Depreciation 37,353 34,530 32,796 26,554 24,583
103,231 99,835 96,347 84,354 77,762
Construction Work In Progress 2,815 3,616 2,593 12,603 7,046
Net Utility Plant $106,046 $103,451 $ 98,940 $ 96,957 $ 84,808
Total Assets $237,191 $200,735 $188,645 $164,727 $141,957
Long-Term Debt $ 43,870 $ 40,606 $ 41,822 $ 42,030 $ 28,216
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
Financial Performance. In 1993, the Company's consolidated net
income was $4.7 million, an increase of $.3 million from the $4.4
million earned in 1992. Earnings in 1992 decreased by $2.0 million,
from the $6.4 million earned in 1991. Earnings per average common share
outstanding in 1993 were $42.12, an increase of $2.46 from the $39.66
earned in 1992. Earnings per average common share for 1992 were $17.36
lower than 1991 earnings per share of $57.02. A discussion of the items
causing the change in earnings is contained in the "Results of
Operations."
The Company's interest coverage, as computed under the terms of its
mortgage indenture, was 3.3 times for the current year as compared to
2.9 times in 1992 and 3.6 times in 1991. The after tax interest and
preferred dividend coverage was 2.42 times in 1993 as compared to 2.29
times in 1992 and 2.82 times in 1991.
Events Affecting the Company.
During the third quarter of 1993, the Rockland County (NY) District
Attorney charged a then Vice President of the Parent and the Company
with grand larceny, commercial bribery and making illegal political
contributions and commenced a related investigation of the Parent. Two
other former employees of the Parent reporting to the Vice President
were charged with grand larceny. The Board of Directors of the Parent
promptly formed a Special Committee of outside directors (Special
Committee), with authority to take any steps deemed necessary or
desirable, to conduct an independent investigation into such matters, in
order to determine to what extent there were any other improprieties and
to make recommendations as to any necessary remedial measures. The
Special Committee has retained investigative counsel and an accounting
firm to assist its inquiry.
The New Jersey Board of Regulatory Commission (NJBRC) also began an
investigation to determine the impact of these events on the Company's
ratepayers. The Company is cooperating fully in the inquiries and has
pledged to return to customers any funds that are discovered to have
been misappropriated. Under an agreement reached with the NJBRC, the
Company agreed to refund $94,100 to New Jersey ratepayers in February
and March 1994 through reductions in the applicable fuel adjustment
charges.
On November 4, 1993 the Parent signed a Joint Cooperation Agreement
with the Rockland County District Attorney's office which creates an
Inspector General's office within the Parent to monitor its efforts to
implement and maintain programs to ensure the highest ethical standards
of business conduct. The agreement also specified a number of other
steps the Parent will undertake to aid in the on-going investigation and
prevent any recurrence. As a result of the agreement and the Parent's
continued cooperation with the inquiry, the District Attorney has agreed
not to file any criminal charges against the Parent or any of its
subsidiaries in connection with the current investigation.
The former officer of the Parent and the Company and two former
employees of the Parent charged by the District Attorney subsequently
pleaded guilty to all counts. The District Attorney's Office has
identified $374,124 as representing the amount of consolidated funds
misappropriated by these individuals. As part of their plea, the two
former employees of the Parent agreed to a partial restitution agreement
pursuant to which they will reimburse to the Parent and its subsidiaries
a sum of $199,709 prior to their sentencing, scheduled for May 4, 1994.
The investigations being conducted by the Special Committee of the
Board of Directors of the Parent and the District Attorney, along with
those of the NJBRC, are still under way. The Parent and the Company
intend to take all appropriate actions to protect the interests of its
customers and shareholders. It is not possible to predict at this time
the extent of additional refunds that may be required by the NJBRC, if
any.
During 1993 the Company incurred expenses of $1.3 million for legal
counsel, accountants, and other consultants in connection with the
investigation and related matters. These activities are currently
anticipated to continue through the first half of 1994. It is currently
estimated that the Company will incur from $.7 to $1.3 million of
expenses in 1994 to conclude the investigation. These expenditures are
not recoverable from ratepayers. The Company will attempt to offset
these costs to the extent possible by achieving savings in the cost of
operations during the year.
During the fourth quarter, James F. Smith was terminated for cause
as Chief Executive Officer of the Parent and the Company and removed as
Chairman of the Board of Directors of the Parent, and Victor J.
Blanchet, Jr. was appointed to serve as Acting Chief Executive Officer
of the Parent and the Company.
In order to fully protect its interests the Parent, has initiated
lawsuits in federal and state courts to recover misappropriated funds.
In related activities, two lawsuits have been brought by shareholders
and another by ratepayers seeking damages resulting from these events.
For more information on these legal proceedings, refer to Note 10 of the
Notes to Consolidated Financial Statements.
Rate Activities.
In January 1992, an increase in electric rates of $5.1 million was
granted by the NJBRC in response to the Company's March 18, 1991
petition requesting a $12.9 million increase in base rates. This
increase includes a 12% rate of return on equity. In addition, the
NJBRC initiated a Phase II proceeding in this case to address the effect
of tax legislation adopted June 1, 1991. That legislation changed the
procedure under which certain taxes are collected from the State's
utilities. Previously, the Company had been subject to an effective
gross receipts and franchise tax of 12.5%, which the utilities paid in
lieu of property taxes. The new tax is based upon the number of units
of energy (kwh or therms) delivered by a utility rather than revenues.
The legislation also requires that utilities accelerate payment to the
State of New Jersey of the taxes collected. As a result, the Company is
required to make additional tax payments of approximately $16 million
during the period 1993-1994. On November 12, 1992, the NJBRC approved
the recovery of the additional tax over a ten-year period. A carrying
charge of 7.5% on the unamortized balance was also approved. The amount
of unamortized accelerated payments is included in Deferred Revenue
Taxes in the accompanying financial statements.
On February 26, 1993 the New Jersey Department of Public Advocate,
Division of Rate Counsel ("Rate Counsel") filed a Notice of Appeal from
the NJBRC Decision and Order with the Superior Court of New Jersey
Appellate Division, stating as grounds for the appeal that the Decision
is arbitrary and capricious and would result in unjust and unreasonable
rates. On August 9, 1993, Rate Counsel filed its initial brief with
regard to its appeal. Thereafter, on October 12, 1993, the Company
filed its initial brief and on October 27, 1993, Rate Counsel filed its
reply brief with regard to this matter. Oral argument was held on March
7, 1994, and on March 21, 1994 the Superior Court affirmed the NJBRC's
December 30, 1992 Decision and Order.
Results of Operations
The discussion which follows identifies the principal causes of
significant changes in the amount of revenues and expenses affecting net
income, by comparing 1993 to 1992 and 1992 to 1991. The discussion
should be read in conjunction with the Notes to Consolidated Financial
Statements which immediately follow the financial statements contained
in this Form 10-K Annual Report.
Changes in net income during the periods presented in the
accompanying Consolidated Statements of Income and Retained Earnings are
highlighted as follows:
Increase (Decrease)
From Prior Year 1993 1992
(Thousands of Dollars)
Utility Operations:
Operating revenues $ 6,926 $ (385)
Energy Costs (522) (2,720)
Net revenues from utility operations 7,448 2,335
Other utility operating expenses 5,751 4,008
Diversified activities-net (661) (198)
Income from Operations 1,036 (1,871)
Other income and deductions (845) (49)
Interest charges net of AFDC (84) 25
Net Income $ 275 $(1,945)
Utility Revenues. Revenues increased by 5.5% or $6.9 million, in
1993, after decreasing 0.3% or $0.4 million in 1992. These changes were
attributable to the following factors:
Increase (Decrease)
From Prior Year 1993 1992
(Thousands of Dollars)
Retail Sales:
Base rates $ 4,847 $ 4,259
Fuel recoveries (1,311) (3,071)
Sales volume 3,492 (1,566)
Other operating revenues (102) (7)
Total $ 6,926 $ (385)
Fuel recovery revenues represent amounts collected pursuant to the
levelized fuel adjustment clause included in the Company's tariff
schedule, as authorized by the NJBRC. During 1993, the fuel recovery
rate fell to approximately 2.74 cents per kilowatt hour from the 2.94
cents per kilowatt hour recovered during 1992 and 3.23 cents per
kilowatt hour during 1991.
Revenue increases due to higher sales volumes reflect an increase
in kilowatt hour sales during 1993 of 3.6%. Total sales in 1993
amounted to 1,239.6 million kilowatt hours. During 1992 sales volumes
totaled 1,196.2 million kilowatt hours or a 1.7% decrease over the 1991
level of 1,219.6 million kilowatt hours. The increase in 1993 was the
result of the warmer weather during the summer months of 1993 compared
to the same period of 1992, coupled with an increase in the average
number of customers. The decrease in 1992 was primarily attributable to
cooler summer weather, partially offset by the increase in number of
customers compared to 1991.
Energy Costs. All of the energy requirements of the Company are
furnished by its Parent pursuant to a contract approved by the FERC.
Energy costs are adjusted to match revenues recovered through the
operation of the levelized electric energy adjustment clause. The cost
of power purchased from the Parent decreased by .8% and 3.9% for the
years 1993 and 1992, respectively. The components of the changes in
electric energy costs are as follows:
Increase (Decrease)
From Prior Year 1993 1992
(Thousands of Dollars)
Prices paid for purchased power $ (548) $ 2,259
Changes in kilowatt hours purchased 1,791 (1,462)
Deferred fuel charges (1,765) (3,517)
Total $ (522) $(2,720)
The average price paid per kilowatt hour purchased during 1993
amounted to 5.12 cents compared to 5.16 cents during 1992 and 4.99 cents
during 1991. Any fluctuations in the price paid per kilowatt hour are
reflective of the Parent's costs to generate or purchase electricity,
particularly the cost of fuel used in electric production.
Other Utility Operating Expenses. The increases (decreases) in
other operating expenses are presented in the following table:
Increase (Decrease)
From Prior Year 1993 1992
(Thousands of Dollars)
Other operation & maintenance $ 2,994 $ 5,055
Depreciation 151 321
Taxes 2,606 (1,368)
Total $ 5,751 $ 4,008
Other Operation and Maintenance. The cost of conservation programs
increased other operation and maintenance expenses in 1993 by $2.9
million and 1992 by $3.1 million. These costs are recoverable in
revenues on a current basis. The remaining increase in 1993 was the
result of higher operation expenses associated with inflation. The
increase in 1992 is primarily the result of an increase in the Company's
circuit maintenance programs along with inflationary increases.
Depreciation. Depreciation expenses increased $0.2 million and
$0.3 million in 1993 and 1992, respectively. These increases are the
result of plant additions in both years.
Taxes. The Company's tax expense increased by $2.6 million in 1993
after decreasing by $1.4 million in 1992. Taxes other than income taxes
increased $1.4 million in 1993 after a decrease of $0.4 million in 1992.
The 1993 increase is the result of increases in gross receipts and
franchise tax. Federal income tax expense increased by $1.2 million in
1993 following a $1.0 million decrease the year before. Changes in
Federal income taxes are detailed in Note 2 of the Notes to Consolidated
Financial Statements under the caption "Federal Income Taxes" in Part
IV, Item 14 of this Form 10-K Annual Report.
Diversified Activities. The Company's diversified activities,
which are conducted through it's wholly owned non-utility subsidiaries,
consist of natural gas marketing and radio broadcasting activities.
Revenues from diversified activities increased $87.6 million and
$88.4 million in 1993 and 1992, respectively. The increased revenues in
both years is primarily the result of increased sales volumes from gas
marketing activities. However, an extremely competitive market for non-
utility gas sales in 1993 resulted in significantly lower gross profit
margins on these sales when compared to 1992. This resulted in a
decrease in operating income of $0.7 million in 1993 after a decrease of
$0.2 million in 1992.
The increase in gas marketing payables and receivables are directly
related to the favorable increase in customers and higher sales volumes.
Gas marketing payables increase proportionately to gas marketing
receivables.
A description of the non-utility subsidiaries of the Company is
included in Part I, Item 1 of this Form 10-K Annual Report under the
caption "Diversified Activities." The Company will continue to look to
its gas marketing activities to increase operating results in the future
while the Company's radio broadcasting activities have been, and will
continue to be, affected by the economy.
Other Income, Deductions and Interest Charges. Other nonoperating
income, net of deductions and interest charges, decreased by $0.9
million during 1993 after decreasing by $0.3 million during 1992. The
most significant reason for the decrease was the cost of the
investigation and related matters described under the caption "Events
Affecting the Company" in this Item 7, which amounted to $1.3 million.
The fluctuation in net nonoperating income is also a result of
fluctuations in interest expense items as well as the change in
allowance for funds used during construction from the previous year.
Liquidity and Capital Resources
Utility construction expenditures, net of AFDC, amounted to $6.5
million, $7.6 million and $8.5 million during 1993, 1992 and 1991,
respectively. The expenditures represent fixed asset replacements and
are predominantly associated with the Company's transmission and
distribution systems. During that three year period, the total
construction expenditures, including those from diversified activities,
were financed with internally generated funds. The Company estimates
that its 1994-1998 capital requirements, which include construction
expenditures and funds required for debt maturities, will be as follows:
1994 - $6,291,000; 1995 - $9,220,000; 1996 - $8,007,000; 1997 -
$8,890,000; and 1998 -$9,100,000. It is expected that these capital
requirements will be financed with internally generated funds.
Information regarding the Company's construction program is contained in
Part 1, Item 1 of this Form 10-K Annual Report under the caption
Construction Program and in Note 10 of the Notes to Consolidated
Financial Statements - under the caption "Construction Program" in Part
IV, Item 14 of this Form 10-K Annual Report.
At December 31, 1993, the Company had available bank lines of
credit of $10.0 million, against which no short-term borrowings were
outstanding. For additional information regarding the Company's short-
term borrowings, see Note 7 of the Notes to Consolidated Financial
Statements under the caption "Cash and Short Term Debt" in Part IV, Item
14 of this Form 10-K Annual Report.
The Company's capital structure at the end of 1993 was 67% common
equity and 33% long-term debt. The Company was required under the terms
of its Sixth Supplemental Indenture to make an annual sinking fund
payment on June 14 of each year of $240,000 with respect to its Series
"F" Bonds and, pursuant to its Seventh Supplemental Indenture, to make
sinking fund payments of $333,000 on January 31 of each year with
respect to its Series "G" Bonds. During 1992 and 1991 cash payments
were made to satisfy both requirements and during 1993 both issues were
redeemed. On February 25, 1993 the Company sold $20 million of First
Mortgage 6% Bonds, Series I due 2000 (Series I Bonds). The Series I
Bonds were sold at a discount to yield 6.11% to the public. The net
proceeds to the Company from the sale of the Series I bonds were used to
pay the principal and redemption premium on an aggregate of $16,017,000
of the Company's outstanding First Mortgage Bonds and for other
corporate purposes. The principal amount and series of First Mortgage
Bonds refunded on March 27, 1993 were: $5,000,000 of 9 1/8% bonds,
Series D due 2000; $6,000,000 of 7 7/8% Bonds, Series E due 2001;
$3,680,000 of 8.95% Bonds, Series F due 2004; and $1,337,000 of 10%
Bonds, Series G due 1997. Cash payments totaling $333,000 were made to
satisfy the Series G sinking fund requirement of the Company in 1993.
SRH and its subsidiaries also maintain certain lines of credit and
undertake long and short-term borrowings or make investments from time
to time. At December 31, 1993 SRH and its' subsidiaries had outstanding
loans aggregating $2.9 million, the proceeds of which were used to make
investments in broadcasting properties. In addition, O&R Energy, Inc.,
a subsidiary of SRH had an available line of credit and standby letters
of credit which together amounted to $15.0 million and under which $1.2
million was outstanding at December 31, 1993. Non-utility temporary
cash investments amounted to $685,000 at year end.
Credit Ratings
The credit ratings of the Company's First Mortgage Bonds are as
follows:
Company
First Mortgage
Agency Bonds
Moody's Investors Service, Inc. A2
Standard & Poor's
Corporation A+
The Company's First Mortgage Bonds are not rated on a stand-alone
basis. They are reviewed annually in conjunction with the debt,
preferred stock and commercial paper ratings of the Parent. The ratings
assigned to the Company's securities by the rating agencies are not a
recommendation to buy, sell or hold the Company's securities, but rather
are assessments of the credit-worthiness of the Company's securities by
the rating agencies.
Other Developments
SFAS No. 112.
In November 1992 the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 112 "Employers
Accounting for Postemployment Benefits", (SFAS No. 112), which requires
the recognition of postemployment benefits, such as salary continuation,
severance pay, and disability benefits, provided to former or inactive
employees on an accrual basis. The Company currently recognizes the
cost of such benefits as they are paid. Adoption of SFAS No. 112 is
mandatory for fiscal years beginning after December 15, 1993. The
Company anticipates adopting this accounting standard in 1994; however,
it does not expect adoption to have a material adverse effect on the
Company's results of operations.
Inflation
The Company's utility revenues are based on rate regulation, which
provides for recovery of operating costs and a return on rate base.
Inflation affects the Company's construction costs, operating expenses
and interest charges and can impact the Company's financial performance
if rate relief is not granted on a timely basis. Financial statements,
which are prepared in accordance with generally accepted accounting
principles, report operating results in terms of historic costs and do
not recognize the impact of inflation.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and schedules required by this Item are
contained on pages 41 through 65 of this Form 10-K Annual Report. Such
information is listed in Item 14(a)(1) "Financial Statements" on page 37
of this Form 10-K Annual Report.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 10, 1994, the Executive Committee of the Board of
Directors of the Parent appointed the accounting firm of Arthur Andersen
& Co. to audit the books, records and accounts of the Parent and the
Company for the 1994 fiscal year. The appointment of Arthur Andersen &
Co. is subject to the approval of the Parent's shareholders at the
Annual Meeting to be held on May 11, 1994.
The accounting firm of Grant Thornton audited the Company's
consolidated financial statements for 1993 and prior years. Upon
recommendation of the Audit Committee, the Board of Directors of the
Parent decided to solicit bids for the performance of auditing services
for the Parent and the Company for 1994. Bids were received from six
public accounting firms, including Grant Thornton. Based on a review of
the competing bids, the Audit Committee believed that the selection of
Arthur Andersen & Co. would be in the best interests of the Parent and
the Company and recommended such selection to the Parents Board of
Directors.
The reports of Grant Thornton on the Company's consolidated
financial statements for the past two fiscal years did not contain an
adverse opinion or a disclaimer of opinion and the reports were not
qualified or modified as to uncertainty, audit scope or accounting
principals, except that the report for 1993 was modified by inclusion of
an explanatory paragraph regarding the uncertainty of the pending
investigations of the Parent and related litigation described in the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993. Since January 1, 1992, there have been no disagreements with
Grant Thornton on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which if
not resolved to the satisfaction of Grant Thornton, would have caused
Grant Thornton to make reference to the subject matter of such
disagreements in connection with its report.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Directors
The persons listed below are the Directors of the Company; Messrs.
Blanchet and Chambers were elected to the Board in April 1993, and Mr.
Vanderhoef was elected to the Board in March 1994, by the Parent, as
sole holder of the Company's common stock, to hold office for one year
or until their successors are elected and qualified.
Principal Occupation;
Business Experience
Name Age Past Five Years Since (2)
Victor J. Blanchet 52 President, Chief Operating 1991
Officer and Director of the
Company, the Parent and Pike.
Acting Chief Executive Officer (1)
Patrick J. Chambers, Jr. 59 Senior Vice President, 1980
Chief Financial Officer and
Director of the Company, the
Parent and Pike (1)
H. Kent Vanderhoef 71 Acting Chairman of the Parent's 1994
Board of Directors; Director of
the Company and Pike;
Director and former Chairman of
the Board of Directors and Chief
Executive Officer, Kay-Fries, Inc.,
Rockleigh, New Jersey, a chemical
manufacturer. Mr. Vanderhoef was
president of Kay-Fries until 1981
and, from 1983 until 1990, was a
consultant to that company. Director,
Rockland Country Club Foundation.
Chairman, Executive Committee of
the Parent's Board of Directors and
Member, Audit Committee of the Parent's
Board of Directors.
(1) The business experience of this director is contained under the
heading "Identification of Executive Officers and Business
Experience" in this Item 10.
(2) Denotes date of election to the Board of Directors.
Identification of Executive Officers and Business Experience
The executive officers of the Company are also officers of the Parent
and Pike. All of the executive officers of the Company are appointed on an
annual basis at the first Board of Directors' meeting following the annual
meeting.
Officer, Age and Title Business Experience Past Five Years of
Victor J. Blanchet, Jr., 52 Acting Chief Executive Officer since
Acting Chief Executive Officer, October 7, 1993.
President and Chief Operating President and Chief Operating Officer
Officer since January 1991. Executive Vice
President from April 1990 until
January 1991. Vice President from
1977 to April 1990.
Patrick J. Chambers, Jr., 59 Senior Vice President since 1978 and
Senior Vice President and Chief Financial Officer since 1979.
Chief Financial Officer
Robert J. Biederman, Jr., 41 Vice President since April 1990.
Vice President, Transmission Director of Operations from 1986
and Distribution until April 1990.
Terry L. Dittrich, 48 Acting Controller since
Acting Controller March 18, 1994. Director of
Accounting since April 1990. Manager
of Accounting from 1985 to April 1990.
Frank E. Fischer, 60 Vice President since 1978.
Vice President, Engineering
and Production
Gerard A. Maher, 59 Assistant Secretary since April 1989.
Assistant Secretary and Assistant Treasurer since April 1990.
Assistant Treasurer Assistant General Counsel from
April 1989 to August 1991. Partner,
Nixon, Hargrave, Devans & Doyle
from November 1986 to March 1989.
Robert J. McBennett, 51 Treasurer since April 1984.
Treasurer
Victor A. Roque, 47 General Counsel since April 1989.
Vice President, General Counsel Vice President and Secretary since
and Secretary January 1987. Senior Attorney from
1981 to January 1987.
ITEM 11. EXECUTIVE COMPENSATION
The table below shows all compensation awarded to, earned by or paid
to persons serving as Chief Executive Officer in 1993 for services rendered
in all capacities to the Company and its subsidiary during the fiscal years
ended December 31, 1993, December 31, 1992 and December 31, 1991. There
were no other executive officers during 1993 whose total annual salary and
bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
Other Awards Payouts All
Annual Restricted LTIP Other
Salary Bonus Compensation Stock Options/ Payouts Compensation
Name & Principal Position Year ($) ($)(1) ($)(2) Award(s)(3) Sars(3) ($)(4) ($)(6)
Victor J. Blanchet, Jr. 1993 76,920 0 0 none none 0 (5) 3,842
President, Chief 1992 68,100 21,665 0 none none 14,125 2,880
Operating Officer 14,125
and Acting Chief 1991 60,000 24,480 0 none none 5,342 1,836
Executive Officer
James F. Smith 1993 111,595 0 11,831 none none 0 (5) 10,904
Former Chairman of the 1992 117,107 36,077 3,962 none none 42,745 10,806
Board of Directors and 42,745
Former Chief Executive 1991 111,932 46,022 254 none none 29,642 8,897
Officer
(1) Pursuant to the Incentive Plan (described in the following
section), the amount of annual awards depends upon the level of
achievement of one-year goals. If performance is below a minimum
level, no award is earned. Actual amounts of annual awards earned
under the Plan are shown. All decisions with regard to payments
for the achievement of 1993 goals have been deferred until after
the investigation has been concluded. Mr. Smith will not receive a
payment.
(2) Interest in excess of 120% of the long-term federal rate, with
compounding, prescribed under section 1274(d) of the Internal
Revenue Code, paid or payable on compensation deferred at the
officer's election.
(3) At the end of the last fiscal year, the Company had no program or
plan that awards restricted stock, stock options or stock
appreciation rights.
(4) Pursuant to the Incentive Plan, the amount of long-term awards
depends upon the achievement of long-term goals. If performance is
below a minimal level, no award is earned. Installments of long-
term incentive awards earned for the period 1986-1988 which were
paid or payable in 1991, and awards earned for the period 1989-1991
which were paid or payable in 1992 are shown.
(5) The long-term incentive award earned for the period 1989-1991 is
payable in three annual installments beginning in 1992. The first
installment was paid in February 1992. The second installment,
which ordinarily would have been made in February 1993, was
approved by the Parent's Board of Directors for payout in December
1992. Consequently, no payment of the long-term incentive award
was made in 1993.
(6) Interest earned on long-term incentive awards which were deferred
under the terms of the Incentive Plan and not at the election of
the officer. In 1993, the amounts were: Mr. Smith, $9,570; and
Mr. Blanchet $3,842. In addition, Mr. Smith's compensation
reflects the average annual premium of $1,334 for a supplemental
long-term disability insurance policy purchased for him in 1991.
(7) Upon notice of his termination for cause, Mr. Smith was suspended
from all duties with pay during the period in which he was entitled
to take corrective action with respect to his termination for
cause, which lapsed on December 6, 1993. However, the Company
ceased paying Mr Smith's salary effective November 30, 1993 after
Mr. Smith filed an election to commence receiving his pension plan
benefits as of such date.
Incentive Plan. The Parent has an Incentive Compensation Plan
("Incentive Plan") for officers and certain other key executives, as
specified on an annual basis. The Incentive Plan established a system
of awards for the achievement of one-year goals and three-year goals.
Payment of the three-year award is made over a three-year period
beginning the year following the end of the cycle. The current three-
year award cycle is for the period 1992 through 1994. The Compensation
Committee of the Parent's Board of Directors approves the setting of
goals and objectives upon which incentive compensation awards are based
and submits these goals and objectives to the Parent's Board of
Directors for approval. The three-year goals for the three-year period
1992 through 1994 include the attainment of a target return on equity,
retail price comparisons for electric and gas operations and the
achievement of demand-side management objectives. At the end of each
Incentive Plan year an amount is accrued towards the payment of
incentive compensation based upon the three-year goals. The incentive
compensation based upon the three-year goals may be more or less than
the portion so set aside, depending upon the level of achievement
actually attained. A portion of the three-year award may be deferred at
the discretion of the Parent's Board of Directors until the
participant's retirement, death, disability or severe hardship. The
following table sets forth the dollar value of the range of the
estimated payouts under the Incentive Plan. The amounts reported in
columns (d), (e) and (f) of the following table represent amounts
estimated for fiscal year 1993 assuming, respectively, (i) the
achievement of a minimally acceptable level of performance under the
Incentive Plan (if performance is below this minimal level, no award
will be paid); (ii) the achievement of certain goals which are
formulated in each case to be attainable during the calendar year,
absent major changes in external factors over which the Company may have
little control; or (iii) the achievement of certain goals at a level
which theoretically can be attained during the calendar year, but cannot
be attained if any external factors adversely affect the achievement of
the goals.
Subsidiary Performance Plan. In 1992, a Performance Unit Incentive
Plan (the "Performance Unit Incentive Plan") was adopted by the Parent
and certain of its wholly-owned non-utility subsidiaries. The
Performance Unit Incentive Plan, administered by the Compensation
Committee, was designed to provide incentive awards to certain
qualifying individuals in the Company and its subsidiaries, including
O&R Energy, Inc. and Atlantic Morris Broadcasting, Inc. (together, the
"Participating Companies"). Pursuant to the Performance Unit Incentive
Plan, in 1992 certain key employees of the Participating Companies,
including Messrs. Smith and Chambers ("Participants"), were granted
awards entitling each of them to certain rights, measured as Performance
Units. Each Performance Unit gives each Participant the opportunity to
receive up to 1% of the combined net gain in value of the Participating
Companies over a starting net value measured as the combined initial
investment in each of the Participating Companies ("Starting Value").
If the percentage of net gain over the Starting Value does not exceed
the average corporate bond rate, Participants will not be entitled to
any payout under the Performance Unit Incentive Plan. Under the terms
of the Performance Unit Incentive Plan, the award held by Mr. Smith has
been cancelled as a result of his termination for cause.
With respect to the Performance Unit Plan, the following table sets
forth in column (b) the number of Performance Units awarded, while the
amounts reported in columns (d) and (e) represent amounts, including
those attributable to the Company estimated, respectively, (i) assuming
no gain in net value over the Starting Value and (ii) based on an
average 1992 quarterly corporate bond rate of 8.13%.
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
(a) (b) (c) (d) (e) (f)
Estimated Future Payouts Under
Non-Stock Price Based Plans
Number Performance Threshold Target Maximum
Name of Units Cycle Ending Date $ $ $
Victor J. Blanchet, Jr. (1) - 12/31/94 2,124 21,240 31,860
James F. Smith (2) - 12/31/94 0 0 0
0 12/31/97 0 0 0
_____________
(1) Estimated long-term awards under the Parent's Incentive Plan.
(2) Rights under the Performance Unit Incentive Plan and the Incentive
Compensation Plan were canceled as a result of Mr. Smith's
termination for cause.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Amount and
Nature of
Name of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
Common Stock - Orange and Rockland
$100 Par Value Utilities, Inc. 112,000 100%
(Parent)
ITEM 13. Certain Relationships and Related Transactions
None.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a)(1) Financial Statements:
The following consolidated financial statements of the Company are
included in Part II, Item 8.
Page
Report of Independent Certified Public Accountants. 42
Consolidated Balance Sheets as of December 31, 1993 and 1992. 44
Consolidated Statements of Income and Retained Earnings 46
for the Years Ended December 31, 1993, 1992 and 1991.
Consolidated Cash Flow Statements
for the Years Ended December 31, 1993, 1992 and 1991. 47
Notes to Consolidated Financial Statements. 48
(a)(2) Financial Statement Schedules:
Page
Property, Plant and Equipment and Non-utility Property
for the Years Ended December 31, 1993, 1992 and 1991.
(Schedule V). 66
Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment and Non-utility Property
for the Years Ended December 31, 1993, 1992 and 1991
(Schedule VI). 69
Valuation and Qualifying Accounts and Reserves for the Years
Ended December 31, 1993, 1992 and 1991 (Schedule VIII). 72
Supplementary Income Statement Information for the
Years Ended December 31, 1993, 1992 and 1991 (Schedule X). 73
All other schedules are omitted because they are either not applicable
or the required information is shown in the financial statements or
notes thereto.
(a) (3) Exhibits
*3.1 Certificate of Incorporation, as amended through November 5,
1987. (Exhibit 3.1 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 2-36005).
3.5 By-Laws, as amended through October 7, 1993.
*4.1 Mortgage Trust Indenture of Rockland Electric Company, dated as
of July 1, 1954. (Exhibit 2.16 to Registration Statement No.
2-14159).
*4.4 Third Supplemental Indenture of Rockland Electric Company,
dated as of August 15, 1965. (Exhibit 4.23 to Registration
Statement No. 2-24682).
*4.10 Ninth Supplemental Indenture of Rockland Electric Company,
dated as of March 1, 1993. (Exhibit 4.10 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 2-36005).
*10.0 Joint Operating Agreement, dated as of February 5, 1976 between
Orange and Rockland Utilities, Inc. and the Company. (Exhibit
10.0 to Form 10-K for Fiscal year ended December 31, 1989, File
No. 2-36005).
10.1 Power Supply Agreement, dated as of January 1, 1993 between
Orange and Rockland Utilities, Inc. and the Company, as filed
with the Federal Energy Regulatory Commission.
*+10.3 Performance Unit Incentive Plan effective December 3, 1992.
(Exhibit 10.3 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 2-36005).
*+10.4 Award Agreement under the Performance Unit Incentive Plan
applicable to P. J. Chambers, Jr. dated December 3, 1992.
(Exhibit 10.4 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 2-36005).
*+10.5 Award Agreement under the Performance Unit Incentive Plan
applicable to J. F. Smith dated December 3, 1992. (Exhibit
10.5 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 2-36005).
*22 Subsidiaries of the Company.
(Exhibit 22 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 2-36005).
*Incorporated by reference to the indicated filings.
+Denotes Executive Compensation Plans and Arrangements
(b) Reports on Form 8-K
On February 17, 1994, the Company filed a Current Report on
Form 8-K, dated February 10, 1994, reporting, under Item 4.
"Changes in Registrant's Certifying Accountant", the
appointment by the Executive Committee of the Parent's Board of
Directors of the accounting firm of Arthur Andersen & Co. to
audit the books, records and accounts of the Company and its
subsidiaries for the 1994 fiscal year.
On February 22, 1994, the Company filed a Form 8-K/A dated
February 22, 1994, amending the February 10, 1994 Form 8-K to
include as Exhibit 16, a letter from the accounting firm of
Grant Thornton, which firm audited the Company's consolidated
financial statements for the 1993 fiscal year and prior years.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ROCKLAND ELECTRIC COMPANY
(Registrant)
By VICTOR J. BLANCHET JR.
(Victor J. Blanchet, Jr.
Acting Chief Executive Officer,
President, Chief Operating
Officer and Director)
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature and Title Capacity in Which Signing
VICTOR J. BLANCHET, JR. Chief Operating
(Victor J. Blanchet, Jr., Officer; Director
Acting Chief Executive Officer,
President and Chief Operating Officer)
PATRICK J. CHAMBERS, JR. Principal Financial
(Patrick J. Chambers, Jr., Officer; Director
Senior Vice President and
Chief Financial Officer)
TERRY L. DITTRICH Principal Accounting
(Terry L. Dittrich, Officer - Acting
Acting Controller)
Date: March 25, 1994
ROCKLAND ELECTRIC COMPANY
(A WHOLLY OWNED SUBSIDIARY OF ORANGE AND ROCKLAND UTILITIES, INC.)
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
WITH REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Prepared for filing as part of
Annual Report (Form 10-K)
to the Securities and Exchange Commission
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors of
Rockland Electric Company and Subsidiary
We have audited the accompanying consolidated balance sheets of
Rockland Electric Company (a wholly owned subsidiary of Orange and
Rockland Utilities, Inc.) and Subsidiary as of December 31, 1993 and
1992, and the related consolidated statements of income and retained
earnings and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Rockland Electric Company and Subsidiary as of December 31, 1993 and
1992, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting
principles.
As more fully discussed in Note 10 (Legal Proceedings) to the
Consolidated Financial Statements, the Company, Orange and Rockland
Utilities, Inc. and various state regulatory authorities are currently
investigating misappropriations of funds by certain former employees of
Orange and Rockland Utilities, Inc. and the impact on ratepayers. As a
result of these improprieties, several class action and derivative
complaints have been filed against the Company, Orange and Rockland
Utilities, Inc. and others. Although Orange and Rockland Utilities,
Inc. and the Company have agreed to refund certain amounts to ratepayers
as of December 31, 1993, the ultimate outcome of the investigations and
litigation cannot presently be determined. Accordingly, no provision
for any additional liability that may result from these matters has been
made in the accompanying financial statements.
As discussed in Notes 2 and 9 of the Consolidated Financial
Statements, the Company changed its method of accounting for income
taxes and postretirement benefits in 1993.
We have also audited the schedules listed in the Index at Item
14(a)(2). In our opinion, these schedules present fairly, in all
material respects, the information required to be set forth therein.
GRANT THORNTON
New York, New York
February 16, 1994
ROCKLAND ELECTRIC COMPANY AND SUBSIDIARY
(A Wholly Owned Subsidiary of Orange
and Rockland Utilities, Inc.)
Consolidated Balance Sheets
Assets
December 31,
1993 1992
(Thousands of Dollars)
Utility Plant (Notes 1, 6 and 10)
Electric $140,584 $134,365
Less accumulated depreciation 37,353 34,530
103,231 99,835
Construction work in progress 2,815 3,616
Net Utility Plant (Notes 1, 6 and 10) 106,046 103,451
Non-utility Property
Non-utility property 7,397 6,610
Less depreciation and amortization 2,202 1,692
5,195 4,918
Current Assets:
Cash and cash equivalents (Notes 7 and 8) 13,813 14,827
Temporary cash investments (Note 8) 685 128
Customer accounts receivable, less allowance
for doubtful accounts of $210 and $190 (Note 1) 12,345 10,304
Accrued utility revenue (Note 1) 2,932 3,100
Other accounts receivable, less allowance for
doubtful accounts of $52 and $35 2,358 1,556
Receivable from associated companies 314 68
Gas marketing accounts receivable, less allowance
for doubtful accounts of $471 and $75 (Note 1) 49,249 37,702
Materials and supplies (at average cost) 7,210 7,758
Prepayments and other current assets 3,914 2,139
Total Current Assets 92,820 77,582
Deferred Debits:
Income tax recoverable in future rates (Notes 1 and 2) 7,085 -
Extraordinary property loss-Sterling
Nuclear Project (Note 3) 4,594 4,630
Deferred revenue taxes (Note 1) 11,769 -
Deferred pension and other postretirement benefits
(Note 10) 2,138 1,096
Unamortized debt expense (amortized over term
of securities) 987 426
Other assets and deferred debits 6,557 8,632
Total Deferred Debits 33,130 14,784
Total $ 237,191 $200,735
The accompanying notes are an integral part of these statements.
ROCKLAND ELECTRIC COMPANY AND SUBSIDIARY
(A Wholly Owned Subsidiary of Orange
and Rockland Utilities, Inc.)
Consolidated Balance Sheets
Capitalization and Liabilities
December 31,
1993 1992
(Thousands of Dollars)
Capitalization:
Capital Stock and Retained Earnings
Common stock (Note 5) $ 11,200 $ 11,200
Capital stock expense (20) (20)
Retained earnings (Note 4) 78,904 74,187
Total Common Stock Equity 90,084 85,367
Long-term debt (Notes 6 and 8) 43,866 40,606
Total Capitalization 133,950 125,973
Noncurrent Liabilities:
Reserve for claims and damages (Note 1) 268 223
Postretirement benefits (Note 9) 1,454 -
1,722 223
Current Liabilities:
Long-term debt due within one year (Notes 6 and 8) 891 1,255
Notes payable (Notes 7 and 8) 1,200 -
Accounts payable 384 107
Gas marketing accounts payable (Note 1) 54,247 44,645
Amounts due to associated companies (Note 1) 10,904 10,126
Customer deposits 1,130 996
Accrued taxes 8,435 1,468
Accrued interest 1,667 1,479
Other current liabilities 307 98
Total Current Liabilities 79,165 60,174
Deferred Taxes and Other:
Deferred Federal income taxes (Notes 1 and 2) 16,601 7,694
Deferred investment tax credits (Notes 1 and 2) 2,587 2,708
Refundable fuel costs (Note 1) 1,656 2,449
Other liabilities and deferred credits 1,510 1,514
Total Deferred Taxes and Other 22,354 14,365
Commitments and Contingencies (Notes 3 and 10) - -
Total $237,191 $200,735
The accompanying notes are an integral part of these statements.
ROCKLAND ELECTRIC COMPANY AND SUBSIDIARY
(A Wholly Owned Subsidiary of Orange
and Rockland Utilities, Inc.)
Consolidated Statements of Income and Retained Earnings
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Operating Revenues:
Electric operations (Note 1) $133,684 $126,757 $127,142
Diversified activities (Note 1) 325,446 237,863 149,450
Total Operating Revenues 459,130 364,620 276,592
Operating Expenses:
Operations:
Electricity purchased for resale-net (Note 1) 66,547 67,069 69,789
Gas marketing purchases (Note 1) 310,565 224,735 137,874
Other expenses of operation (Note 1) 41,433 35,706 29,713
Maintenance 5,430 5,396 4,816
Depreciation (Note 1) 4,432 4,169 3,809
Taxes other than income taxes 18,833 17,559 17,663
Federal income taxes (Notes 1 and 2) 2,850 1,972 3,044
Total Operating Expenses 450,090 356,606 266,708
Income From Operations 9,040 8,014 9,884
Other Income and Deductions:
Allowance for other funds used during construction
(Note 1) 39 90 201
Investigation costs (Note 12) (1,329) - -
Other - net 491 350 297
Taxes other than income taxes (44) (34) (33)
Federal income taxes (Notes 1 and 2) 417 (37) (47)
Total Other Income and Deductions (426) 369 418
Income Before Interest Charges 8,614 8,383 10,302
Interest Charges:
Interest on long-term debt 3,319 3,448 3,503
Other interest 452 528 470
Amortization of debt premium and expense - net 116 26 29
Interest on debt to Parent (Note 1) 47 10 2
Allowance for borrowed funds used during
construction (Note 1) (37) (71) (89)
Total Interest Charges 3,897 3,941 3,915
Net Income 4,717 4,442 6,387
Retained earnings at beginning of year 74,187 69,745 63,358
Retained earnings at end of year $ 78,904 $ 74,187 $ 69,745
Average number of common shares outstanding (000's) 112 112 112
Earnings per average common share outstanding $ 42.12 $ 39.66 $ 57.02
The accompanying notes are an integral part of these statements.
ROCKLAND ELECTRIC COMPANY AND SUBSIDIARY
(A Wholly Owned Subsidiary of Orange
and Rockland Utilities, Inc.)
Consolidated Cash Flow Statements
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Cash Flow from Operations:
Net income $ 4,717 $ 4,442 $ 6,387
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 4,279 3,998 3,627
Deferred Federal income taxes 1,823 (301) (1,932)
Deferred investment tax credits (121) (137) (132)
Deferred fuel costs (793) 1,068 4,457
Allowance for funds used during construction (76) (161) (290)
Changes in certain current assets and liabilities:
Temporary cash investments (557) (128) -
Accounts and gas marketing accounts receivable,
net and accrued utility revenue (14,468) (7,475) (11,646)
Materials and supplies 548 (345) 905
Prepayments and other current assets (1,775) 479 (1,279)
Operating and gas marketing accounts payable 10,657 8,503 13,948
Accrued taxes (1,468) (336) 698
Accrued interest 188 (22) 291
Other current liabilities 343 117 246
Other, net (2,004) 268 4,346
Net Cash Provided by Operations 1,293 9,970 19,626
Cash Flow from Investing Activities:
Additions to plant (6,590) (7,728) (10,348)
Allowance for funds used during construction 76 161 290
Net Cash Used in Investing Activities (6,514) (7,567) (10,058)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt 20,000 - 625
Retirements of:
Long-term debt (16,993) (1,094) (573)
Net borrowings (repayments) under
Short-term debt arrangements (Note 7) 1,200 - (1,500)
Net Cash (Used In) Provided by Financing Activities 4,207 (1,094) (1,448)
Net Change in Cash and Cash Equivalents (1,014) 1,309 8,120
Cash and Cash Equivalents at Beginning of Year 14,827 13,518 5,398
Cash and Cash Equivalents at End of Year $13,813 $14,827 $13,518
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 3,469 $ 3,766 $ 3,598
The accompanying notes are an integral part of these statements.
ROCKLAND ELECTRIC COMPANY AND SUBSIDIARY
(A Wholly Owned Subsidiary of Orange
and Rockland Utilities, Inc.)
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
General: Rockland Electric Company (the "Company"), a New Jersey
corporation, is a wholly owned subsidiary of Orange and Rockland
Utilities, Inc. (the "Parent"), a New York corporation. The Company is
subject to regulation by the Federal Energy Regulatory Commission (the
"FERC") and the State of New Jersey Board of Regulatory Commissioners
(the "NJBRC") with respect to its rates and accounting. The Company's
accounting policies conform to generally accepted accounting principles,
as applied in the case of regulated public utilities, and are in
accordance with the accounting requirements and rate-making practices of
the regulatory authority having jurisdiction. A description of the
Company's significant accounting policies follows.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned non-utility
subsidiary. All intercompany balances and transactions have been
eliminated. The Company's non-utility subsidiary is engaged in gas
marketing and radio broadcasting activities.
Utility Revenues: Utility Revenues are recorded on the basis of
cycle billings rendered to certain customers monthly and others
bimonthly. Unbilled revenues are accrued at the end of each month for
estimated energy usage since the last meter reading.
Electric Fuel Costs: The tariff schedules of the Company contain
adjustment clauses which utilize estimated prospective energy costs
based on a twelve-month period beginning on the first of January each
year. The recovery of such estimated costs is made through monthly
charges per kilowatt hour over the year of projection. Any over or
under recoveries are deferred and refunded or charged to customers
during the subsequent twelve-month period.
Utility Plant: Utility plant is stated at original cost. The cost
of additions to and replacements of utility plant includes contracted
work, direct labor and material, allocable overheads, allowance for
funds used during construction ("AFDC") and indirect charges for
engineering and supervision. Replacement of minor items of property and
the cost of repairs is charged to maintenance expense. At the time
depreciable plant is retired or otherwise disposed of, the original cost
together with removal cost, less salvage, are charged to accumulated
provision for depreciation.
Depreciation: For financial reporting purposes depreciation is
computed on the straight-line method based on estimated useful lives of
the various classes of property. Provisions for depreciation were
equivalent to the composite rates based on the average depreciable
property balances at the beginning and end of the year; 2.84% in 1993,
1992 and 1991.
Federal Income Taxes: The Parent and its subsidiaries file a
consolidated Federal income tax return and income taxes are allocated,
for financial reporting purposes, to the Parent and its subsidiaries,
based on the taxable income or loss of each.
Investment tax credits, which were available prior to the Tax
Reform Act of 1986, have been fully normalized and are being amortized
over the remaining useful life of the related property for financial
statement reporting purposes.
The Company adopted Statement of Financial Accounting Standards
No. 109 (SFAS No. 109) "Accounting for Income Taxes" on January 1, 1993,
which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. SFAS No. 109 retains
the requirement to record deferred income taxes for temporary
differences that are reported in different years for financial reporting
and tax purposes. The statement also requires that deferred tax
liabilities or assets be adjusted for the future effects of any changes
in tax laws or rates and that regulated enterprises recognize an
offsetting regulatory asset representing the probable future rate
recoveries for additional deferred tax liabilities. The probable future
rate recoveries (revenues) to be recorded take into consideration the
additional future taxes which will be generated by that revenue.
Deferred taxes are also provided on temporary differences of the
Company's non-regulated subsidiaries, which are charged to expense
rather than offset by regulatory assets.
Deferred Revenue Taxes: Deferred revenue taxes represent the
unamortized balance of an accelerated payment of New Jersey Gross
Receipts and Franchise Tax required by legislation enacted effective
June 1, 1991. In accordance with an order by the New Jersey Board of
Regulatory Commissioners (NJBRC) the expenditure has been deferred and
is being recovered in rates, with a carrying charge of 7.5% on the
unamortized balance, over a ten-year period.
Allowance for Funds Used During Construction: AFDC is a non-cash
income item and is defined in the approved Uniform System of Accounts as
the net cost, during the period of construction, of borrowed funds used
for construction purposes and a reasonable rate upon other funds when so
used. AFDC is considered a cost of utility plant. In accordance with
the order issued by the FERC, AFDC is segregated, in the accompanying
financial statements, into two components related to the source of funds
from which the credits are derived.
The annual rates used by the Company to record AFDC are as follows:
Year Ended Borrowed Other
December 31, Funds Funds
1993 4.23% 5.55%
1992 4.42% 5.54%
1991 8.06% 3.17%
AFDC amounted to 1.6%, 3.6% and 4.5% of net income applicable to
common stock for the years 1993, 1992 and 1991, respectively.
Reserves for Claims and Damages: Costs arising from worker's
compensation claims, property damages and general liability are
partially self-funded. Provisions for the reserves are based on
experience, risk of loss and the rate-making practices of the regulatory
authority.
Intercompany Transactions: A comparative summary of the
significant intercompany transactions (other than those relating to
Federal income taxes - Notes 1 and 2) between the Company and its Parent
is as follows:
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Purchase of electricity $67,266 $65,903 $63,567
Rents paid $ 1,977 $ 1,882 $ 1,680
Investigation costs $ 1,300 - -
Interest paid $ 47 $ 10 $ 2
The Company purchases 100 percent of its electric energy
requirements from its Parent under a FERC approved purchased power
agreement. This agreement is cancelable by either party on six (6)
months written notice with no penalties or minimum payments required
under termination of the agreement.
Reclassifications: Certain amounts from prior years have been
reclassified to conform with the current year presentation. These
reclassifications had no effect on previously recorded net income.
NOTE 2 - FEDERAL INCOME TAXES.
The Internal Revenue Service (IRS) concluded its audit of the
Parent's Consolidated Federal Income tax returns through 1987.
Presently, the IRS is examining tax returns for 1988 and 1989.
Notification of their findings for these years has not yet been
received.
The components of Federal income taxes are as follows:
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
Charged to Operations:
Current $1,237 $2,578 $5,252
Deferred - net 1,734 (469) (2,076)
Deferred investment tax credit (121) (137) (132)
2,850 1,972 3,044
Charged to Other Income:
Current (506) (131) (97)
Deferred - net 89 168 144
(417) 37 47
Total $2,433 $2,009 $3,091
Effective January 1, 1993, the Company adopted the provisions of
SFAS No. 109, which required the recording of an additional deferred tax
liability of approximately $6.4 million. The adoption of SFAS No. 109
did not have a significant impact on the results of current operations
because of the recording of offsetting regulatory assets for utility
operations and the relatively minor impact from diversified operations.
The resultant cumulative effect of a change in accounting principle of
$(.1) million is included in current operations. The fiscal years 1992
and 1991 were not restated to apply the provisions of SFAS No. 109.
The tax effect of temporary differences which gave rise to deferred
tax assets and liabilities as of December 31, 1993 are as follows:
(Thousands of Dollars)
Liabilities:
Accelerated depreciation $19,930
Other 4,650
Total liabilities 24,580
Assets:
Employee benefits (3,113)
Deferred fuel costs (478)
Other (4,388)
Total assets (7,979)
Total $16,601
Reconciliation of the difference between Federal income tax
expenses and the amount computed by applying the prevailing statutory
income tax rate to income before income taxes for the years ended
December 31, 1993, 1992 and 1991 is as follows:
% of Pre-Tax Income
1993 1992 1991
Statutory tax rate 35% 34% 34%
Increase (decrease) in computed taxes
resulting from:
Amortization of investment tax credits (2) (2) (1)
Amortization of Sterling Reserve (2) (2) (1)
Additional depreciation deducted
for book purposes 2 3 2
Other 1 (2) (1)
Effective Tax Rate 34% 31% 33%
On August 10, 1993 the Budget Reconciliation Act of 1993 was signed
into law. Among other things, the Act increased the corporate federal
income tax rate to 35% from 34% retroactive to January 1, 1993.
Pursuant to the provisions of SFAS No. 109, the Company adjusted its
deferred tax and regulatory asset balances during 1993 to reflect the
higher rate. The impact of this rate change was to increase the
deferred tax liability by $.7 million, however, because of the recording
of offsetting regulatory assets the increase in income tax expense was
less than $.1 million.
NOTE 3 - STERLING NUCLEAR PROJECT.
Costs associated with the Sterling Nuclear Project, which was
abandoned in 1980, and in which the Company's Parent was a 33%
participant, are recorded in Deferred Debits - Extraordinary Property
Loss. The Company's allocated costs amount to 29% of the Parent's
costs.
The NJBRC has approved a twenty-year amortization, which commenced
June 23, 1982, for costs (excluding a return on the unamortized balance)
attributable to the Company.
At December 31, 1993 and 1992, the unamortized Sterling Nuclear
Project costs, which have been approved for amortization and recovery,
before reduction for deferred taxes, amounted to $5,585,000 and
$5,942,000, respectively. Such costs are not subject to an earned
return on the unamortized balance.
NOTE 4 - RETAINED EARNINGS.
The Company has various restrictions on the availability of
retained earnings for cash dividends, which are contained in or result
from covenants in the indentures supplemental to the Mortgage Trust
Indenture. Approximately $7,501,600 at December 31, 1993 and 1992 was
so restricted.
NOTE 5 - COMMON STOCK.
All of the Company's common stock, $100 par value, outstanding is
owned by the Parent and has been pledged as collateral for the first
mortgage bonds of the Parent.
NOTE 6 - LONG-TERM DEBT.
Details of long-term debt are shown below:
Year Ended December 31,
1993 1992
(Thousands of Dollars)
First Mortgage Bonds:
Series C, 4 5/8% due August 15, 1995 $ 2,000 $ 2,000
Series D, 9 1/8% due February 15, 2000 - 5,000
Series E, 7 7/8% due April 15, 2001 - 6,000
Series F, 8.95% due June 15, 2004 - 3,680
Series G, 10% due February 1, 1997 - 1,670
Series H, 9.59% due July 1, 2020 20,000 20,000
Series I, 6% due July 1, 2000 20,000 -
Diversified Activities:
Secured Notes, 6-7% due through
August 31, 1996 2,868 3,511
Total 44,868 41,861
Less: Amount due within one year 891 1,255
43,977 40,606
Unamortized discount on long-term debt (111) -
Total Long-Term Debt $43,866 $40,606
The Company was required under the terms of the Sixth Supplemental
Indenture to its Mortgage Trust Indenture dated as of July 1, 1954, as
supplemented, to make an annual sinking fund payment of $240,000 with
respect to the Series F bonds on June 14 of each year. Similarly,
pursuant to the Seventh Supplemental Indenture to such Mortgage Trust
Indenture, the Company was required to make annual sinking fund payments
of $333,000 with respect to the Series G bonds on January 31 of each
year. In March 1993, both Series F and G bonds were redeemed. During
1993, a cash payment of $333,000 was made to satisfy the Series G
requirement.
The aggregate amount of maturities and sinking fund requirements
for each of the five years following 1993 is as follows: 1994 -
$891,000; 1995 - $2,965,000; and 1996 - $1,012,000. There are no
sinking fund requirements for 1997 and 1998.
Substantially all of the utility plant and non-utility property of
the Company is subject to the lien of the indenture securing the first
mortgage bonds of the Company.
On March 10, 1993 the Company sold $20 million of First Mortgage 6%
Bonds, Series I due 2000 ("Series I Bonds"). The Series I Bonds were
sold at a discount to yield 6.11% to the public. The net proceeds to
the Company from the sale of the Series I Bonds were used to pay the
principal of and redemption premium on an aggregate of $16,017,000 of
the Company's First Mortgage Bonds outstanding and for other corporate
purposes. The principal amount and series of First Mortgage Bonds
refunded are: $5,000,000 of 9 1/8% Bonds, Series D due 2000; $6,000,000
of 7 7/8% Bonds, Series E due 2001; $3,680,000 of 8.95% Bonds, Series F
due 2004; and $1,337,000 of 10%, Bonds Series G due 1997.
NOTE 7 - CASH AND SHORT-TERM DEBT.
The Company considers all cash and highly liquid debt instruments
purchased with a maturity date of three months or less to be cash and
cash equivalents for the purpose of the Consolidated Statements of Cash
Flows. At December 31, 1993 and 1992, the Company held $3,000,000 and
$2,000,000 of commercial paper issued by the Parent.
At December 31, 1993, the Company had unsecured lines of credit
with two commercial banks aggregating $10 million. Annual fees equal to
one-eighth of one percent are paid to the Banks for such lines of
credit. The Company may borrow under the lines of credit through the
issuance of promissory notes to the banks at their prevailing interest
rate for prime commercial borrowers. The aggregate amount of promissory
notes outstanding at any time cannot exceed the total combined lines of
credit. In addition, O&R Energy, Inc., a non-utility wholly owned
subsidiary of Saddle River Holdings Corporation (which is a wholly owned
subsidiary of the Company) has an outstanding line of credit and standby
letters of credit which together amount to $15.0 million. Amounts
advanced under the line of credit bear interest equal to one-half of one
percent above the bank's prime rate. As of December 31, 1993, $1.2
million was outstanding and in 1992 there were no such borrowings
outstanding.
Additional information regarding the Company's short-term
borrowings is as follows:
Year Ended December 31,
1993 1992 1991
Weighted average interest
rate at year-end 6.5% -% -%
Amount outstanding
at year-end $1,200,000 - -
Average amount
outstanding for year $1,077,973 $310,274 $20,274
Daily weighted interest
rate during year 6.47% 4.75% 9.13%
Maximum amount outstanding
at any month end $1,200,000 - -
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS.
Financial Accounting Standards No. 107 ("SFAS No. 107"), "Fair
Value of Financial Instruments", required disclosure of the estimated
fair value of an entity's financial instrument assets and liabilities.
For the Company, financial instruments consist principally of cash and
cash equivalents, temporary cash investments, long-term debt and notes
payable.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and cash equivalents and Temporary cash investments -- The
carrying amount reasonably approximates fair value because of the short
maturity of those instruments.
Long-term debt--The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar
issues.
Notes Payable -- reasonably approximates fair value of the short
maturity of those instruments.
1993 1992
Carrying Fair Carrying Fair
Amount Amount Amount Amount
(Thousands of Dollars)
Cash and cash equivalents $13,813 $13,813 $14,827 $14,827
Temporary cash investments 685 685 128 128
Long-term debt 44,868 47,006 41,861 43,986
Notes payable 1,200 1,200 - -
In addition, off balance sheet financial instruments, which consist
of non-utility natural gas futures contracts used to hedge firm and
anticipated gas sales commitments, had a fair value of $3,856,000 at
December 31, 1993 compared to an acquisition cost of $3,944,000.
NOTE 9 - PENSION AND POSTRETIREMENT BENEFITS.
Pension Benefits
The Parent maintains a non-contributory defined benefit retirement
plan, covering substantially all employees. The plan calls for benefits
to be paid to eligible employees at retirement, based primarily on years
of service and average career compensation. Pension costs are accounted
for in accordance with the requirements of Statement of Financial
Accounting Standards No. 87 - "Employers Accounting for Pensions" (SFAS
No. 87).
SFAS No. 87 results in a difference in the method of determining
pension costs for financial reporting and funding purposes. Plan
valuation for funding and income tax purposes is prepared on the unit
credit method, which makes no assumptions as to future years of service
or compensation levels. In contrast, the projected unit of credit cost
method required for accounting purposes by SFAS No. 87 reflects
assumptions as to future years of employee service and compensation
levels. The Parent's policy is to fund the pension costs determined by
the unit credit method subject to the IRS funding limitation rules. For
rate-making purposes, pension expense determined under SFAS No. 87 is
reconciled with the amount provided in rates for pensions.
The Parent's net periodic pension cost in 1993, 1992 and 1991
includes the following components:
December 31,
1993 1992 1991
(Thousands of Dollars)
Service cost-benefits earned during year $ 5,690 $ 5,896 $ 5,114
Interest cost on projected benefit obligation 12,915 10,301 9,396
Actual return on plan assets (19,383) (15,135) (32,839)
Net amortization and deferral 5,014 4,397 22,635
Net Pension Expense $ 4,236 $ 5,459 $ 4,306
The following table sets forth the funded status of the Parent's Plan and
amounts recognized in the Parent's Consolidated Balance Sheets at
December 31, 1993 and 1992. Plan assets are stated at fair market value and
are comprised primarily of common stock and investment grade debt securities.
December 31,
1993 1992
(Thousands of Dollars)
Actuarial present value of benefit obligations:
Vested $(153,730) $(128,611)
Non-vested (9,758) ( 16,281)
Accumulated benefit obligation $(163,488) $(144,892)
Projected benefit obligation $(180,176) $(162,371)
Plan assets at fair market value 182,810 169,842
Excess of plan assets over projected benefit
obligation 2,634 7,471
Unamortized net transition asset at adoption
of SFAS No. 87 being amortized over 15 years (8,909) (10,022)
Unrecognized prior service cost 28,528 8,514
Unrecognized net gain (47,960) (27,434)
Accrued Pension Cost $ (25,707) $ (21,471)
The expected long term rate of return on plan assets, the weighted
average discount rate and the annual rate of increase in future
compensation assumed in determining the projected benefit obligation
were 8%, 7.75% and 4%, respectively for 1993. For the year 1992 the
expected long term rate of return on plan assets, the discount rate and
the annual rate of increase in future compensation assumed in
determining the projected benefit obligation were 7.5%, 7% and 5%,
respectively.
Postretirement Benefits
In addition to providing pension benefits, the Parent provides
certain health care and life insurance benefits for retired employees.
Employees retiring from the Company on or after having attained age 55
who have rendered at least 5 years of service are entitled to
postretirement health care coverage. Prior to January 1, 1993 the
Parent recognized the cost of providing these benefits by expending the
annual insurance premiums, which amounted to $2.4 million and $1.9
million for retiree benefits during 1992 and 1991 respectively.
Effective January 1, 1993 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106 (SFAS No. 106),
"Employers Accounting for Postretirement Benefits Other than Pensions",
which established revised accounting and financial reporting standards
for postretirement benefits other than pensions. SFAS No. 106 requires
the Company to accrue the estimated future cost of postretirement health
and non-pension benefits during the years that the employee renders the
necessary service, rather than recognizing the cost of such benefits
after the employee has retired and when the benefits are actually paid.
Deferred accounting for any difference between the expense charge
required under SFAS No. 106 and the current rate allowance has been
authorized by the NJBRC. Rate recovery of SFAS No. 106 costs applicable
to the Company's operations will be addressed in the next rate filing.
The Emerging Issues Task Force (EITF) Committee of the FASB addressed
implementation issues of SFAS No. 106 for regulated industries in EITF
Issue No. 92-12. A consensus was reached that deferral of the
difference between SFAS No. 106 costs and amounts allowed in rates was
proper so long as the subsequent recovery period was within
approximately 20 years. Accordingly, this change in accounting did not
have a material impact on the Company's results of operations in that
the Company was able to record a regulatory asset relating to the
difference between SFAS No. 106 costs and amounts allowed in rates in
its service jurisdiction.
In order to provide funding for active employees' postretirement
benefits as well as benefits paid to current retirees, the Company has
established Voluntary Employees' Beneficiary Association (VEBA) trusts
for collectively bargained employees and management employees.
Contributions to the VEBA trusts are tax deductible, subject to
limitations contained in the Internal Revenue Code. No contributions to
the trusts have been made as of December 31, 1993. The Company's policy
is to fund the SFAS 106 postretirement health and life insurance costs
to the extent of rate recoveries realized for these costs.
As permitted by SFAS No. 106, the Parent has elected to amortize
the postretirement benefit obligation at the date of adoption of the
accounting standards, January 1, 1993, over a 20 year period. This
transition obligation totaled $57.2 million. The following table sets
forth the plan's funded status, reconciled with amounts recognized in
the Parent's financial statements at December 31, 1993:
Accumulated postretirement benefit obligation:
Fully eligible active employees $(18,386)
Other active employees (27,073)
Retirees (20,337)
Total benefit obligation (65,796)
Plan assets at fair value -
Accumulated postretirement obligation in
excess of plan asset (65,796)
Unrecognized experience net (gain) loss 4,694
Unrecognized transition obligation 54,383
Accrued postretirement benefit cost $( 6,719)
The components of net periodic postretirement benefit cost for the
year ended December 31, 1993 are as follows:
Service cost $ 1,535
Interest cost 4,598
Return on plan assets -
Amortization of transition obligation 2,861
Deferred and capitalized (6,719)
Net Expense $ 2,275
Of the plan totals, $1,454 of the accrued postretirement benefit cost
and $492 of the net expense have been allocated to the Company.
The calculation of the actuarial present value of benefit obligations
at December 31, 1993 assumes a discount rate of 7.75% and health care
cost trend rates of 9.0% for medical costs and 14% for prescription
drugs in 1994 decreasing through 2003 to a rate of 5.0%. If the health
care trend rate assumptions were increased by 1 percent, the Parent's
accumulated postretirement benefit obligation would be increased by
approximately $7.2 million. The effect of this change on the sum of the
service cost and interest cost would be an increase of $.8 million.
Other
In addition to the plans described above, the Parent sponsors a
401(k) savings plan (Savings Plan) for its employees. Eligible
employees may contribute up to a combined 20% of their compensation,
subject to IRS restrictions, on a before-tax and after-tax basis. The
Parent makes no contributions to the Savings Plan. The Parent also has
an unfunded non-contributory supplemental retirement plan covering
certain management employees. As of December 31, 1993, the Parent's
obligation under this plan is fully provided for.
The Parent has established a Subsidiary Equity Incentive Plan in
which plan participants are entitled to certain rights measured as
Performance Units. Each Performance Unit gives the plan participant the
opportunity to receive an incentive award of up to 1% of the net gain,
subject to certain restrictions, in the value of the Parent's investment
in the participating subsidiaries over its initial investment. As of
December 31, 1993 no incentive awards have been granted under the plan.
In November 1992, the FASB issued Statement of Financial Accounting
Standards No. 112 "Employers Accounting for Postemployment Benefits,"
(SFAS No. 112), which requires the recognition of postemployment
benefits, including health and welfare benefits, provided to former or
inactive employees on an accrual basis. The Company currently
recognizes the cost of such benefits as they are paid. As of
December 31, 1993, the effect of adopting SFAS 112 will require the
recognition of a liability of approximately $.8 million. SFAS No. 112
will not have a material adverse impact on the Company's results of
operations because the Parent expects to record an offsetting regulatory
asset. The Parent adopted SFAS No. 112 on January 1, 1994.
NOTE 10 - COMMITMENTS AND CONTINGENCIES.
CONSTRUCTION PROGRAM
Under the Company's construction program, it is estimated that
expenditures (excluding AFDC) of approximately $36,640,000 will be
incurred during the years 1994 through 1998. The estimated amounts by
year are: $5,400,000, $6,255,000, $6,995,000, $8,890,000 and
$9,100,000, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105 "Financial Instruments with Concentrations
of Credit Risk", consist principally of temporary cash investments,
accounts receivable and gas marketing accounts receivable. The Company
places its temporary cash investments with high quality financial
institutions. Concentrations of credit risk with respect to accounts
receivable are limited due to the Company's large, diverse customer base
within its service territory. With respect to gas marketing operations,
the customer base consists of a large, diverse group of users of natural
gas across the United States, with the Company's credit risk being
dependent on overall economic conditions. As of December 31, 1993, the
Company had no significant concentrations of credit risk.
GAS FUTURES CONTRACTS
O&R Energy, Inc., a non-utility subsidiary of the Company, has
entered into futures contracts that have been designated as hedges
against firm fixed-price, fixed-quantity and anticipated sales
commitments. The gain and losses on future contracts are included in
the cost of gas sold when the physical delivery of gas occurs. The
aggregate amount of these commitments is approximately $4.7 million.
LONG-TERM PERFORMANCE AWARDS
The Company and its non-utility subsidiary have granted awards to
certain key officers, whereby they will be entitled to receive a
specified percentage of the incremental net value of the gas marketing
and broadcasting subsidiaries over the initial investment in such
subsidiaries, as defined. The awards expire December 31, 1997 or with
the occurrence of certain events.
POWER SUPPLY AGREEMENT
On January 1, 1993, Orange and Rockland Utilities, Inc. (the Parent) and
the Company entered into an agreement to sell and deliver the Company's
entire requirements of electricity in quantities sufficient for the
Company's own use and for resale in the Company's franchise territory
located in New Jersey. The rate for all electricity delivered shall
reimburse the Parent for the cost of rendering service, including return
on investment. The Parent renders bills monthly and payment is due on
or before the last day of the month following the month in which service
is rendered. Simple interest shall accrue from the due date until the
date of payment.
This agreement shall remain in effect unless cancelled by either party
by written notice given not less than six months prior to the proposed
date of cancellation.
LEGAL PROCEEDINGS
During the third quarter of 1993, the Rockland County (NY) District
Attorney charged a then Vice President of the Company with grand
larceny, commercial bribery and making illegal political contributions
and commenced a related investigation of the Company. Two other former
employees reporting to the Vice President were charged with grand
larceny. The Board of Directors promptly formed a Special Committee of
outside directors (the Special Committee), with authority to take any
steps deemed necessary or desirable, to conduct an independent
investigation into such matters, in order to determine to what extent
there were any other improprieties and to make recommendations as to any
necessary remedial measures. The Special Committee has retained
investigative counsel and an accounting firm to assist its inquiry.
The New Jersey Board of Regulatory Commission (NJBRC) also began an
investigation to determine the impact of these events on the Company's
ratepayers. The Company is cooperating fully in the inquiries and has
pledged to return to customers any funds that are discovered to have
been misappropriated. The Company agreed to refund $94,100 in February
and March 1994 through reductions in the applicable fuel adjustment
charges.
On November 4, 1993 the Parent signed a Joint Cooperation Agreement
with the Rockland County District Attorney's office which creates an
Inspector General's office within the Company to monitor its efforts to
implement and maintain programs to ensure the highest ethical standards
of business conduct. The agreement also specified a number of other
steps the Company will undertake to aid in the on-going investigation
and prevent any recurrence. As a result of the agreement and the
Company's continued cooperation with the inquiry, the District Attorney
has agreed not to file any criminal charges against the Company or any
of its subsidiaries in connection with the current investigation.
The former Company officer and two former employees charged by the
District Attorney subsequently pleaded guilty to all counts. The
District Attorney's Office has identified $374,124 as representing the
amount of consolidated funds misappropriated by these individuals. As
part of their plea, the two former employees agreed to a partial
restitution agreement pursuant to which they will reimburse to the
Parent and its subsidiaries a sum of $199,709 prior to their sentencing,
scheduled for May 4, 1994.
The investigations being conducted by the Special Committee of the
Board of Directors and the District Attorney, along with the NJBRC, are
still under way. The Company intends to take all appropriate actions to
protect the interests of its customers and shareholders. It is not
possible to predict at this time the extent of additional refunds that
may be required by the NJBRC, if any.
During the fourth quarter, James F. Smith was terminated for cause
as Chief Executive Officer and removed as Chairman of the Board of
Directors, and Victor J. Blanchet, Jr. was appointed to serve as Acting
Chief Executive Officer.
On March 22 1994, a Rockland County Grand Jury indictment was
returned charging Mr. Smith with eight felony counts of grand larceny
and two misdemeanor counts of petit larceny. According to the press
release issued by the Rockland County District Attorney on March 22,
1994, the ten count indictment charges Mr. Smith with stealing from the
Parent by charging personal expenses to the Parent, including (i)
approximately $7,300 to rent four vans and a panel truck that were used
by Mr. Smith's son's film production company, including approximately
$780 worth of parking summonses issued to the rental van and a car owned
by the Parent that was being used by Mr. Smith's son (ii) approximately
$3,037 in moving costs to have Mr. Smith's daughter's belongings moved
to Westchester County on two separate occasions and to have other
belongings moved to Mr. Smith's summer home in Kennebunkport, Maine;
(iii) approximately $4,600 for assorted graphic printing, consisting of
engagement invitations for both of his children, a hand-colored wedding
program for his daughter, as well as printed directions to his
Kennebunkport Maine summer home; (iv) approximately $7,000 for holiday
baskets for Mr. Smith's family members, friends and his Maine Realtor;
(v) approximately $1,100 for assorted holiday plants delivered to Mr.
Smith's home; (vi) approximately $1,760 to have Mr. Smith's home cleaned
following a boiler replacement; (vii) approximately $1,098 for printed
materials associated with Mr. Smith's wife's election campaign for
village trustee (which Mr. Smith subsequently repaid to the Parent after
Ms. Winikow's arrest); (viii) approximately $2,000 for a surprise 50th
birthday party for Mr. Smith's wife at the Parent's conference center
facilities; (ix) approximately $300 worth of auto repairs made to Mr.
Smith's son-in-law's automobile; and (x) approximately $600 worth of
watches given by Mr. Smith to his children and their spouses. Mr. Smith
was arraigned in Rockland County Supreme Court on March 22, 1994, and
entered a plea of not guilty.
In order to fully protect its interests, the Company, has initiated
lawsuits in federal and state courts to recover misappropriated funds.
In related activities, two lawsuits have been brought by shareholders
and another by ratepayers seeking damages resulting from these events.
On August 18, 1993, Feiner v. Orange and Rockland Utilities, Inc.,
a purported ratepayer class action complaint against the Parent, the
Company, former Vice President of the Parent and the Company Linda
Winikow and others, was filed in the United States District Court,
Southern District of New York. Plaintiffs allege that the defendants
violated the Federal Racketeer Influenced and Corrupt Organizations Act
(RICO) and New York common law by using false and misleading testimony
to obtain rate increases from the NYPSC and used funds obtained from
ratepayers in furtherance of an alleged scheme to make illegal campaign
contributions and other illegal payments. Plaintiffs seek damages in
the amount of $900 million (which they seek to treble pursuant to the
RICO statute). The Parent and the Company intend to vigorously contest
these claims.
On August 31, 1993, Patents Management Corp. v. Orange and Rockland
Utilities, Inc., a purported shareholder derivative complaint, was filed
in the Supreme Court of the State of New York, County of New York,
against the Parent, all but one of the Parent's Directors and several
other named defendants by an alleged shareholder of the Parent.
Plaintiff claims that the Parent's Directors breached their fiduciary
duties by condoning the alleged wrongful acts of Mrs. Winikow or failing
to exercise appropriate supervisory control over Mrs. Winikow.
Plaintiff requests that the Court require each Director to indemnify the
Parent against all losses sustained by the Parent as a result of these
alleged wrongful acts of Mrs. Winikow. The Parent intends to vigorously
contest these claims.
On November 23, 1993, Gross v. Orange and Rockland Utilities, Inc.,
a purported shareholder class action complaint, was filed in the United
States District Court, Southern District of New York. Plaintiff alleges
that various Securities and Exchange Commission filings of the Parent
during the period between March 2, 1993 and November 4, 1993, contained
false and misleading information, and thereby violated Sections 11 and
12(2) of the Securities Act of 1933, by failing to disclose what the
plaintiff alleges was a "scheme" by the Parent to make illegal political
payments and campaign contributions to various public officials and
politicians. As a result, plaintiff claims, during such period persons
who purchased the Company's stock through the Parent's Dividend
Reinvestment Plan did so at artificially inflated prices. The complaint
seeks unspecified money damages. The Parent intends to vigorously
contest these claims.
The costs of outside professional and consultant firms associated
with the investigation of the misuse of Company funds by former
employees of the Parent amounted to $1.3 million for the year ending
December 31, 1993. These investigations are currently anticipated to
continue through the first half of 1994. The Company currently
estimates it will incur from $.7 to $1.3 million of expenses in 1994 to
conclude the investigation. These expenditures are not recoverable from
ratepayers. The Company will attempt to offset these costs to the
extent possible by achieving savings in the cost of operations during
the year.
On July 31, 1992, State Line Power Associates, Limited Partnership v.
Orange and Rockland Utilities, Inc., a complaint brought by a New Jersey
partnership, was filed against the Parent in the United States District
Court, Southern District of New York. The plaintiff had, pursuant to an
Agreement dated October 11, 1990 (the Agreement), agreed to build a gas-
fired combined cycle generating facility in Ringwood, New Jersey and
sell 100 Mw of capacity and associated energy to the Parent. The
complaint, which alleged that the Parent had improperly terminated the
Agreement, sought compensatory damages in excess of $50 million and a
declaratory judgment to the effect that the Parent remained obligated to
purchase 100 Mw of capacity and associated energy from the plaintiff
pursuant to the terms of the Agreement. In its answer to the complaint,
the Parent denied the plaintiff's allegations. On January 7, 1994, the
parties entered into a settlement agreement pursuant to which the
Parent, without any admission of liability, paid to the plaintiff an
amount that is not material to the financial condition of the Parent,
and the plaintiff delivered to the Parent a release of all outstanding
claims against the Parent. The Company will be responsible for payment
of a portion of the settlement and related costs pursuant to the Power
Supply Agreement.
Environmental
The Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and certain similar state statutes authorize
various governmental authorities to issue orders compelling responsible
parties to take cleanup action at sites determined to present an
imminent and substantial danger to the public and to the environment
because of an actual or threatened release of hazardous substances. The
Parent is a party to a number of administrative proceedings involving
potential impact on the environment. Such proceedings arise out of,
without limitation, the operation and maintenance of facilities for the
generation, transmission and distribution of electricity and natural
gas. Such proceedings are not, in the aggregate, material to the
business or financial condition of the Parent or the Company.
Pursuant to the Clean Air Act Amendments of 1990, which became law on
November 15, 1990, a permanent nationwide reduction of 10 million tons
in sulfur dioxide emissions from 1980 levels, as well as a permanent
reduction of 2 million tons of nitrogen oxide emissions from 1980 levels
must be achieved by January 1, 2000. In addition, continuous emission
monitoring systems will be required at all affected facilities. The
Parent has two base load generating stations that burn fossil fuels that
will be impacted by the legislation in the year 2000. These generating
facilities already burn low sulfur fuels, so additional capital costs
are not anticipated for compliance with the sulfur dioxide emission
requirements. However, installation of low nitogren oxide burners at
Lovett Plant and operational modifications at Bowline Plant are expected
to be required. Additional emission monitoring systems will be
installed at both facilities. The Parent's construction expenditures
for this work is estimated to be approximately $28.2 million from 1993
to 1996. Beginning with calendar year 1994, Title V sources (Bowline
Point and Lovett) will be required to pay an emission fee. Each
facility's fee will be based upon actual air emissions reported to
NYSDEC at a rate of approximately $25 per ton of air emissions. (If
this fee was in effect in 1992, the Parent's obligation would have been
approximately $.5 million). The Company will continue to assess the
impact of the Clean Air Act Amendments of 1990 on its power generating
operations as the regulations implementing these Amendments are
promulgated.
The Company will be responsible for a portion of the costs to comply
with such regulations.
NOTE 11 - SEGMENTS OF BUSINESS
The Company defines its principal business segment as electric
utility operations and diversified activities. The diversified
activities include gas marketing and radio broadcasting.
Total electric operating revenues as reported in the Consolidated
Statements of Income include sales to unaffiliated customers, which are
billed at a tariff rate. Income from operations is total operating
revenues less total operating expenses.
Identifiable assets by segment are those assets that are used in
the distribution and sales operations in each segment. Corporate assets
are principally property, cash, sundry receivables and unamortized debt
expense.
December 31,
1993 1992 1991
Operating Information:
Operating Revenues:
Sales to Unaffiliated Customers:
Electric $133,684 $126,757 $127,142
Diversified Activities 325,446 237,863 149,450
Total Operating Revenues $459,130 $364,620 $276,592
Operating Income Before Income Taxes:
Electric $ 11,983 $ 9,067 $ 11,763
Diversified Activities (93) 919 1,165
Total Operating Income before
Income Taxes 11,890 9,986 12,928
Income Taxes:
Electric 2,877 1,657 2,682
Diversified Activities (27) 315 362
Total Income Taxes 2,850 1,972 3,044
Total Income from Operations $ 9,040 $ 8,014 $ 9,884
Other Information:
Identifiable Assets:
Electric $156,485 $133,552 $130,317
Diversified Activities 68,591 56,242 51,176
Total Identifiable Assets 225,076 189,794 181,493
Corporate Assets 12,115 10,941 7,152
Total Assets $237,191 $200,735 $188,645
Depreciation Expense:
Electric $ 3,757 $ 3,606 $ 3,286
Diversified Activities 675 563 523
Total Depreciation Expense $ 4,432 $ 4,169 $ 3,809
Capital Expenditures:
Electric $ 5,802 $ 7,215 $ 8,835
Diversified Activities 788 513 1,513
Total Capital Expenditures $ 6,590 $ 7,728 $ 10,348
Schedule V
ROCKLAND ELECTRIC COMPANY
Property, Plant and Equipment and Nonutility Property
For the Year Ended December 31, 1993
(Thousands of Dollars)
Column A Column F
Total
Utility Nonutility Balance at
Classification Plant Property End of Period
Transmission Plant $ 32,163 $ - $ 32,163
Distribution Plant 104,259 - 104,259
General Plant 3,149 25 3,174
Plant Held for Future Use 1,007 - 1,007
Other 6 7,372 7,378
140,584 7,397 147,981
Construction Work In Progress 2,815 - 2,815
Total $143,399 $7,397 $150,796
Neither the total additions nor the total deductions during the year
ended December 31, 1993 amounted to more than 10% of the closing balance
of total utility plant and other physical property, and the information
required by Columns B, C, D and E is, therefore, omitted. A summary of
Columns C, D and E for the year ended December 31, 1993 is as follows:
Column C - Additions at cost $ 6,590
Column D - Retirements 705
Column E - Other changes 320*
Net Change $ 6,205
* Other changes represent transfers of property between the respondent
and the Parent amounting to $320.
For information concerning depreciation procedures, see Note 1 of
Notes to Consolidated Financial Statements.
Schedule V
ROCKLAND ELECTRIC COMPANY
Property, Plant and Equipment and Nonutility Property
For the Year Ended December 31, 1992
(Thousands of Dollars)
Column A Column F
Total
Utility Nonutility Balance at
Classification Plant Property End of Period
Transmission Plant $ 31,711 $ - $ 31,711
Distribution Plant 98,626 - 98,626
General Plant 3,015 25 3,040
Plant Held for Future Use 1,007 - 1,007
Other 6 6,585 6,591
134,365 6,610 140,975
Construction Work In Progress 3,616 - 3,616
Total $137,981 $6,610 $144,591
Neither the total additions nor the total deductions during the year
ended December 31, 1992 amounted to more than 10% of the closing balance
of total utility plant and other physical property, and the information
required by Columns B, C, D and E is, therefore, omitted. A summary of
Columns C, D and E for the year ended December 31, 1992 is as follows:
Column C - Additions at cost $ 7,728
Column D - Retirements 1,399
Column E - Other changes 429*
Net Change $ 6,758
* Other changes represent transfers of property between the respondent
and the Parent amounting to $429.
For information concerning depreciation procedures, see Note 1 of
Notes to Consolidated Financial Statements.
Schedule V
ROCKLAND ELECTRIC COMPANY
Property, Plant and Equipment and Nonutility Property
For the Year Ended December 31, 1991
(Thousands of Dollars)
Column A Column F
Total
Utility Nonutility Balance at
Classification Plant Property End of Period
Transmission Plant $ 31,487 $ - $ 31,487
Distribution Plant 93,772 - 93,772
General Plant 2,871 25 2,896
Plant Held for Future Use 1,007 - 1,007
Other 6 6,072 6,078
129,143 6,097 135,240
Construction Work In Progress 2,593 - 2,593
Total $131,736 $6,097 $137,833
Neither the total additions nor the total deductions during the year
ended December 31, 1991 amounted to more than 10% of the closing balance
of total utility plant and other physical property, and the information
required by Columns B, C, D and E is, therefore, omitted. A summary of
Columns C, D and E for the year ended December 31, 1991 is as follows:
Column C - Additions at cost $10,348
Column D - Retirements 690
Column E - Other changes 81*
Net Change $ 9,739
* Other changes represent transfers of property between the respondent
and the Parent amounting to $81.
For information concerning depreciation procedures, see Note 1 of
Notes to Consolidated Financial Statements.
Schedule VI
ROCKLAND ELECTRIC COMPANY
Accumulated Depreciation and Amortization
of Property, Plant and Equipment and Nonutility Property
For the Year Ended December 31, 1993
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
Additions
Balance at charged to Other Balance at
beginning costs and changes-add end of
Description of period expenses Retirements (deduct) period
Accumulated deprecia-
tion of utility
plant $34,530 $3,757 $ 786 $ (148)(A) $37,353
Accumulated deprecia-
tion of nonutility
property $ 1,692 $ 510 $ - $ - $ 2,202
(A) Other changes include the following: additions of $135 materials
salvaged, $12 charged to other accounts, and net miscellaneous
additions of $109 less deductions of $404 for removal costs.
Schedule VI
ROCKLAND ELECTRIC COMPANY
Accumulated Depreciation and Amortization
of Property, Plant and Equipment and Nonutility Property
For the Year Ended December 31, 1992
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
Additions
Balance at charged to Other Balance at
beginning costs and changes-add end of
Description of period expenses Retirements (deduct) period
Accumulated deprecia-
tion of utility
plant $32,796 $3,606 $1,627 $ (245)(A) $34,530
Accumulated deprecia-
tion of nonutility
property $ 1,312 $ 380 $ - $ - $ 1,692
(A) Other changes include the following: additions of $146 materials
salvaged, $12 charged to other accounts, and net miscellaneous
additions of $92 less deductions of $495 for removal costs.
Schedule VI
ROCKLAND ELECTRIC COMPANY
Accumulated Depreciation and Amortization
of Property, Plant and Equipment and Nonutility Property
For the Year Ended December 31, 1991
(Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
Additions
Balance at charged to Other Balance at
beginning costs and changes-add end of
Description of period expenses Retirements (deduct) period
Accumulated depre-
ciation of utility
plant $26,554 $3,285 $ 811 $3,768(A) $32,796
Accumulated depre-
ciation of non-
utility property $ 982 $ 330 $ - $ - $ 1,312
(A) Other changes include the following: additions of $4,073 materials
salvaged, $13 charged to other accounts, and net miscellaneous
additions of $21 less deductions of $339 for removal costs.
Schedule VIII
ROCKLAND ELECTRIC COMPANY
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1993, 1992 and 1991
(Thousands of Dollars)
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged Balance at
beginning costs and to other end of
Description of period expenses accounts Deductions period
December 31, 1993
Allowance for
Uncollectible Accounts:
Customer accounts $190 $220 $39 $239 $210
Other accounts 35 91 - 73 52
Gas marketing
accounts 75 548 - 153 471
$300 $859 $39(A) $465(B) $733
Reserve for Claims
and Damages $223 $122 $ - $ 77(C) $268
December 31, 1992
Allowance for
Uncollectible Accounts:
Customer accounts $196 $251 $29 $286 $190
Other accounts 59 77 - 102 35
Gas marketing
accounts 40 43 - 8 75
$295 $371 $29(A) $396(B) $300
Reserve for Claims
and Damages $387 $ 9 $93 $266(C) $223
December 31, 1991
Allowance for
Uncollectible Accounts:
Customer accounts $205 $470 $23 $502 $196
Other accounts 50 130 6 127 59
Gas marketing
accounts 0 41 - 1 40
$255 $641 $29(A) $630(B) $295
Reserve for Claims
and Damages $475 $ 124 $ - $212(C) $387
(A) Collection of accounts previously written off.
(B) Accounts considered uncollectible and written off.
(C) Payment of damage claims.
Schedule X
ROCKLAND ELECTRIC COMPANY
Supplementary Income Statement Information
(Thousands of Dollars)
Column B
Column A Charged to Costs and Expenses
Year Ended December 31,
Item 1993 1992 1991
1. Maintenance $ 5,430 $ 5,396 $ 4,816
2. Taxes other than income taxes:
Miscellaneous Federal taxes $ 1,230 $ 1,297 $ 1,259
Municipal property taxes 236 215 203
State gross earnings (franchise) 6,161 5,775 5,699
State unemployment 71 44 17
State utility gross receipts 11,412 10,380 10,672
State sales, use and capital stock 166 284 260
19,276 17,995 18,110
Less: charged to construction work
in progress accounts 399 402 414
Total $18,877 $17,593 $17,696
Other items not shown are less than one percent of revenues.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K EXHIBITS
ROCKLAND ELECTRIC COMPANY
(Exact name of Registrant as Specified in its Charter)
Fiscal Year Ended December 31, 1993 Commission File Number 2-36005
ROCKLAND ELECTRIC COMPANY
EXHIBIT LIST
1993 Form 10-K
Exhibit
* 3.1 Certificate of Incorporation, as amended through
November 5, 1987. (Exhibit 3.1 to Form 10-K for the fiscal
year ended December 31, 1992, File No. 2-36005).
3.5 By-Laws, as amended through October 7, 1993.
* 4.1 Mortgage Trust Indenture of Rockland Electric
Company, dated as of July 1, 1954. (Exhibit 2.16
to Registration Statement No. 2-14159).
* 4.4 Third Supplemental Indenture of Rockland Electric
Company, dated as of August 15, 1965. (Exhibit 4.23
to Registration Statement No. 2-24682).
*4.10 Ninth Supplemental Indenture of Rockland Electric Company,
dated March 1, 1993. (Exhibit 4.10 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 2-36005).
*10.0 Joint Operating Agreement, dated as of February 5, 1976
between Orange and Rockland Utilities, Inc. and the
Company. (Exhibit 10.0 to Form 10-K for fiscal year
ended December 31, 1989).
10.1 Power Supply Agreement, dated as of January 1, 1993
between Orange and Rockland Utilities, Inc. and the
Company, as filed with the Federal Energy Regulatory
Commission.
* +10.3 Performance Unit Incentive Plan effective December 3, 1992.
(Exhibit 10.3 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 2-36005).
ROCKLAND ELECTRIC COMPANY
EXHIBIT LIST
1993 Form 10-K
Exhibit
* +10.4 Award Agreement under the Performance Unit Incentive Plan
applicable to P. J. Chambers, Jr. dated December 3, 1992.
(Exhibit 10.4 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 2-36005).
* 22 Subsidiaries of the Company.
(Exhibit 22 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 2-36005).
*Incorporated by reference to the indicated filings.
+Denotes Executive Compensation Plans and Arrangements.