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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
[ ] 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.....................................1-3268
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
(Exact name of registrant as specified in its charter)
New York 14-0555980
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
284 South Avenue, Poughkeepsie, New York 12601-4879
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 452-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $5.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Cumulative Preferred Stock:
4 1/2% Series
4.75% Series
7.72% Series
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate 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 ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 14, 1994 was
$493,231,275, based upon the lowest price at which Registrant's
Common Stock was traded on such date, as reported on the New York
Stock Exchange listing of composite transactions.
The number of shares outstanding of Registrant's Common
Stock, as of February 14, 1994, was 17,007,975.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference
in the respective Parts of this Form 10-K noted below:
1. Certain portions of Registrant's Annual Report to
Shareholders, for the fiscal year ended December
31, 1993, are contained in Exhibit 13 hereto and
are incorporated by reference in Parts I, II and
IV of this Report.
2. Registrant's definitive Proxy Statement, dated
February 25, 1994, used in connection with its
Annual Meeting of Shareholders to be held on April
5, 1994, is incorporated by reference in Part III
hereof.
TABLE OF CONTENTS
Page
Table of Contents
PART I
Item 1 BUSINESS 1
Generally 1
Electric Sales to IBM 1
Construction Program and Financing 2
Rates 3
Generally 3
Rate Proceedings - Electric and Gas 3
Cost Adjustment Clauses 4
Take-or-Pay Gas Liability 4
Other Rate Matters 4
Fuel Supply and Cost 4
Residual Oil 5
Coal 6
Natural Gas 6
Nuclear 7
Research and Development 7
Environmental Quality 7
Air 7
Water 9
Toxic Substances and Hazardous Wastes 10
Other 11
Regulation 12
Generally 12
Energy Policy Act of 1992 12
Alternative Electric Power Generation 13
Least-Cost Generation Supply 13
Energy Efficiency Programs 14
(i)
TABLE OF CONTENTS (Cont'd)
Page
Item 1 BUSINESS (Cont'd) 14
Other Matters 14
Competition 14
Municipal Utilities 15
Economic Development Power 15
Marketing 16
Gas Service Incident 16
Labor Relations 16
EMF 16
Affiliates 17
Executive Officers of the Company 17
Item 2 PROPERTIES 20
Electric 20
General 20
Load and Capacity 22
Roseton Plant 24
Nine Mile 2 Plant 26
General 26
Operational Matters 26
NRC and INPO Monitoring 26
Radioactive Waste 27
Refueling Outage 27
Gas 28
General 28
Current Gas Supply 28
Sufficiency of Supply and
Future Gas Supply 28
Other 28
Other Matters 29
(ii)
TABLE OF CONTENTS (Cont'd)
Page
Item 3 LEGAL PROCEEDINGS 30
Asbestos Litigation 30
Environmental Litigation 31
IBM Litigation 32
Catskill Incident 33
Income Tax Assessments 35
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 35
PART II 35
Item 5 MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 35
Item 6 SELECTED FINANCIAL DATA 36
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 36
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 37
(a) Financial Statements 37
(b) Supplementary Financial Information 37
(c) Other Financial Statements and Schedules 37
Item 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE 37
PART III 37
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY 37
Item 11 EXECUTIVE COMPENSATION 38
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 38
Item 13 CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 38
(iii)
TABLE OF CONTENTS (Cont'd)
Page
PART IV 38
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 38
(a) Documents filed as part of this Report: 38
1. Financial Statements 38
2. Financial Statement Schedules 38
3. Exhibits 39
(b) Reports on Form 8-K 39
(c) Exhibits Required by Item 601 of
Regulation S-K 40
(d) Financial Statement Schedules required
by Regulation S-X which are excluded
from the Company's Annual Report to
Shareholders for the fiscal year ended
December 31, 1993 40
SIGNATURES 41-42
INDEX TO FINANCIAL STATEMENTS F-1
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES F-2
CONSENT OF INDEPENDENT ACCOUNTANTS F-2
FINANCIAL STATEMENT SCHEDULES FOR THE YEARS 1991, 1992 AND 1993:
Schedule V - Utility Plant F-3 - F-8
Schedule VI - Accumulated Depreciation and
Amortization of Utility Plant F-9 - F-14
Schedule VIII - Reserves F-15 - F-17
Schedule IX - Short-Term Borrowings F-18 - F-19
Schedule X - Supplementary Income
Statement Information F-20 - F-21
EXHIBIT INDEX E-1 - E-29
EXHIBITS
(iv)
PART I
Item 1 - BUSINESS
Generally
Registrant ("Company") is a gas and electric
corporation formed, on December 31, 1926, as a consolidation of
several operating utilities which had been accumulated under one
management during the previous 26 years. The Company generates,
purchases and distributes electricity and purchases and
distributes gas. The Company, in the opinion of its general
counsel, has, with minor exceptions, valid franchises, unlimited
in duration, to serve a territory extending about 85 miles along
the Hudson River and about 25 to 40 miles east and west from such
River. The southern end of the territory is about 25 miles north
of New York City, and the northern end is about 10 miles south of
the City of Albany. The territory, comprising approximately
2,600 square miles, has a population estimated at 639,000.
Electric service is available throughout the territory, and
natural gas service is provided in and about the cities of
Poughkeepsie, Beacon, Newburgh and Kingston and in certain
outlying and intervening territory. The number of Company
employees at December 31, 1993 was 1,370.
The Company's territory reflects a diversified economy,
including manufacturing industries, research firms, farms,
governmental agencies, public and private institutions, resorts,
and wholesale and retail trade operations.
Total revenues and operating income before income taxes
(expressed as percentages), derived from electric and gas
operations for each of the last three years, were as follows:
Percent of Percent of Operating
Total Revenues Income before Income Taxes
Electric Gas Electric Gas
1993 82% 18% 89% 11%
1992 82% 18% 87% 13%
1991 86% 14% 93% 7%
Electric Sales to IBM: The Company's largest customer
is International Business Machines Corporation ("IBM"), which
accounted for approximately 14% of the Company's total electric
revenues for the year ended December 31, 1993. Published reports
indicate that IBM reduced its employment by 45,000 worldwide to
256,000 in 1993 from 301,000 in 1992. Such reports also indicate
that IBM has reduced its employment in the Company's service
territory by up to 8,400 employees in 1993. IBM, in February
1994, announced a further reduction of approximately 1,500
employees in 1994 in the Company's service territory. Such
reductions would bring the total number employed in the Company's
service territory to approximately 11,600, as compared to the
peak level of IBM employment in excess of 30,000 in 1985. During
1993, IBM phased out its semiconductor manufacturing operations
at its East Fishkill, New York facility, which is in the
Company's service territory. This downsizing of IBM has resulted
in a decline of electric sales to IBM by 20% in 1993. The
Company cannot assess at this time the effect, if any, of such
IBM employment reductions on the Company's future results of
operations.
Additional information concerning revenues and
operating profits, and information concerning identifiable assets
for the electric and gas segments, which are the significant
industry segments of the Company, are set forth in Note 10 to the
Company's Consolidated Financial Statements for the fiscal year
ended December 31, 1993 (which Statements, including the Notes
thereto, are hereinafter called "Company's 1993 Financial
Statements"), appearing on pages 69 through 71 of the Company's
1993 Financial Statements (which Statements, together with
Registrant's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are included as Exhibit 13
hereto and hereinafter called "Exhibit 13"), which Note 10 is
incorporated herein by reference.
Construction Program and Financing
The Company is engaged in a construction program which
is presently estimated to involve total cash expenditures during
the period 1994 through 1998 of approximately $364 million. The
Company's principal construction projects consist of those
designed to improve the reliability, efficiency and environmental
compatibility of the Company's generating facilities and those
required to expand, reinforce and replace the Company's
transmission, substation, distribution and common facilities.
For estimates of construction expenditures, internal
funds, mandatory redemption of long-term securities, and working
capital requirements for the five-year period 1994-1998, see the
subcaption "Construction Program" of "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
appearing on pages 6 through 8 of Exhibit 13 hereto, which
subcaption is incorporated herein by reference.
For a discussion of the Company's capital structure,
financing program, short-term borrowing arrangements and sale of
accounts receivable, see Notes 4 through 6 and Note 8 to the
Company's 1993 Financial Statements, and the subcaptions "Capital
Structure," "Financing Program" and "Short-term Debt and Sale of
Receivables," appearing in "Management's Discussion and Analysis
of Financial Condition and Results of Operations," appearing, in
the case of said Notes, on pages 52 through 56, and 61 of Exhibit
13 hereof and, in the case of said subcaptions, on pages 8 and 9
of Exhibit 13 hereof, which Notes and subcaptions are
incorporated herein by reference.
The Company's Certificate of Incorporation and its
various debt instruments do not contain any limitations upon the
issuance of authorized, but unissued, Preferred Stock and Common
Stock or of unsecured short-term debt.
The Company's various debt instruments include
limitations as to the amount of additional funded indebtedness
which the Company can issue. The Company believes such
limitations will not impair its ability to issue any or all of
the debt described under said caption "Financing Program"
incorporated herein by reference.
The Company has authority from the State of New York
Public Service Commission ("PSC") to issue, at any time through
December 31, 1997, unsecured short-term debt for capital purposes
in an aggregate principal amount not to exceed at any time $52
million.
Rates
Generally: The electric and gas rates of the Company
applicable to service supplied to retail customers within the
State of New York generally are regulated by the PSC.
Transmission rates and rates for electricity sold for resale in
interstate commerce are regulated by the Federal Energy
Regulatory Commission ("FERC").
During 1993, the average price per kWh paid by the
Company's residential electric customers was 11.2 cents,
representing an increase of approximately 1.8% over the 11 cents
average price during 1992. The rise in average price during 1993
was due primarily to the annualized effect of the increase in the
Company's base electric rates effective April 15, 1992.
Rate Proceedings - Electric and Gas: For information
with respect to the PSC's Opinion and Order Determining Revenue
Requirement and Rate Design, issued and effective February 11,
1994, incorporating the PSC's Order Adopting Revenue Requirement
and Rate Design, issued and effective December 16, 1993, which
authorizes the Company to increase its base rates for electric
service and denies the Company's request to increase rates for
base gas service, see subcaptions "Rate Proceeding - Electric"
and "Rate Proceeding - Gas," in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," on
pages 9 and 10 of Exhibit 13 hereto, which subcaptions are
incorporated herein by reference.
Cost Adjustment Clauses: The Company's tariff for
retail electric service includes a fuel cost adjustment clause
pursuant to which electric rates are adjusted to reflect changes
in the costs of fuels used in electric generation and of certain
purchased power from the level of such costs included in the
Company's base rates for electricity. The Company's tariff for
gas service includes a gas cost adjustment clause pursuant to
which gas rates are adjusted to reflect changes in the price of
natural gas purchased from pipeline and/or third party suppliers
and certain costs of manufactured gas from the level of such
costs included in base rates for gas.
For more information with respect to such clauses, see
the discussions under the subcaptions "Deferred Electric Fuel
Costs" and "Deferred Gas Costs" in Note 1 to the Company's 1993
Financial Statements appearing on pages 44 and 45 of Exhibit 13
hereto, which subcaptions are incorporated herein by reference.
Take-or-Pay Gas Liability: For a discussion of the PSC
proceeding commenced in 1988 to determine, among other things,
whether recovery of some or all of take-or-pay costs should be
denied New York gas distribution companies, see the subcaption
"Take-or-Pay Gas Costs" in Note 9 to the Company's 1993 Financial
Statements appearing on page 65 of Exhibit 13 hereto, which
subcaption is incorporated herein by reference.
Other Rate Matters: From time to time legislation is
introduced in the New York State Legislature which, if enacted,
would affect the rate structures and ability to recover costs of
service of all electric and/or gas utilities operating in New
York State.
The PSC from time to time has initiated various
proceedings and taken action relating to the rate structures and
operations of electric and/or gas utilities which could or will
require Company action and the expenditure of funds.
Fuel Supply and Cost
The Company's two primary fossil fuel-fired electric
generating stations are the Roseton Plant (described in Item 2
below under the subcaptions "Electric - General" and "Electric -
Roseton Plant") and the Danskammer Plant (described in Item 2
below under the subcaption "Electric - General"). The Roseton
Plant is fully equipped to burn both residual oil and natural
gas. Units 1 and 2 of the Danskammer Plant are equipped to burn
residual oil or natural gas. Units 3 and 4 of the Danskammer
Plant are capable of burning coal, natural gas, or residual oil.
For the 12 months ended December 31, 1993, the sources
and related costs of electric generation for the Company were as
follows:
Aggregate Fuel
Sources of Percentage of Costs in 1993
Generation Energy Generated ($000)
Oil 17.8% $26,116
Coal 33.7 34,234
Gas 3.1 5,971
Hydroelectric 2.4 516
Nuclear 11.4 3,705
Purchased Power 31.6 49,809
100.0%
======
Fuel Handling Costs 1,514
Deferred Fuel Cost 385
$122,250
========
Residual Oil: The Company has available, through
ownership or contractual arrangements with Amerada Hess
Corporation ("Hess"), oil storage facilities having a capacity
for the Danskammer Plant of 190,714 barrels at December 31, 1993.
The Roseton Plant has available, through ownership or contractual
arrangements with Hess and the Company, oil storage facilities
having a capacity of 1,544,000 barrels, of which the Company's
share is 540,000 barrels. At December 31, 1993, there were
1,084,348 barrels of fuel oil in inventory for use in these
Plants, which amount represents an average daily supply of 43
days.
As a result of the minimal fuel oil required at the
Danskammer Plant, all of that Plant's fuel oil requirements are
supplied through spot market purchases. The price for Danskammer
Plant fuel oil is determined on the basis of published spot
market prices in effect on the day of delivery. For part of
1993, the Roseton Plant fuel oil requirements were supplied
equally under two contracts, the prices for which were determined
on the basis of published market indices in effect at the time of
delivery, and each such contract for the Roseton Plant permits
the Company to make certain spot purchases from others. The term
of one of the Roseton Plant supply contracts ended on September
30, 1993. The term of the other Roseton Plant supply contract,
which supplied 100% of the Roseton Plant's fuel oil requirements
for the remainder of 1993, ends on August 31, 1994 and thereafter
is automatically extended on a year to year basis, subject to
termination by either party.
Prior to 1987, the Company's primary fuel source was
residual fuel oil, the price of which can be volatile. However,
with the completion of the Danskammer Plant Units 3 and 4 coal
reconversion in 1987, the 1988 commencement of commercial
operation of the Nine Mile 2 Plant, and the completion in 1992 of
modifications to the Roseton Plant to burn natural gas as an
alternative fuel, the Company is less dependent on residual fuel
oil for its electric generation.
The Danskammer Plant and the Roseton Plant both burn
No. 6 residual fuel oil. The Danskammer Plant burns fuel oil
having a maximum sulfur content of 1%, while the Roseton Plant
burns fuel oil having a sulfur content not exceeding 1.5% maximum
and 1.3% weighted annual average, which may be modified under
certain circumstances. (See discussion below under the
subcaption "Environmental Quality - Air.")
Coal: In order to provide for its requirements for
coal to be burned at Units 3 and 4 of the Danskammer Plant, the
Company has entered into two long-term contracts for the purchase
of up to an aggregate of 720,000 tons per year of low sulfur
(0.7% maximum) coal. The unit cost of purchases under these
contracts are fixed for periods which end on December 31, 1994.
Thereafter, one contract is subject to renegotiation while the
other contract is subject to increases and decreases based on
prices tied to the price of coal purchased by the Company on the
spot market. The Company in 1993 entered into a contract
providing for the purchase of coal on the spot market.
The Company has entered into agreements with two
railroads for the transportation of such coal, the cost of which
is subject to escalation and de-escalation based on formulas tied
to published and recognized rail cost indices. One such
transportation agreement expires on March 31, 2000, subject to
earlier termination on certain dates by either party. The other
such agreement expires on December 31, 1996 and is thereafter
automatically renewed on a year to year basis, subject to
termination by either party.
Natural Gas: Natural gas is purchased for both the
Roseton Plant and the Danskammer Plant through the Company's
contracts with its firm natural gas pipeline suppliers (see the
subcaption in Item 2 below entitled "Gas - Current Gas Supply"),
for the Danskammer Plant through spot purchases and for the
Roseton Plant through the Iroquois Gas Transmission System. Due
to supply limitations and deliverability constraints on both
interstate gas pipelines and the Company's gas facilities,
natural gas is burned at the Danskammer Plant and at the Roseton
Plant, principally during the months of April through October.
The aggregate volume of natural gas so used as boiler fuel during
1993 was 4.0 billion cubic feet.
Nuclear: See the subcaption "Electric - Nine Mile 2
Plant - Outages" in Item 2 below for a discussion of fuel
reloading at the Nine Mile 2 Plant.
Research and Development
The Company is engaged in the conduct and support of
research activities affecting its business, both in its own
territory in New York State and nationally, which activities are
designed to improve existing energy technologies and to develop
new technologies related to the production, distribution and
conservation of energy. New York law requires electric and gas
utilities to contribute to research related to new energy
technologies to be undertaken by the New York State Energy
Research and Development Authority. The PSC has established a
guideline for electric utilities to spend about 1% of electric
revenues on electric research, development and demonstration
projects. In addition, the Company makes contributions in
support of gas research, development and demonstration projects.
The Company's expenditures for electric and gas
research and development projects amounted to $5.6 million in
1991, $5.0 million in 1992 and $4.6 million in 1993. The Company
estimates that its 1994 expenditures for research and development
will total approximately $4.1 million.
Environmental Quality
The Company is subject to regulation by federal, state
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, certain permits are required with respect to the
Company's facilities, which permits have been obtained and/or are
in the renewal process. Generally, the principal environmental
areas and requirements to which the Company is subject are as
follows:
Air: State regulations affecting the Company's
existing electric generating plants govern the sulfur content of
fuel used therein, the emission of particulate matter and certain
other pollutants therefrom and the visibility of such emissions.
In addition, federal and state ambient air quality standards for
sulfur dioxide, nitrogen oxides and suspended particulates must
be complied with in the area surrounding the Company's generating
plants.
The Company operates an ambient air quality monitoring
system in the area surrounding the Roseton and Danskammer Plants,
which system is designed to provide measurements of sulfur
dioxide concentrations to indicate whether applicable air quality
standards are being met. Air monitoring results reveal that
certain applicable state and federal standards for ambient sulfur
dioxide concentrations and certain state air quality control laws
and regulations with respect to emissions of sulfur dioxide have
been occasionally exceeded. The opacity limitation also has been
occasionally exceeded. The Company believes that present air
quality standards for nitrogen oxides, sulfur dioxide and
particulates are satisfied in the area surrounding the Danskammer
and Roseton Plants.
The sulfur content of the oil burned at the Roseton
Plant is limited by stipulation, with among others the New York
State Department of Environmental Conservation ("NYSDEC"), to an
amount not exceeding 1.5% maximum and 1.3% weighted annual
average. Such sulfur content limitation at the Roseton Plant can
be modified by the NYSDEC in the event of technological changes
at such Plant, provided that the sulfur dioxide and nitrogen
oxides emissions are limited to that which would have been
generated by the use of oil with a sulfur content of 1.3% on a
weighted annual average.
The Clean Air Act Amendments of 1990 ("CAA
Amendments"), address among other things, attainment and
maintenance of national ambient air quality standards ("NAAQS")
in those areas ("non-attainment areas") in which NAAQS are not
currently being attained; adoption of a new, federally-
supervised, nationwide permit program for emissions to the
atmosphere from stationary sources; control of precursor
emissions, namely sulfur dioxide and nitrogen oxides, from
fossil-fueled electric power plants ("power plants") that affect
"acid rain"; regulation of hazardous air emissions; and increased
enforcement provisions, including new criminal sanctions.
The "acid rain" control program is intended to reduce
sulfur dioxide and nitrogen oxides emissions from power plants.
The sulfur dioxide and nitrogen oxides reduction requirements do
not affect the Company's generating plants until January 1, 2000.
The "acid rain" control program will require the Company to
install continuous emission monitors on its power plants by
January 1, 1995. The sulfur dioxide program provides for
emission allowances that will be allocated to power plants, which
can be transferred between power plants and utilities. If
emission allowances were exceeded in a year, reductions in future
emissions would be required and fines could be assessed.
Although subject to reevaluation as U.S. Environmental Protection
Agency ("EPA") regulations are issued, the Company currently
anticipates that it will have adequate allowances for the
operation of its facilities if sufficient gas is available for
consumption at the Roseton Plant. Under the provisions for
designated non-attainment areas in the CAA Amendments, states are
required to identify measures to be taken to meet schedules for
attaining established standards. In New York State, sources of
nitrogen oxides emissions will be required to install "Reasonably
Available Control Technology" ("RACT"), by May 31, 1995, to
assist in achieving attainment of the NAAQS for ozone. The
Company has determined that combustion controls will be required
to meet the RACT standards for its generating facilities. Such
controls, along with continuous emissions monitors which must be
installed and certified by January 1, 1995, are currently
projected to cost approximately $11 million to install.
Except as set forth above, the Company is unable to
predict the effect (including cost) of these programs on its
power plant operations since the details of the CAA Amendments
are yet to be completely established by implementing regulations
to be issued over a period of years by the EPA and the NYSDEC.
In addition, under the CAA Amendments, further actions may be
taken by the EPA or New York State authorities with respect to
the non-attainment area classification of the portion of New York
State in which the Company's Danskammer and Roseton Plants are
located, which could require the Company to expend a significant
amount of funds in altering its power plant operations and fuel
purchasing programs. In December 1990, the PSC commenced a
generic proceeding to examine the effects of the CAA Amendments,
and, by Order, issued and effective December 27, 1993, the PSC
ordered that New York utilities receiving revenues in connection
with emission allowance transactions defer the effects of such
transactions for ratemaking purposes. The Company is receiving
no such revenues at this time.
Water: The Company is required to comply with
applicable state and federal laws and regulations governing the
discharge of pollutants into receiving waters.
The discharge of any pollution into navigable waterways
is prohibited except in compliance with a permit issued by the
EPA under the National Pollutant Discharge Elimination System
established under the Clean Water Act ("NPDES"). Likewise, under
the New York Environmental Conservation Law industrial waste
cannot be discharged into state waters without a State Pollutant
Discharge Elimination System ("SPDES") permit issued by the
NYSDEC. Issuance of a SPDES permit satisfies the NPDES permit
requirement. The Company has received SPDES permits for both the
Roseton Plant and the Danskammer Plant, its Eltings Corners
maintenance and warehouse facility and its Rifton Recreation and
Training Center. The SPDES permits for the Roseton Plant and the
Danskammer Plant expired on October 1 and November 1, 1992,
respectively, and such permits are the subject of separate
renewal proceedings currently pending before the NYSDEC. In the
Roseton Plant proceeding, the subject of the restriction on use
of water for cooling purposes at that Plant (as referred to in
Item 3 below, under the caption "Environmental Litigation") is
also being discussed. The Company expects that such Permits will
be renewed in 1995, but can make no estimate as to the
conditions, if any, to which such Permits may be subject. It is
the Company's belief that the expired SPDES permits continue in
full force and effect pending issuance of the new SPDES permits.
Toxic Substances and Hazardous Wastes: The Company is
subject to state and federal laws and regulations relating to the
use, handling, storage, treatment, transportation and disposal of
industrial, hazardous and toxic wastes.
The NYSDEC in 1986 added to the New York State Registry
of Inactive Hazardous Waste Disposal Sites six locations at which
gas manufacturing plants owned or operated by the Company or by
predecessors to the Company were once located. Two other sites,
which formerly contained gas manufacturing plants, have been
identified by the Company. The Company studied these eight sites
to determine whether they contain any hazardous wastes which
could pose a threat to the environment or public health and, if
such wastes were located at such sites, to determine the remedial
actions which may be appropriate. All eight sites were studied
using the Phase I guidelines of the NYSDEC and four such sites
were studied using the more extensive Phase II guidelines of the
NYSDEC. As a result of these studies, the Company concluded that
no remedial actions were required at any of these sites. In
1991, the NYSDEC advised the Company that four of the six sites
had been deleted from such Registry. In 1992, the NYSDEC advised
the Company that the two remaining sites listed on such Registry
had been deleted from such Registry. The NYSDEC also indicated
that such deletions of the sites were subject to reconsideration
in the future, at which time new analytical tests may be required
to determine whether or not wastes on site are hazardous. If, as
a result of such potential new analytical tests, or otherwise,
remedial actions were ultimately required at these sites by the
NYSDEC, the cost thereof could have a material adverse effect
(the extent of which cannot be reasonably estimated) on the
financial condition of the Company if the Company could not
recover all, or a substantial portion thereof, through rates.
In 1992, the NYSDEC asserted that, after an
investigation, the Company and Consolidated Edison Company of New
York, Inc. ("Con Edison") were responsible for a petroleum spill
emanating from certain transformer facilities located at the
Pleasant Valley Substation owned by Con Edison. The Company has
an agreement with Con Edison under which the Company performs
ordinary maintenance with respect to these transformer
facilities. At the direction of NYSDEC, in 1992, the Company
undertook certain oil clean up with respect to such spill and
certain containment action with respect to further discharge of
oil at the site. The Company in 1992 also commenced an
investigation of potential contamination of related surface and
groundwaters. The preliminary results of such investigation
indicate the presence, above groundwater standards, of a
hazardous substance which appears to be unrelated to such oil
spill. The Company has informed Con Edison of Con Edison's
responsibility for any costs or damages that might result from
the spill and/or the existence of other hazardous substances and
the actions of the NYSDEC with respect thereto. In 1993, Con
Edison assumed responsibility for the conduct of further
assessments of the possible release of hazardous substances with
respect to such spill. The Company believes that, as owner of
the property, Con Edison will be responsible for any costs of
remediation, if required.
In August 1992, the NYSDEC notified the Company that
the NYSDEC suspected that the Company's offices at Little Britain
Road in New Windsor, Orange County, New York, may constitute an
inactive hazardous waste disposal site. NYSDEC stated that
unless the Company agreed to conduct an assessment of conditions
on the site, NYSDEC would perform such an assessment. The
Company is currently negotiating an Order on Consent with the
NYSDEC pursuant to which the Company would perform such a site
assessment. Assuming such Order on Consent were entered into,
the Company is unable to predict the results of such assessment,
whether remediation would be required, and, if so, the potential
costs of any such remediation.
In September 1993, J and T Recycling, Inc. ("J and T"),
requested the Company, as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response Compensation
Liability Act ("CERCLA"), to participate, in lieu of litigation,
in the cost of remediation of a landfill site in the Town of
Poughkeepsie, New York, known as the FICA Landfill. The State of
New York had commenced litigation against J and T, under CERCLA,
as the operator of the FICA Landfill to require remediation of
such Landfill. On October 8, 1993, the Company received a demand
for information from the NYSDEC and the New York State Department
of Law (Environmental Protection Bureau) relating to any waste
material sent by the Company to the FICA Landfill. As set forth
in the Company's response to such demand, the Company does not
believe it is a PRP for environmental conditions at the FICA
Landfill. However, if the Company were found to be a PRP, the
cost to the Company to participate in such remediation cannot be
estimated at the present time.
Other: The Company estimates that expenditures
attributable, in whole or in substantial part, to environmental
considerations totalled $10.5 million in 1993, of which about
$3.1 million related to capital projects and $7.4 million were
charged to expense. It is estimated that in 1994 the total of
such expenditures will be approximately $19.9 million.
The Company is not involved as a party defendant in any
court litigation with respect to environmental matters and, to
the best of its knowledge, no litigation against it is threatened
with respect thereto, except with respect to the litigation
described under Item 3 hereof under the caption "Environmental
Litigation" and described above under the subcaption
"Environmental Quality - Toxic Substances and Hazardous Wastes."
Regulation
Generally: The Company generally is subject to
regulation by the PSC with respect to, among other things,
service rendered (including the rates charged therefor), major
transmission facility siting, energy planning, accounting
procedures and issuance of securities.
Certain of the Company's activities, including
accounting and the acquisition and disposition of certain
property, are subject to regulation by the FERC, under the
Federal Power Act, by reason of the Company's transmission and
sale for resale of electric energy in interstate commerce.
The Company is not subject to the provisions of the
Natural Gas Act.
In the opinion of general counsel for the Company, the
Company's major hydroelectric facilities are not required to be
licensed under the Federal Power Act.
Energy Policy Act of 1992: In 1992, the Energy Policy
Act of 1992 ("Energy Act") became federal law, the purpose of
which is to provide a comprehensive national energy policy that
gradually and steadily increases United States energy security in
cost-effective and environmentally beneficial ways.
Title VII of the Energy Act amended the Public Utility
Holding Company Act of 1935 ("PUHCA") and the Federal Power Act
to promote additional competition in the wholesale electricity
power market in order to improve the efficiency of the electric
utility industry and secure the lowest possible costs for
consumers. PUHCA was amended to allow independent (wholesale)
power producers ("IPPs") to operate without coming under the
regulatory restrictions of PUHCA and to permit utilities subject
to PUHCA to invest in IPPs.
Under the Energy Act, FERC may order utilities to
provide wholesale transmission service ("wholesale wheeling") for
others if, among other things, the order meets certain
requirements as to cost recovery and fairness of rates. A
transmitting utility need not provide the transmission service if
FERC finds that the service requires the enlargement of
transmission capacity and the utility has failed, after making a
good faith effort, to obtain the necessary approvals or property
rights under applicable law. Although the Energy Act prohibits
FERC-ordered retail transmission service to a customer ("retail
wheeling"), the Energy Act does not affect the authority of state
or local governments with respect to retail wheeling. The
Company can make no prediction as to the effect on it of the
Energy Act, however, it believes that such Act could have an
extensive impact upon current competitive relationships in the
electric utility industry.
Alternative Electric Power Generation: Pursuant to the
provisions of the federal Public Utility Regulatory Policies Act
of 1978 ("PURPA"), and the New York Public Service Law, the
Company is required to enter into long-term contracts to purchase
electric power generated by small hydro, alternative energy and
cogeneration facilities which meet qualification standards
established by such statutes and the regulatory programs
promulgated thereunder. With respect to facilities qualified
under PURPA, the Company must pay its avoided cost (i.e., the
cost the Company would otherwise incur to generate the increment
of power purchased) for electric power purchased from qualified
facilities, which, under the New York Public Service Law, is "at
rates just and reasonable to electric...corporation ratepayers."
As of December 31, 1993, the Company's avoided cost at the 115 KV
transmission level was approximately 3.0 cents per kWh.
As of December 31, 1993, 19 MW of generation,
qualifying for avoided cost payments by the Company, was
interconnected with the Company's system, and the Company had
signed contracts for the purchase of electric power for an
additional 3 MW from such facilities. The opportunity under
PURPA and the New York Public Service Law to require the Company
to purchase power from qualifying facilities could serve as an
inducement to its industrial and commercial customers to install
their own qualifying on-site generation facilities to reduce
their purchases of electric power from the Company which would
result in losses of revenues from such customers. However, as of
December 31, 1993, no significant customer has indicated to the
Company the intention to pursue such alternative.
Least-Cost Generation Supply: The PSC has statutory
authority to require electric utilities to conduct competitive
bidding prior to (i) entering into electric capacity purchase
contracts, and (ii) making substantial investments for new
construction of generating capacity or extension of existing
generating capacity. And, prior to entering into any electric
capacity purchase contract, or prior to making any substantial
investment for new construction repowering or plant life
extension of electric generating facilities, in order to select
the source which best serves the public interest, a utility is
required to consider a number of factors, including reasonably
available supply and demand side sources, ratepayer impacts,
system reliability, environmental impacts, conservation of energy
resources, economic consequences, fuel efficiency, fuel
availability and diversity and public health and welfare.
In 1988, the PSC issued its Opinion and Order
Concerning Integrated Planning and Ratemaking Issues ("Integrated
Planning Order"). In the Integrated Planning Order, utilities
are required to adopt comprehensive long-range planning which
considers demand side management and conservation together with
construction of new generation and which integrates planning with
other aspects of the utility, including the rate, financial and
customer service functions. The Company considers its planning
procedures to conform substantially to the comprehensive long-
range planning which the Integrated Planning Order directs the
utilities to implement.
Energy Efficiency Programs: In response to the PSC's
directives, the Company filed with the PSC the Company's Energy
Efficiency Program for 1993 and 1994, which projects an aggregate
reduction in the Company's summer peak load demand of 8% between
the years 1989 and 2000. The PSC, by Order issued and effective
March 19, 1993, approved the Company's Energy Efficiency Program
for 1993. The Company in such Order was directed to increase its
energy reduction goals for 1994 and to file for PSC approval a
revised 1993-1994 Energy Efficiency Program. The Company in July
1993 filed its revised Energy Efficiency Program with the PSC and
such filing was approved by the PSC by Order issued and effective
January 14, 1994.
The Company has various other programs in effect to
promote energy efficiency by its customers. Beginning in 1978,
the Company implemented a program to comply with the state-
mandated Home Insulation and Energy Conservation Act pursuant to
which the Company is required, among other things, to conduct
residential home energy audits and either to loan money to its
residential customers to finance the installation of energy
efficiency measures or to arrange to have banks issue such loans
guaranteed, in certain instances, by the Company, with the
Company subsidizing the difference between the prevailing
interest rate and the rate authorized by the PSC. Pursuant to
such Act, the Company in 1982 also implemented an Apartment
Building Conservation Audit Plan which offers energy audits to
qualified multiple-dwelling owners. Such programs have been
successful in reducing energy use by many customers.
Other Matters
Competition: Although the Company is subject to
regulation by the PSC and by the FERC, as described under the
subcaption "Regulation" above, the Company is substantially free
from direct competition with other utilities, municipalities and
public agencies. However, the Company is subject to price
competition from oil, coal, wood, solar heating sources and self-
generation and from bottled gas vendors for water heating,
clothes drying, cooking, air conditioning and heating. The
Company is in competition with other investor-owned utilities and
the Power Authority of the State of New York ("PASNY") for sales
for resale to other utility companies, both within and outside of
New York State. PASNY also offers economic development power to
industrial consumers in New York State, in competition with sales
of electricity by the Company to such consumers in its service
territory (see subcaption below "Economic Development Power").
The Company is in competition with other New York investor-owned
utilities with respect to the expansion of the Company's gas
business to new areas. Furthermore, the Company is in
competition for the generation of electricity with qualified
cogeneration, alternative energy, and small hydro facilities
under federal and state laws from which the Company is required
to purchase power and with other independent power producers
(including other utility-owned subsidiaries) (see subcaptions
above entitled "Regulation - Energy Policy Act of 1992" and
"Regulation - Alternative Electric Power Generation"). However,
with the enactment of the Energy Policy Act of 1992 and with the
FERC's rules providing open-access to interstate pipelines (see
below subcaption "Gas - Other" of Item 2 - Properties), the
electric and gas industry may be subject to risks and
uncertainties due to the introduction of these new competition -
related regulatory and legislative requirements; eroding perhaps
the position of a utility as a franchised monopoly, free from
most forms of competition. The PSC has initiated separate
proceedings to consider aspects of competition as they may affect
the electric and gas industry. Among the subjects which may be
considered in such proceedings are proposals that utilities may
discount their rates to industrial customers, and that utility
shareholders absorb a portion of such discounts, and
consideration of retail electric wheeling. The Company can make
no prediction as to (i) whether the PSC will adopt new
regulations or policies implementing any of the concepts being
considered in such proceeding and (ii) if adopted, the effect, if
any, on the future operations of the Company.
Municipal Utilities: Article 14-A of the New York
General Municipal Law permits any municipality to construct,
lease, purchase, own, acquire, use and/or operate any utility
service for the benefit of its inhabitants, and, in furtherance
thereof, permits any municipality to acquire, through purchase or
condemnation, the public utility service of any public utility
company.
Economic Development Power: The New York State
Economic Development Power Allocation Board is authorized by law
to solicit applications for "economic development power" by
municipalities or municipal agencies on behalf of businesses
which normally use a minimum peak electric demand of 400 Kw for
purposes of economic development, particularly job creation.
"Economic development power" is electric power generated at the
Fitzpatrick Nuclear Generating Station of PASNY which is
available for such purpose. Should such power be allocated
within the Company's service territory, the Company would be
required to wheel such power to the user at a cost-based rate,
which must be approved by the PSC. As of March 1, 1994, the
Company is aware that only one of its electric customers, a
commercial printer, has applied for such economic development
power.
Marketing: The Company's marketing division promotes
the use of gas and electricity by encouraging the purchase of
energy efficient gas and electric appliances, particularly gas
heaters, electric heat pumps, electric water heaters and night
security lights. The Company believes that (i) certain targeted
marketing efforts will improve sales and revenues without
adversely affecting energy efficiency efforts and (ii) such
improved sales will favorably affect unit costs and,
consequently, reduce the magnitude of future rate increases.
Gas Service Incident: On February 12, 1994, a fire and
an explosion destroyed a residence in the Village of Wappingers
Falls, New York in the Company's service territory. A short time
later, a second explosion and fire destroyed a nearby commercial
facility. Subsequently, the Company discovered a crack in a
nearby eight-inch steel gas main. The Company interrupted
natural gas service to over 1,800 customers in order to repair
the cracked gas main. The cause of these incidents is under
investigation by the Company and, independently, by the PSC. The
Company can make no prediction as to its liability, if any, in
this matter and it is unaware of any reason to anticipate the
commencement of penalty proceedings by any governmental agency.
Labor Relations: The Company has agreements with the
International Brotherhood of Electrical Workers for its 946
unionized employees, representing production and maintenance
employees, customer relations representatives, service workers
and clerical employees, excluding persons in managerial,
professional or supervisory positions, which agreements were
renegotiated effective July 1, 1991 and continue through June 30,
1994. The agreements provide for a general wage increase of
4.5%, effective on each of July 1, 1991, 1992 and 1993, and
certain additional fringe benefits.
EMF: Recently there has been publicity surrounding
electromagnetic fields ("EMF") and harmful health effects
allegedly associated with exposure to EMF. A number of studies
have been conducted in recent years in an attempt to ascertain
what, if any, relationship exists between prolonged exposures to
varying levels of EMF and the development of certain illnesses,
particularly certain types of cancer. It is the Company's
understanding that the results of such studies are inconclusive,
and no causal link between exposure to EMF and adverse health
effects has been found. The Company supports EMF research
efforts through the Empire State Electric Energy Research
Corporation and the Electric Power Research Institute, two
utility industry research associations.
The publicity surrounding EMF has already produced
litigation against a number of utilities across the country
involving claims of personal injury and property damage.
Affiliates:
CH Resources, Inc.: CH Resources, Inc., a wholly-
owned subsidiary of the Company, held a participation interest in
a Gulf Coast gas exploration joint venture which interest was
disposed of in 1992. Currently, CH Resources, Inc. has no
interests in any properties.
Central Hudson Enterprises Corporation: Central
Hudson Enterprises Corporation, a wholly-owned subsidiary of the
Company, is engaged in the business of conducting energy audits
and providing services related to the design, financing,
installation and maintenance of energy conservation measures and
cogeneration systems for private businesses, institutional
organizations and governmental entities.
Central Hudson Cogeneration, Inc.: Central Hudson
Cogeneration, Inc., a wholly-owned subsidiary of the Company,
participates in cogeneration, small hydro and alternate energy
production projects, directly or through one or more of its
affiliates.
Phoenix Development Company, Inc. and Greene Point
Development Corporation: These corporations, each a wholly-owned
subsidiary of the Company, were established to hold real property
for the future use of the Company. Currently, such subsidiaries
either do not hold real property or hold property of little
market value.
Executive Officers of the Company
The names of the officers of the Board of Directors and
the executive officers of the Company during 1993, their
positions held and business experience during the past five (5)
years and ages at December 31, 1993 are as follows:
Principal Occupation or
Employment and Positions
Name of Officer and and Offices with the Company
Position Held during the past five (5) years Age
Officers of the Board
John E. Mack, III, Present positions; except 59
Chairman of the Board President and Chief Executive
and Chief Executive Officer of the Corporation prior
Officer; Chairman of to April 1989
the Executive and
Retirement Committees
Jack Effron, Present position since April 1993; 60
Chairman of Committee President of Efco Products, a
on Compensation and bakery ingredients corporation;
Succession member of the St. Francis Health
Care Foundation; Chairman of the
Chief Executive's Network for
Manufacturing of the Council of
Industry of Southeastern New York,
March 1991; President of the Council
of Industry of Southeastern New
York, 1989 - March 1991
Richard H. Eyman, Present position; retired January 1, 63
Chairman of Committee 1992 as Senior Vice President,
on Audit Brouillard Communications Division
of J. Walter Thompson Co., an
advertising agency
Howard C. St. John, Present positions; Chairman of the 70
Chairman of Committee Board of Ulster Savings Bank;
on Finance and Vice lawyer, member of the law firm of
Chairman of the Board Howard C. St. John & Associates -
both of Kingston, N.Y.; Chairman of
the Board of Stavo Industries, a
liquid filtration business in
Kingston, N.Y.
Principal Occupation or
Employment and Positions
Name of Officer and and Offices with the Company
Position Held during the past five (5) years Age
Executive Officers of the Company
Paul J. Ganci, Present positions since April 1989; 55
President and Chief Senior Vice President - Operations,
Operating Officer prior to April 1989
John F. Drain, Present position since April 1993; 61
Vice President - Vice President - Controller and
Finance and Treasurer, May 1990 - April 1993;
Controller Treasurer, May 1988 - May 1990
Carl E. Meyer, Present position since November 46
Vice President - 1992; Vice President - Engineering
Customer Services and Production, May 1988 - November
1992
Allan R. Page, Present position since November 46
Vice President - 1992; Vice President - Customer
Corporate Services Services, May 1988 - November 1992
Joseph J. DeVirgilio, Present position since May 1990; 42
Jr., Vice President - Assistant Vice President - Human
Human Resources and Resources, May 1988 - May 1990
Administration
Ronald P. Brand, Present position since November 55
Vice President - 1992; Assistant Vice President -
Engineering and Engineering, January 1990 - November
Environmental Affairs 1992; Manager of Electric Engineering
Services, 1988 - January 1990
Gladys L. Cooper, Present position; leave of absence 42
Secretary for educational purposes since
August 1992
Steven V. Lant, Present positions since April 1993; 36
Treasurer and Assistant Treasurer and Assistant
Assistant Secretary Secretary, December 1991 - April
1993; Assistant Treasurer, November
1990 - November 1991; Manager, Costs,
Rates and Forecasts, 1988 - October
1990
Principal Occupation or
Employment and Positions
Name of Officer and and Offices with the Company
Position Held during the past five (5) years Age
Executive Officers of the Company - (Continued)
Herbert M. Round, Present position since April 1993; 59
Assistant Vice Assistant Vice President - Nuclear
President Operations and Energy Control,
April 1991 - April 1993; Assistant
Vice President - Nuclear Operations,
Energy Control and Operations
Services, May 1988 - April 1991
Benon Budziak, Present position since November 61
Assistant Vice 1992; Manager - Fossil Production,
President - Production May 1988 - November 1992
Ellen Ahearn, Present position since August 39
Assistant Secretary 1992; Internal Auditing Manager,
and Internal May 1989 - present; Financial Records
Auditing Manager Supervisor, June 1988 - May 1989
There are no family relationships existing among any of
the executive officers of the Company.
Each of the above executive officers is elected or
appointed annually by the Board of Directors.
Item 2 - PROPERTIES
Electric
General: The net capability of the Company's electric
generating plants as of December 31, 1993, the net output of each
plant for the year ended December 31, 1993, and the year each
plant was placed in service or rehabilitated are as set forth
below:
Electric Net Capability 1993 Unit
Generating Year Placed (MW)* Net Output
Plant Type of Fuel In Service Summer Winter (MWh)
Danskammer Residual Oil, Natural 1951-1967 496.5 507.0 1,990,979
Plant Gas and Coal
Roseton Plant Residual Oil 1974 422.1 426.0 1,072,734
(35% share) and Natural Gas
Neversink Water 1953 23.5 23.0 64,028
Hydro Station
Dashville Water 1920 3.0 3.9 11,880
Hydro Station
Sturgeon Pool Water 1924 14.6 15.3 53,863
Hydro Station
High Falls Water 1986 1.2 2.7 5,342
Hydro Station
Coxsackie Kerosene or 1969 20.0 24.0 5,609
Gas Turbine Natural Gas
So. Cairo Kerosene 1970 18.0 24.0 820
Gas Turbine
Nine Mile 2 Nuclear 1988 94.0 95.0 645,036
Plant (9% share)
------- ------ ---------
Total 1,092.9 1,120.9 3,850,291
* Reflects Company ownership of generation resources and, therefore, does not
include firm purchases or sales.
The Company entered into a contract with New York State
Electric and Gas Corporation, with a term of May 24, 1993 through
April 29, 1995, for the purchase of energy and capacity of up to
300 MW. During 1993, the Company purchased 920,000 MWh of energy
under this contract.
The Company has a contract with PASNY which entitles
the Company to 49 MW net capability from the Blenheim-Gilboa
Pumped Storage Hydroelectric Plant through 2002.
Since 1975, the Company has purchased capacity in
relatively small amounts from the Fitzpatrick Nuclear Plant of
PASNY, pursuant to a contract which may be terminated by either
party on 12 months' notice. Under such contract, the maximum
capacity which can be purchased during specific periods is 6 MW.
See Item 1, subcaption "Regulation - Alternative
Electric Power Generation," with respect to alternative electric
power generation interconnected with the Company's system.
The Company owns 89 substations having an aggregate
transformer capacity of 4.3 million KVA. The transmission system
consists of 584 pole miles of line and the distribution system of
7,224 pole miles of overhead lines and 783 trench miles of
underground lines.
Load and Capacity: The Company's maximum one-hour
demand within its own territory, for the year ended December 31,
1993, occurred on July 15, 1993 and amounted to 860 MW. The
Company's maximum one-hour demand within its own territory, for
that part of the 1993-1994 winter capability period through March
15, 1994, occurred on January 26, 1994 and amounted to 845 MW.
Based on current projections of peak one-hour demands
for the three-year period comprising the 1994 summer capability
period through the winter capability period of 1996-1997, the
Company estimates that it will have capacity available to satisfy
its projected peak demands plus the estimated reserve generating
capacity requirements which it is required to maintain as a
member of the New York Power Pool ("NYPP"), described below. The
following table sets forth the amounts of any excess capacity by
summer and winter capability periods for such three-year period:
Excess of Capacity over
Forecasted Peak + Available Peak Plus NYPP
Capability Peak Reserve Capacity Reserve Requirements
Period (MW) (MW)* (MW) (MW) Percent
1994 Summer 840 991 1,092.9 101.9 9.3
1994-95 Winter 760 991 1,152.9 161.9 14.0
1995 Summer 820 968 1,122.9 154.9 13.8
1995-96 Winter 765 968 1,182.9 214.9 18.2
1996 Summer 820 968 1,152.9 184.9 16.0
1996-97 Winter 770 968 1,212.9 251.9 20.8
* Summer period peak plus reserve requirements carry over to the following
winter period.
The foregoing table reflects the following:
(1) reduction in capacity requirements as a result of the Company's Energy
Efficiency Programs described above in Item 1 under the subcaption
"Regulation - Energy Efficiency Programs,"
(2) the decreases in IBM related electric sales and revenues (as described
above in Item 1 under the subcaption "Rates - Rate Proceedings -
Electric and Gas") and
(3) effective with the 1994-1995 Winter - Capability Period, the capacity
represented by the interests in the Roseton Plant proposed to be
purchased by the Company from Niagara Mohawk Power Corporation
("Niagara Mohawk") under the "Amendment" (as described below under
the subcaption "Roseton Plant").
The Company is a member of the NYPP consisting of the
major investor-owned electric utility companies in the State and
PASNY. The members of the NYPP, by agreement, provide for
coordinated operation of their bulk power electric systems with a
view to the use of the most economical source of electricity, for
the maintenance of a reserve margin equal to at least 18% of each
member's forecasted peak load and for the sale and interchange of
electric generating capability and energy among such members.
The members of the NYPP also provide for the cooperative
development of long-range plans for the expansion on an
integrated basis of the bulk power supply system for New York
State, compatible with environmental standards, and appropriately
related to interstate and international capacity and reliability
considerations.
Roseton Plant: The Roseton Plant is located in the
Company's franchise area at Roseton, New York, and is owned by
the Company, Con Edison and Niagara Mohawk as tenants-in-common.
The Roseton Plant, placed in commercial operation in 1974, has a
generating capacity of 1,200 MW consisting of two 600 MW
generating units, both of which are capable of being fired either
by residual oil or natural gas (see subcaption below entitled
"Gas - Sufficiency of Supply and Future Gas Supply"). The
Company is acting as agent for the owners with respect to
operation of the Roseton Plant. Generally, the owners share the
costs and expenses of the operation of such Plant in accordance
with their respective ownership interests.
In March 1993, Unit No. 2 of the Roseton Plant went out
of service because of extensive damage to that Unit and related
facilities caused by fire. No injury to personnel was involved.
Some non-hazardous mineral oil spillage also occurred into a
tributary of the Hudson River. No customer service interruptions
occurred. Appropriate governmental agencies, including the PSC,
the U.S. Coast Guard and the NYSDEC were contacted. Unit No. 1
of the Roseton Plant was taken out of service due to less
extensive damage to that Unit. Unit No. 1 was returned to
service in May 1993 and Unit No. 2 was returned to service in
December 1993. Total restoration costs are approximately $32
million, most of which will be recovered through insurance.
Pursuant to an agreement among the cotenant owners of
the Roseton Plant, dated October 1, 1968, and thereafter amended
("Roseton Plant Agreement"), Con Edison owns 40% of such Plant,
Niagara Mohawk owns 25% of such Plant and the Company owns 35% of
such Plant, all as tenants-in-common. The Company, under the
Roseton Plant Agreement, has an option to purchase the interests
of Con Edison and Niagara Mohawk in the Roseton Plant in December
2004 at a purchase price based upon fair value within specified
limits of amortized costs. The exercise of such option by the
Company is subject to approval by the PSC and may be subject to
the statutory standards and/or competitive bidding requirements
described in Item 1 above under the caption "Regulation - Least-
Cost Generation Supply."
In order to satisfy then anticipated requirements for
additional generating capacity starting in the mid-1990s, in 1987
the Company and Niagara Mohawk entered into an agreement
("Amendment") which revises the option of the Company to purchase
the interest of Niagara Mohawk in the Roseton Plant under the
Roseton Plant Agreement. The Company's option to buy Con
Edison's interest in the Roseton Plant is not affected by the
Amendment. The Amendment is subject to PSC approval, and in the
event such approval is not obtained, the Amendment is cancelled
and the parties return to their same positions under the Roseton
Plant Agreement.
Pursuant to the Amendment, Niagara Mohawk will sell to
the Company a 2.5% interest in the Roseton Plant on December 31,
1994 and on each succeeding December 31, through and including
December 31, 2003, which will constitute all of Niagara Mohawk's
interest in the Roseton Plant. In exchange, Niagara Mohawk will
have the option to repurchase from the Company up to a 25%
interest in the Roseton Plant in December 2004. The prices for
the purchases will be based on the depreciated book cost of the
Roseton Plant assuming straight-line amortization to provide for
a fully amortized facility as of December 31, 2009. Pursuant to
the Amendment, the Company has the option to repurchase Niagara
Mohawk's remaining interest in the Roseton Plant when such Plant
reaches the end of its assumed physical life as agreed upon by
the parties to the Amendment.
In July 1988, the PSC established a proceeding to
consider a joint petition filed by the Company and Niagara Mohawk
requesting the PSC to approve the transfers of interests in the
Roseton Plant contemplated by the Amendment. In May 1989, the
Company and the PSC Staff reached a Stipulation Agreement
indicating that, giving consideration to expected demand-side
management activities, the proposed transfers of interest of the
Roseton Plant under the Amendment were one alternative which
would meet the Company's future needs for power. The PSC has not
yet acted on such petition. The Company continues to consider
other alternatives to the Amendment.
The 345 Kv transmission lines and related facilities to
connect the Roseton Plant with other points in the system of the
Company and with the systems of Con Edison and Niagara Mohawk to
the north and west of such Plant are 100%-owned by the Company.
The share of each of the parties in the output of the Roseton
Plant is transmitted over these lines pursuant to a certain
transmission agreement relating to such Plant, which provides,
among other things, for compensation to the Company for such use
by the other parties. In addition, the Company has contract
rights which entitle the Company to the lesser of 300 MW or one
quarter of the capacity in a 345 Kv transmission line owned by
PASNY which connects the Roseton Plant with a Con Edison
substation to the east of such Plant in East Fishkill, New York.
In exchange for these rights, the Company agreed to provide PASNY
capacity in the 345 Kv transmission lines the Company owns from
the Roseton Plant, to the extent it can do so after satisfying
its obligations to Con Edison and Niagara Mohawk.
Nine Mile 2 Plant:
General: Unit No. 2 of the Nine Mile Point Nuclear
Station ("Nine Mile 2 Plant" or "Plant") is located in Oswego
County, New York, and is operated by Niagara Mohawk. The Nine
Mile 2 Plant is owned as tenants-in-common by the Company (9%
interest), Niagara Mohawk (41% interest), New York State Electric
& Gas Corporation (18% interest), Long Island Lighting Company
(18% interest) and Rochester Gas and Electric Corporation (14%
interest). The output of the Nine Mile 2 Plant, which has a
nominally rated net capability of 1,080 MW, is shared, and the
operating expenses of and capital additions to the Plant are
allocated to the cotenants, in the same proportions as the
cotenants' respective ownership interests.
An Operating Agreement for the operation of the Plant
was entered into by the Nine Mile 2 Plant cotenants effective
January 1, 1993, and the PSC approved said Operating Agreement on
February 24, 1994. Under that Agreement, Niagara Mohawk operates
the Nine Mile 2 Plant, but all five owners shared certain policy,
budget and managerial oversight functions. The fixed term of
such Operating Agreement is 24 months from its effective date
and, unless terminated on the expiration of such 24 month period,
continues, subject to termination on six months' notice.
In August 1989, the non-operating cotenants of the Nine
Mile 2 Plant entered into an agreement for consulting services
with Management, Analytical & Technical Services, Inc. ("MATS")
concerning the monitoring and assessment of the operation of the
Plant, including the provision of technical advice, with the
objective of improving the operation of the Plant. Pursuant to
such agreement, MATS is acting as the on-site representative of
the non-operating cotenants.
Operational Matters:
NRC and INPO Monitoring: On September 28, 1993,
the Nuclear Regulatory Commission ("NRC") issued its latest
systematic assessment of licensee performance ("SALP") review of
the Nine Mile Point Nuclear Station for the period May 24, 1992
to August 14, 1993 ("1992/93 SALP Report"). The Nine Mile Point
Nuclear Station is comprised of Units No. 1 and No. 2, Unit No. 1
being located adjacent to the Nine Mile 2 Plant and owned and
operated solely by Niagara Mohawk and Unit No. 2 being the Nine
Mile 2 Plant. The 1992/93 SALP Report, conducted under the
revised SALP process that was implemented by the NRC on July 19,
1993, rates licensee performance in four functional areas:
Operations, Maintenance, Engineering and Plant Support.
Overall, the NRC indicated that it continues to see
improved performance at the Nine Mile Point Nuclear
Station. According to the NRC, Niagara Mohawk's
management demonstrated a proactive and proper safety
perspective and excellent oversight, control and
involvement in and support of activities at such
Station. Due to the change in the NRC's revised SALP
process, direct comparisons to previous SALP reports
are not available in all areas.
Operations was rated Category 2 ("good"), which was the
same rating as on the prior SALP Report (covering the
period April 1991 through May 23, 1992).
Maintenance was rated Category 2 ("good"), up from
Category 2 "with a declining trend" in said prior SALP
Report.
Engineering was rated Category 1 ("excellent"), up from
Category 2 in said prior SALP Report.
Plant Support was rated Category 2 ("good"). Plant
Support is a new functional area covering all
activities related to plant support functions,
including Radiological Controls, Emergency
Preparedness, Security, Chemistry, Fire Protection and
House Keeping Controls.
The Institute of Nuclear Power Operations ("INPO"), an
industry sponsored oversight group, conducted evaluations of the
Nine Mile Point Nuclear Station during the weeks of May 17 and
24, 1993. Niagara Mohawk informed the Company that the INPO
Report was generally favorable, however, there were some areas in
need of improvement. Niagara Mohawk reports that it has
responded to INPO with its intent to correct any problem areas.
INPO evaluations are conducted at twelve (12) to eighteen (18)
month intervals.
Radioactive Waste: For a discussion of the low-level
and high-level radioactive waste management programs at the Nine
Mile 2 Plant, see the caption "Radioactive Waste" in Note 2 to
the Company's 1993 Financial Statements appearing on pages 46 and
47 of Exhibit 13 hereto, which caption is incorporated herein by
reference.
Refueling Outage: A scheduled refueling outage for the
Nine Mile 2 Plant commenced on October 2, 1993. Such refueling
outage was completed on November 29, 1993 and full plant output
was achieved on December 3, 1993.
Gas
General: The Company's gas system consists of 156
miles of transmission pipelines and 923 miles of distribution
pipelines.
Current Gas Supply: During 1993, natural gas was
available to firm gas customers at a price competitive with that
of alternative fuels. As compared to 1992, in 1993, firm retail
gas sales, normalized for weather, increased by 1% and the
average number of firm gas customers increased by 1.9%. Sales to
interruptible customers decreased 37.4% in 1993 as compared to
1992.
For information on the Company's gas suppliers and gas
storage capability, see the caption "Natural Gas Supply" in Note
9 to the Company's 1993 Financial Statements appearing on pages
63 and 64 of Exhibit 13, which caption is incorporated herein by
reference.
For the year ended December 31, 1993, the total amount
of gas purchased from all sources was 18,293,178 Mcf., which
includes 1,940,214 Mcf. purchased directly for use as a boiler
fuel at the Roseton Plant.
The Company owns two propane-air mixing facilities for
emergency and peak shaving purposes located in Poughkeepsie and
in Newburgh, New York. Each facility is capable of supplying
8,000 Mcf. per day with propane storage capability adequate to
provide maximum facility sendout for up to three consecutive
days.
Sufficiency of Supply and Future Gas Supply: The peak
daily demand for natural gas by the Company's customers for the
year ended December 31, 1993 occurred on February 6, 1993, and
amounted to 100,774 Mcf. The Company's peak-day gas capability
in 1993 was 116,865 Mcf. The peak daily demand for natural gas
by the Company's customers for that part of the 1993-1994 heating
season through March 15, 1994, occurred on January 27, 1994 and
amounted to 113,033 Mcf.
Other: In late 1985, FERC instituted a rule which
permits non-discriminatory access to the pipeline facilities of
interstate gas pipeline transmission companies subject to the
jurisdiction of FERC under the Natural Gas Act. This rule allows
access to such pipelines by the pipeline transmission company's
customers enabling them to transport gas purchased directly from
third parties and spot sources through such pipelines. Such
access, moreover, also permits industrial customers of gas
distribution utilities to connect directly with the pipeline
transmission company and to contract directly with the pipeline
transmission companies to transport gas, thereby by-passing the
distribution utility. In 1985, the PSC issued its Opinion and
Order requiring New York State distribution gas utilities to
transport customer-owned gas through its facilities upon request
of a customer. Except in the Towns of Carmel, Pleasant Valley,
New Baltimore, Coxsackie, Athens, Milan, Clinton, LaGrange and
Unionvale, currently, no interstate pipeline transmission
companies are located in areas where the Company provides retail
gas service.
For a discussion of FERC Order 636, issued in 1992, and
thereafter amended, which requires pipeline gas suppliers to
unbundle natural gas sales service from transportation and
storage service, see the caption "Natural Gas Supply" in Note 9
to the Company's 1993 Financial Statements appearing on pages 63
and 64 of Exhibit 13 hereto, which caption is incorporated herein
by reference.
The Company is a member of the New York Gas Group
("NYGAS"), a voluntary association of utilities providing gas
service in New York State. The purpose of NYGAS is to achieve,
by cooperative action among gas distributors, greater efficiency
in meeting present demands for gas service in New York State and
to develop state-wide gas sufficiency to support future economic
growth throughout the State.
Other Matters
The Danskammer Plant and the Roseton Plant and all of
the other principal generating plants and important property
units of the Company are held by it in fee simple, except (1)
certain rights-of-way, and (2) a portion of the property used in
connection with the hydroelectric plants of the Company
consisting of flowage or other riparian rights. The Company's
present interests in the Roseton Plant and the Nine Mile 2 Plant
are owned as undivided interests as a tenant-in-common with the
other utility owners thereof. Certain of the properties of the
Company are subject to rights-of-way and easements which do not
interfere with the Company's operations. In the case of certain
distribution lines, the Company owns only a part interest in the
poles upon which its wires are installed, the remaining interest
being owned by telephone companies. Certain electric
transmission facilities owned by others are used by the Company
pursuant to long-term contractual arrangements.
All of the physical properties of the Company (other
than property, such as material and supplies, excluded in the
Company's Mortgage) and its franchises are subject to the lien of
the Company's Mortgage under which all of its Mortgage Bonds are
outstanding. Such properties are from time to time subject to
liens for current taxes and assessments which it is the Company's
practice to pay regularly as and when due.
The Company's properties have been well maintained and
are in good operating condition.
During the three-year period ended December 31, 1993,
the Company made gross property additions of $186.7 million and
property retirements and adjustments of $35.8 million, resulting
in a net increase (including Construction Work in Progress) in
utility plant of $150.9 million, or 12.5%
Item 3 - LEGAL PROCEEDINGS
Asbestos Litigation
The Company, as of March 1, 1994, is a defendant or
third-party defendant in 189 asbestos lawsuits commenced in New
York state and federal courts. Since 1987, and as of March 1,
1994, the Company, along with many other parties, has been a
defendant or third-party defendant in a total of 439 such
asbestos lawsuits (including the 189 cases which are currently
pending).
The plaintiffs in these lawsuits typically allege that
they were injured by exposure to airborne asbestos fibers while
working at a Company job site, either as an employee of an
independent contractor or as an employee of the Company, when
asbestos-containing products were being installed, maintained,
renovated or removed. Typically, each plaintiff seeks
$10,000,000 in compensatory damages, plus punitive damages, from
all defendants.
Of the 439 cases that have been brought against the
Company, only 189 remain pending against the Company, as of March
1, 1994, as a result of the following developments: (1) the
Company negotiated voluntary dismissals in 22 cases and won
summary judgment dismissals in 9 cases; (2) 114 third-party
claims were extinguished with respect to the Company when the
third-party plaintiff, Owens-Corning Fiberglass ("OCF") settled
the cases with the plaintiffs; and (3) the Company settled 105
cases for an amount that in the aggregate is not material to the
Company's financial condition.
Four of the pending cases were commenced against the
Company and numerous other defendants in the United States
District Court for the Southern District of New York by
complaints dated March 26, 1991, June 13, 1991 and February 19,
1992. All four federal court plaintiffs allege to have been
injured by exposure to asbestos fibers while working as an
employee of an independent contractor at a Company facility. In
two of the cases, the Company was joined as a third-party
defendant by OCF. The third-party complaint alleges that the
Company is responsible to OCF for the amount of any recovery
obtained by the plaintiffs against OCF in each lawsuit. The two
remaining federal court plaintiffs each seek $10,500,000 in
compensatory damages, plus punitive damages.
One hundred eighty-five (185) cases are pending against
the Company in New York State Supreme Court, County of New York.
These cases were commenced against the Company and numerous other
defendants by complaints dated March 6, 1990, August 12, 1991,
October 21, 1991, December 12, 1991, January 3, 1992, May 11,
1992, May 21, 1992, July 10, 1992, August 24, 1992, October 5,
1992, October 6, 1992, October 27, 1992, December 21, 1992,
December 22, 1992, January 3, 1993, February 23, 1993, March 5,
1993, May 28, 1993, July 1, 1993, August 2, 1993, November 1,
1993, November 26, 1993, December 1, 1993, January 6, 1994,
January 12, 1994, January 24, 1994 and January 25, 1994. All of
these cases involve persons who were allegedly exposed to
asbestos fibers while working as employees of independent
contractors at Company facilities. One hundred seventy-seven
(177) of these plaintiffs seek $10,000,000 in compensatory
damages, plus punitive damages. Seven (7) plaintiffs seek
$10,500,000 in compensatory damages, plus punitive damages. One
(1) plaintiff seeks $27,000,000 in compensatory damages, plus
punitive damages.
In summary, as of March 1, 1994, the Company is a
defendant or third-party defendant in 189 asbestos lawsuits.
Although the Company is presently unable to assess the validity
of these 189 lawsuits, based on information known to the Company
at this time, including its experience in settling asbestos cases
and in obtaining dismissals of asbestos cases, the Company
believes that the costs to be incurred in connection with these
lawsuits will not have a material adverse effect on the Company's
financial position. However, if the Company were ultimately held
liable under these lawsuits and insurance coverage were not
available, the cost thereof could have a material adverse effect
(a reasonable estimate of which cannot be made at this time) on
the financial condition of the Company if the Company could not
recover all or a substantial portion thereof through rates.
Environmental Litigation
In December 1980, several utilities, including the
Company, three environmental groups and the NYSDEC, among others,
entered into an agreement ("Settlement Agreement") which relates
to compliance with environmental matters concerning the
operations of certain electric generating stations located along
the Hudson River, including the Roseton Plant. The Settlement
Agreement expired on May 9, 1991. Effective May 9, 1991, such
utilities and the NYSDEC entered into an interim agreement which
relates to certain environmental aspects of the operation of such
plants, pending future developments.
In September, 1991, Natural Resources Defense Council,
Inc., the Hudson River Fisherman's Association and Scenic Hudson,
Inc. commenced an action in the Supreme Court of the State of New
York, County of Albany, against the NYSDEC, Con Edison, PASNY,
Orange and Rockland Utilities, Inc. and the Company. This
lawsuit challenged, as arbitrary and capricious, an abuse of
discretion and a violation of lawful procedure, the determination
of the NYSDEC to enter into said interim agreement, alleging,
among other things, that it would result in less stringent
regulatory standards than set forth in the SPDES permits
applicable to, among others, the Roseton Plant, without regard to
the applicable SPDES permit modification procedures. The lawsuit
also sought a declaratory judgment that the existing SPDES
permits (which expired October 1, 1992) include all covenants
contained in the expired Settlement Agreement which restrict
operations at said plants, including the Roseton Plant.
On March 23, 1992, the Court approved an agreed-upon
Consent Order which resolved this action. Such Consent Order
provides for certain operating restrictions at the Roseton Plant
relating to the use of river water for plant cooling purposes,
which have not imposed, and are not expected to impose, material
additional costs on the Company. Such Consent Order remains in
effect until September 1, 1994 (originally due to expire on
September 1, 1993, but extended for one year by agreement by the
parties thereto, as approved by the Court on August 5, 1993), or
until renewal SPDES permits for said plants, including the
Roseton Plant, are finally effective, whichever first occurs.
For a description of the pending NYSDEC proceeding involving
renewal of the SPDES permit for the Roseton Plant (which expired
on October 1, 1992), see Item 1 above under the subcaption
"Environmental Quality - Water."
IBM Litigation
By complaint, dated July 28, 1988, the International
Business Machines Corporation ("IBM") commenced a lawsuit in the
Supreme Court of the State of New York, County of Dutchess,
against the Company and other unnamed defendants. IBM is the
largest electric customer of the Company (see in Item 1 above,
subcaption entitled "Generally"). In such complaint IBM alleges
that negligence, gross negligence and breach of contract on the
part of the defendants resulted in a power outage and electrical
loss on August 2, 1985, whereby IBM sustained damages in the
amount of $470,740. The Company filed its answer, denying
liability and cross complaint on September 26, 1988. Currently,
discovery is underway. The Company denies liability in this
matter; if, however, it were held to be so liable, the amount of
such damages would not have a material adverse effect on the
financial condition of the Company.
Catskill Incident
In November 1992, an explosion in a dwelling in the
Company's gas service territory in Catskill, New York resulted in
personal injuries, including the death of an occupant, and
property damage. The National Transportation Safety Board
("NTSB"), the Office of Pipeline Safety ("OPS," a part of the
Research and Special Program Administration of the U.S.
Department of Transportation) and the PSC investigated this
incident.
On January 27, 1993, the Staff of the PSC issued a
report which attributed the cause of this incident to the
Company's alleged violations of the PSC's gas safety regulations
and the Company's operating procedures. Based upon such report,
the PSC approved the commencement of a penalty proceeding against
the Company. The PSC Staff, based on its interpretation of the
New York Public Service Law, sought a penalty of up to
approximately $8.25 million.
The Company and the staff of the PSC reached an
Agreement in connection with the PSC's threatened penalty
proceeding arising out of such explosion, which Agreement expires
on December 31, 1998. The Agreement provides that the Company
will not pay any penalties or fines in connection with the
Catskill incident.
Under the terms of such Agreement, which was approved
by the PSC, by Order issued and effective January 7, 1994, the
Company has established a Quality Control Program to assure the
safe and efficient operation of the Company's Gas System.
The Company also will establish, under the Agreement,
an expanded training program, create four training centers and
implement an expanded program to evaluate and replace cast iron
and steel pipeline facilities. Shareholders will contribute the
following amounts under the Agreement: an aggregate of $500,000
in 1994 toward the cost of the pipeline replacement program and
the cost of the creation of the training centers; in each of 1995
and 1996, $500,000 toward the cost of such pipeline replacement
program; and in 1997 from $0 to $500,000 toward the cost of such
pipeline replacement program, depending on the Company's
completion of certain tasks by specified dates.
As a result of an investigation of the Catskill
incident conducted by the OPS pursuant to the Natural Gas
Pipeline Safety Act, the OPS issued a Notice of Proposed
Violation and Proposed Civil Penalty in December 1992. By Final
Order, issued December 2, 1993, the OPS found that the Company
failed to submit a telephonic report of the Catskill incident to
the DOT at the earliest practicable moment following discovery of
such incident as required by applicable regulations. The Company
did notify the DOT of the Catskill incident by telephone
approximately nine hours and forty-five minutes after such
incident. The OPS assessed the Company a civil penalty of
$5,000, which the Company elected not to appeal.
The NTSB in its investigation of the Catskill incident,
by letter dated August 23, 1993, determined that the probable
cause of such incident was the Company's failure to follow its
procedures and the PSC's code for the immediate replacement of
exposed cast iron pipe. The NTSB also recommended that the
Company undertake a certain program to ensure continuity of
supervisory responsibility for the timely and effective
verification of the safety integrity of exposed cast iron pipe
and to identify and replace in a timely manner cast iron piping
systems that may threaten public safety. By letter, dated
October 22, 1993, the Company responded that it would undertake
such a program.
Two lawsuits have been commenced against the Company
alleging personal injuries and wrongful death arising out of such
incident as follows:
By complaint, dated February 2, 1994, Carl Fatzinger,
as executor of the estate of Mildred Fatzinger, and Virginia
Fatzinger commenced an action in the Supreme Court of the State
of New York, Greene County, against the Company and two other
defendants. The complaint alleges that Mildred and Virginia
Fatzinger were residents of the dwelling in which said explosion
occurred and that, as a result of said explosion, Mildred
Fatzinger was killed, Virginia Fatzinger received serious
personal injuries, and the Fatzingers suffered extensive damage
to their property. The complaint seeks an unspecified amount of
compensatory and punitive damages against the Company based on
theories of negligence, absolute liability and gross negligence.
By complaint, dated October 18, 1993 and filed in the
Supreme Court of the State of New York, Greene County, Frank
Reyes commenced an action against the Company for unspecified
personal injuries and property damage alleged to have been caused
by said explosion. Mr. Reyes was a nearby resident at the time
of said explosion. The complaint seeks $2,000,000 in
compensatory damages and $2,000,000 in punitive damages from the
Company, based on theories of negligence and gross negligence,
respectively.
The Company is investigating these claims and presently
has insufficient information on which to predict their outcome.
The Company believes that it has adequate insurance to cover any
compensatory damages that might be awarded. The Company's
insurance, however, does not extend to punitive damages. If
punitive damages were ultimately awarded in either or both of
these lawsuits, such award(s) could have a material adverse
effect on the financial condition of the Company if the Company
could not recover all or a substantial portion thereof through
rates. At this time the Company can make no prediction as to any
other litigation which may arise out of the Catskill incident.
Income Tax Assessments: Reference is made to the
subcaption "Tax Matters - Assessments" in Note 9 to the Company's
1993 Financial Statements, on page 67 of Exhibit 13, for a
discussion of the examination by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for 1987 and
1988, which subcaption is incorporated herein by reference. On
or about March 7, 1994, the Company received letters from the
IRS, arising out of this examination, proposing net increases in
the Company's federal tax liability of approximately $16 million.
Such letters do not represent a notice of deficiency from the
IRS, and the Company has received no notice of deficiency regard-
ing these taxable years from the IRS. According to such letters,
the Company has the option of: (i) responding within 30 days from
the date of the letters to agree or disagree with the proposed
adjustments and request a conference with the Regional Office of
Appeals of the IRS, or (ii) seeking relief in the United States
Tax Court. The Company intends to respond (in either a 30-day
period or, pending the granting by the IRS of an extension, a 60-
day period) to these letters, challenge the proposed adjustments,
and request a conference with said Office of Appeals. The
Company can make no prediction at this time as to the ultimate
resolution of these proposed adjustments. However, the Company
believes that a significant portion of any final assessments
would be recovered in rates. And, the Company believes that the
amount of any final assessments, not recovered in rates, would
not have a material adverse effect on the financial condition of
the Company.
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matter was submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year covered by
this Report.
PART II
Item 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The information set forth under the subcaption "Common
Stock Dividends and Price Ranges" in Management's Discussion and
Analysis of Financial Condition and Results of Operations, on
page 29 of Exhibit 13 hereto, is incorporated herein by
reference.
Pursuant to applicable statutes and its Certificate of
Incorporation, the Company may pay dividends on shares of
Preferred and Common Stock only out of surplus.
The Company has an Automatic Dividend Reinvestment and
Stock Purchase Plan which permits holders of the Company's Common
Stock who elect to participate in such Plan to reinvest dividends
and also permits participants to make additional cash investments
in the Company's Common Stock. Shares can be acquired directly
from the Company or on the open market at the election of the
Company. For a complete description of said Plan, reference is
made to the Prospectus, dated January 5, 1993, which is part of
the Company's Registration Statement on Form S-3 (Registration
No. 33-56760), relating to 3,550,000 shares of Common Stock
registered under the Securities Act of 1933 ("1933 Act") for
issuance under said Plan.
The Company's Customer Stock Purchase Plan provides the
Company's residential customers and members of their families
residing with them who are residents of New York State with a
method of purchasing shares of the Company's Common Stock
directly from the Company. Shares can be acquired directly from
the Company or on the open market at the election of the Company.
For a complete description of said Plan, reference is made to the
Prospectus, dated January 5, 1993, which is part of the Company's
Registration Statement on Form S-3 (Registration No. 33-55764),
relating to 780,000 shares of Common Stock registered under the
1933 Act for issuance under said Plan.
The Company also maintains for its employees an
Employee Stock Purchase Plan, which provides for the purchase of
the Company's Common Stock on the open market.
Item 6 - SELECTED FINANCIAL DATA
The information required hereunder is incorporated
herein by reference to the material on pages 4 and 5 of Exhibit
13 hereto.
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required hereunder is incorporated
herein by reference to the material appearing on pages 6 through
29 of Exhibit 13 hereto.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements
The Company's 1993 Financial Statements, together with
the report thereon of Price Waterhouse, dated January 28, 1994,
appearing on pages 30 through 72 of Exhibit 13 hereto, are
incorporated by reference in this Annual Report on Form 10-K.
The Financial Statement Schedules incorporated by reference as
part of this Annual Report on Form 10-K should be read in
conjunction with the Company's 1993 Financial Statements.
Financial Statement Schedules not included with this Form 10-K
Annual Report have been omitted because they are not applicable
or the required information is shown in the Company's 1993
Financial Statements.
The Company's 1993 Financial Statements include the
accounts of the Company and its subsidiaries. All intercompany
balances and transactions have been eliminated. The Company's
subsidiaries are wholly-owned landholding, cogeneration and
energy management companies. Due to immateriality, the net
income of the Company's subsidiaries is reflected in the
Company's Consolidated Statement of Income as Other Non-operating
Income - net; such Consolidated Statement of Income is contained
on pages 36 and 37 of Exhibit 13 hereto.
(b) Supplementary Financial Information
The supplementary financial information specified by
Item 302 of Regulation S-K is found under the caption "Selected
Quarterly Financial Data (Unaudited)," of the Company's 1993
Financial Statements on page 73 of Exhibit 13 hereto, which
caption is incorporated herein by reference pursuant to Item 8
(a) above.
(c) Other Financial Statements and Schedules
Other financial statements and schedules required under
Regulation S-X are filed pursuant to Item 14 of this Report.
Item 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY
The information with respect to the Directors of the
Company required hereunder is incorporated by reference to the
caption "Election of Directors" in the Company's definitive proxy
statement, dated February 25, 1994, to be used in connection with
its Annual Meeting of Shareholders to be held on April 5, 1994,
which proxy statement has previously been submitted to the
Securities and Exchange Commission pursuant to that Commission's
Regulation S-T.
The information with respect to the executive officers
of the Company required hereunder is incorporated by reference to
Item 1 of this Report, under the caption "Executive Officers of
the Company."
Item 11 - EXECUTIVE COMPENSATION
The information required hereunder is incorporated by
reference to the caption "Executive Compensation" in the
Company's definitive proxy statement, dated February 25, 1994, to
be used in connection with its Annual Meeting of Shareholders to
be held on April 5, 1994.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required hereunder is incorporated by
reference to the caption "Security Ownership" in the Company's
definitive proxy statement, dated February 25, 1994, to be used
in connection with its Annual Meeting of Shareholders to be held
on April 5, 1994.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
There were no relationships or transactions of the type
required to be described by this Item.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1. Financial Statements
See subpart 1 of Index to Financial Statements on
page F-1 of this Report.
2. Financial Statement Schedules
See subpart 2 of Index to Financial Statements on
page F-1 of this Report.
3. Exhibits
Incorporated herein by reference to the Exhibit
Index beginning on page E-1 of this Report. Such Exhibits
include the following management contracts or compensatory plans
or arrangements required to be filed as an Exhibit pursuant to
Item 14(c) hereof:
Description in the Exhibit List and Exhibit Nos. for this Report
Directors' Deferred Compensation Plan, effective October 1,
1980. (Exhibit (10)(iii)(1))
Trust Agreement between Registrant and Dutchess Bank & Trust
Company, as trustee, dated as of January 1, 1984, pursuant
to Registrant's Savings Incentive Plan. (Exhibit
(10)(iii)(2))
First Amendment, dated December 31, 1990, to Trust Agreement
between Registrant and The Bank of New York, as successor
trustee, dated as of January 1, 1984, pursuant to
Registrant's Savings Incentive Plan. (Exhibit (10)(iii)(3))
Savings Incentive Plan of Registrant, as restated as of
January 1, 1987, together with Amendments thereto dated
September 23, 1988 and March 17, 1989, December 31, 1990,
January 14, 1991, October 25, 1991, December 11, 1992, July
23, 1993, September 24, 1993, December 17, 1993 and March 3,
1994. (Exhibits (10)(iii)(4, 5, 6, 7, 9, 12, 13, 14 and
16))
Executive Deferred Compensation Plan of the Company,
effective March 1, 1992 together with Amendment thereto
dated December 17, 1993. (Exhibits (10)(iii)(8 and 15))
Retirement Benefit Restoration Plan of the Company,
effective May 1, 1993, together with Amendment thereto dated
July 23, 1993. (Exhibits (10)(iii) (10 and 11))
Executive Incentive Compensation Plan of the Company,
effective January 1, 1993. (Exhibit (10)(iii)(17))
(b) Reports on Form 8-K
During the period October 1, 1993, to the date hereof,
the following Reports on Form 8-K were filed by the Company:
Report, dated October 8, 1993, reporting the issuance
on September 22, 1993, of the Recommended Decision of the PSC
Administrative Law Judge in the PSC proceeding relating to the
Company's request for increased gas and electric rates filed with
the PSC on November 12, 1992.
Report, dated January 5, 1994, reporting (i) the
issuance by the PSC, on December 16, 1993, of an Order
authorizing an increase in the Company's electric base rates and
denying the Company's request for increased base gas rates, all
with respect to the Company's request for increased gas and
electric rates filed with the PSC on November 12, 1992, and (ii)
the return to full service on December 20, 1993 of Unit No. 2 of
the Company's Roseton Electric Generating Station after repair of
damage to such Unit suffered on March 18, 1993.
Report, dated January 24, 1994, reporting (i) the
issuance of an Order of the PSC approving an agreement between
the Company and the Staff of the PSC relating to the PSC's
threatened penalty proceeding arising out of a November 1992
explosion in a dwelling in the Company's gas service territory in
Catskill, New York, (ii) the $5,000 fine assessed by the Office
of Pipeline Safety due to this explosion incident and (iii) the
Company's response to the recommendation of the National
Transportation Safety Board with respect to this explosion
incident.
(c) Exhibits Required by Item 601 of Regulation S-K
Incorporated herein by reference to subpart (a)-3 of
Item 14, above.
(d) Financial Statement Schedules required by Regulation S-X
which are excluded from the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1993
Incorporated herein by reference to subpart 2 of Index
to Financial Statements on page F-1 of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Company has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CENTRAL HUDSON GAS & ELECTRIC
CORPORATION
By
(John E. Mack, III,
Chairman of the Board
and Chief Executive Officer)
Dated: 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 Company and in the capacities and on the
date indicated.
Signature Title Date
(a) Principal Executive
Officer or Officers:
(John E. Mack, III) Chairman of the Board
and Chief Executive
Officer March 25, 1994
(b) Principal Financial
Officer and Principal
Accounting Officer:
(John F. Drain) Vice President -
Finance and March 28, 1994
Controller
(c) Directors:
(L. Wallace Cross) Director March 25, 1994
SIGNATURES - (Continued)
Signature Title Date
(Jack Effron) Director March 25, 1994
(Richard H. Eyman) Director March 25, 1994
(Frances D. Fergusson) Director March 25, 1994
(Heinz K. Fridrich) Director March 25, 1994
(Edward F. X. Gallagher) Director March 25, 1994
(Paul J. Ganci) Director March 25, 1994
(Charles LaForge) Director March 25, 1994
(John E. Mack, III) Director March 25, 1994
(Howard C. St. John) Director March 25, 1994
(Edward P. Swyer) Director March 25, 1994
INDEX TO FINANCIAL STATEMENTS
CENTRAL HUDSON GAS & ELECTRIC CORPORATION
Page(s) in
Exhibit 13
of this Report*
1. Financial Statements
Report of Independent Accountants 30
Consolidated Statement of Retained 31
Earnings for the three years
ended December 31, 1993
Consolidated Balance Sheet at 32-35
December 31, 1993 and 1992
Consolidated Statement of Income for 36-37
the three years ended December 31, 1993
Consolidated Statement of Cash Flows for 38-39
the three years ended December 31, 1993
Notes to Consolidated Financial Statements 40-72
Selected Quarterly Financial Data (unaudited) 73
Page(s) in
Form 10-K
Report of Independent Accountants on F-2
Financial Statement Schedules
Consent of Independent Accountants F-2
2. The Financial Statement Schedules
for the Years 1991, 1992 and 1993
Schedule V - Utility Plant F-3 - F-8
Schedule VI - Accumulated Depreciation F-9 - F-14
and Amortization of
Utility Plant
Schedule VIII - Reserves F-15 - F-17
Schedule IX - Short-Term Borrowings F-18 - F-19
Schedule X - Supplementary Income F-20 - F-21
Statement Information
*Incorporated by reference to the indicated pages of Exhibit
13 to this Report.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Central Hudson Gas & Electric Corporation
Our audits of the consolidated financial statements
referred to in our report dated January 28, 1994 appearing on
page 30 of Exhibit 13 of this Annual Report on Form 10-K, (which
report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedules listed on page F-1 of
this Annual Report on Form 10-K. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE
New York, New York
January 28, 1994
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the
Prospectus constituting part of the Registration Statement, on
Form S-3 (Registration No. 33-56760), relating to Central Hudson
Gas & Electric Corporation's Automatic Dividend Reinvestment and
Stock Purchase Plan, (ii) the Prospectus constituting part of the
Registration Statement, on Form S-3 (Registration No. 33-55764),
relating to Central Hudson Gas & Electric Corporation's Customer
Stock Purchase Plan and (iii) the Prospectus constituting part of
the Registration Statement on Form S-3 (Registration No. 33-
46624), relating to certain debt securities of Central Hudson Gas
& Electric Corporation, of our report dated January 28, 1994
appearing on page 30 of Exhibit 13 to this Annual Report on Form
10-K. We also consent to the incorporation by reference therein
of our report on the Financial Statement Schedules, which appears
above.
PRICE WATERHOUSE
New York, New York
March 25, 1994
F-2