SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: September 22, 2000
Commission Exact name of registrant as specified in its charter State of I.R.S. Employer
File Number and principal office address and telephone number Incorporation I.D. Number
1-14514 Consolidated Edison, Inc. New York 13-3965100
4 Irving Place, New York, New York 10003
(212) 460-4600
1-1217 Consolidated Edison Company
of New York, Inc. New York 13-5009340
4 Irving Place, New York, New York 10003
(212) 460-4600
1-4315 Orange and Rockland Utilities, Inc. New York 13-1727729
One Blue Hill Plaza, Pearl River, New York 10965
(914) 352-6000
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
NEW YORK AGREEMENT
On October 2, 2000, Consolidated Edison, Inc. ("Con Edison"), Consolidated
Edison Company of New York, Inc. ("Con Edison of New York"), Orange and Rockland
Utilities, Inc. ("O&R") and Northeast Utilities entered into an agreement with
the staff of the New York State Public Service Commission ("PSC") and certain
other parties (the "Agreement").
The Agreement, which is subject to PSC approval, revises and extends the
electric rate plan provisions of the September 1997 restructuring agreement
pursuant to which Con Edison of New York has been implementing retail choice for
all its electric customers and has divested most of its electric generating
assets (the "1997 restructuring agreement") and addresses certain
divestiture-related issues.
For additional information about the 1997 restructuring agreement, see
"Regulatory Matters - Electric" in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") of Con Edison and Con
Edison of New York in Item 7 of the combined Con Edison, Con Edison of New York
and O&R Annual Report on Form 10-K for the year ended December 31, 1999 (the
"Form 10-K") and "Regulatory Matters" in the MD&A of Con Edison and Con Edison
of New York in Part I, Item 2 of the combined Con Edison, Con Edison of New York
and O&R Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2000 (the "Form 10-Q") (File Nos. 1-14514,1-1217 and 1-4315).
The Agreement also provides for the approval by the PSC of Con Edison's
acquisition of Northeast Utilities. For additional information about the merger,
see "Liquidity and Capital Resources - Northeast Utilities" in the MD&A of Con
Edison and Con Edison of New York in Item 7 of the Form 10-K, "Northeast
Utilities" in Con Edison's MD&A in Part I, Item 2 of the Form 10-Q and
"Connecticut Draft Decision" and "Merger Consideration," below.
The following summary of the material provisions of the Agreement is qualified
in its entirety by reference to the Agreement, a copy of which is filed as an
exhibit hereto.
The electric rate plan provisions of the Agreement, which cover the five-year
period ending March 2005, revise and extend the rate plan provisions of the 1997
restructuring agreement. The Agreement provides for Con Edison of New York to
reduce the distribution component of its electric rates by $170 million on an
annual basis, effective October 2000, and, in accordance with the 1997
restructuring agreement, to reduce the generation-related component of its
electric rates by $208.7 million on an annual basis, effective April 2001.
Following completion of Con Edison's acquisition of Northeast Utilities, Con
Edison of New York's electric rates would be further reduced by $18.5 million on
an annual basis to reflect approximately half of the net synergy savings
applicable to its electric operations that are expected to result from the
merger.
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In general, under the Agreement, Con Edison of New York's base electric
transmission and distribution rates will not otherwise be changed during the
five-year period ending March 2005 except (i) with respect to certain changes in
costs above anticipated annual levels resulting from legal or regulatory
requirements, inflation in excess of a 4 percent annual rate, property tax
changes and environmental cost increases or (ii) if the PSC determines that
circumstances have occurred which either threaten the company's economic
viability or ability to provide, or render the company's rate of return
unreasonable for the provision of, safe and adequate service.
The Agreement continues the rate provisions pursuant to which Con Edison of New
York recovers from its customers purchased power and fuel costs. The Agreement
does not address the New York State Attorney General's August 2000 petition to
the PSC regarding these rate provisions. See Con Edison of New York's Current
Report on Form 8-K, dated August 23, 2000 (File No. 1-1217). The Agreement
contains the recommendation that the PSC establish a proceeding to consider rate
measures that reduce the volatility of fuel and energy costs experienced during
months of peak usage, provided that such measures may neither be materially
inconsistent with the Agreement nor adversely impact Con Edison of New York's
financial integrity. For information about recovery of replacement power and
other costs relating to Con Edison of New York's Indian Point 2 nuclear
generating unit, see Note C to the Con Edison and Con Edison of New York
financial statements included in Part I, Item 1 of the Form 10-Q.
Under the Agreement, 50 percent of any earnings in each of the rate years ending
March 2002 through 2005 in excess of a specified rate of return on electric
common equity (12.9 percent for the rate year ending March 2002; 11.75 percent
for the other rate years, the "Earnings Sharing Level") will be retained for
shareholders and 50 percent will be applied for customer benefit through rate
reductions or as otherwise determined by the PSC. The rate of return calculation
will exclude certain items, including incentives, penalties and the synergy
savings from Con Edison's acquisition of Northeast Utilities that have been
allocated to the company's shareholders. For the rate year ending March 2004,
the calculation will reflect the amount, if any, by which the calculated rate of
return fell below the Earnings Sharing Level for the rate year ending March
2003; for the rate year ended March 2005, the calculation will reflect any
shortfall in the prior two rate years.
Under the Agreement's performance incentive mechanisms, the Earnings Sharing
Level for the rate years ending March 2003 through 2005 may be increased to 12
percent if certain customer service and reliability objectives are achieved. The
Agreement continues other incentive mechanisms, pursuant to which Con Edison of
New York could be required to pay up to $40 million annually in penalties if
certain threshold service and reliability objectives are not achieved.
The Agreement continues the stranded cost recovery provisions of the 1997
restructuring agreement, stating that Con Edison of New York "will be given a
reasonable opportunity to recover stranded and strandable costs remaining at
March 31, 2005, including a reasonable return on investments, under the
parameters and during the time periods set forth therein."
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The Agreement provides for the following disposition of the approximately $303.9
million estimated net gain on the sale by Con Edison of New York of most of its
electric generating assets: $192.3 million will be credited against electric
distribution plant balances; $103.8 million may be retained by the company to
offset a like amount of existing regulatory assets (including deferred power
contract termination costs, property tax increases and retail-choice customer
incentives), and the balance will be set aside as a partial funding source for
low-income ratepayer programs.
The Agreement also addresses Con Edison of New York's recovery of an
approximately $77 million regulatory asset representing incremental capacity
costs incurred to purchase capacity from the buyers of the generating assets it
sold. The Agreement provides for the company to amortize the asset to expense
against the shareholders' portion of any earnings above the Earnings Sharing
Levels and by March 2005 to charge to expense any remaining asset balance.
The Agreement provides for the approval of Con Edison's acquisition of Northeast
Utilities, indicates that the PSC should authorize the merger as being in the
public interest and allocates to New York customers approximately half of the
net synergy savings applicable to New York utility operations that are expected
to result from the merger over the ten-year period ending March 2011. To reflect
this allocation, following completion of the merger Con Edison of New York will
reduce its electric rates by $18.5 million (discussed above) and annually accrue
credits of about $3.4 million and $0.9 million, respectively, for its gas and
steam customers, and O&R will annually accrue credits of about $1.15 million and
$0.4 million, respectively, for its electric and gas customers. The Agreement
also amends the existing guidelines governing transactions among affiliates of
Con Edison of New York to reflect, to the extent necessary, the requirements of
the Public Utility Holding Company Act that will apply following the merger.
CONNECTICUT DRAFT DECISION
On September 22, 2000, the Connecticut Department of Public Utility Control
("DPUC") issued a draft decision imposing stringent conditions on its approval
of Con Edison's acquisition of Northeast Utilities. On September 29, 2000, Con
Edison and Northeast Utilities filed written exceptions to the draft decision,
in which they, among other things, object to the financial and other conditions
of the draft decision and suggest that if the draft decision is not
substantially changed the merger is likely not to happen. The DPUC's final
decision on the merger is scheduled for October 19, 2000.
MERGER CONSIDERATION
On September 27, 2000, the required Connecticut regulatory approval with respect
to the sale by subsidiaries of Northeast Utilities of interests in certain
nuclear facilities was received and, as a result, the merger consideration that
Con Edison will be required to pay to shareholders of Northeast Utilities under
the merger agreement is increased by $1.00 per share to $26.00 per share plus
$.0034 for every day after August 5, 2000 through the day prior to the closing
of the merger.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
10 Settlement Agreement, dated October 2, 2000, by and among Con
Edison, Con Edison of New York, O&R, Northeast Utilities, the
Staff of the New York State Public Service Commission and
certain other parties.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONSOLIDATED EDISON, INC.
CONSOLIDATED EDISON COMPANY
OF NEW YORK, INC.
ORANGE AND ROCKLAND UTILITIES, INC.
By: HYMAN SCHOENBLUM
Hyman Schoenblum
Vice President and Controller
DATE: October 4, 2000
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
CASE 00-M-0095 Joint Petition of Consolidated Edison, Inc. and
Northeast Utilities Regarding Merger and Stock
Acquisition.
CASE 96-E-0897 In the Matter of Consolidated
Edison Company of New York, Inc.'s Plans for
(1) Electric Rate Restructuring Pursuant to
Opinion No. 96-12; and (2) the Formation of
a Holding Company Pursuant to PSL, Sections
70, 108 and 110, and Certain Related
Transactions.
CASE 99-E-1020 Petition of Consolidated Edison Company of
New York, Inc. for Permission to Defer
Certain Capacity Costs Associated With the
Divestiture of Power Plants.
SETTLEMENT AGREEMENT
Dated: October 2, 2000
TABLE OF CONTENTS
Page
I. BACKGROUND TO SETTLEMENT AGREEMENT.............................1
II. RATE PLAN......................................................3
Rate and Revenue Levels...................................4
Applicability of Existing Rate Plan.......................7
Disposition of Stranded Costs............................11
Comprehensive Nature of This Agreement...................12
Reporting................................................12
Calculation and Deposition of Certain Earnings...........12
Divestiture Proceeds.....................................13
III. MERGER OF CONSOLIDATED EDISON, INC. AND NORTHEAST UTILITIES...15
Introduction.............................................15
Consummation of Merger Transactions......................15
Corporate Structure Provisions...........................16
Other Assurances.........................................17
Allocation Net Savings from Merger.......................18
Ownership of Generation by Nonregulated Affiliates.......21
IV. OTHER 1997 SETTLEMENT AGREEMENT PROVISIONS....................21
Case 94-E-0334 Rate Design Changes.......................21
Industrial Employment Growth.............................22
Low Income Rate Program..................................22
Tariffs Implementing the Agreement.......................22
Rate Design Flexibility..................................23
System Benefits Charge Program...........................23
Economic Development Rate Programs.......................23
NYPA.....................................................23
MSC/MAC..................................................24
Retail Access Program....................................25
Miscellaneous Tariff Changes.............................27
Business Incentive Rates.................................27
DC Service...............................................29
Additional Tariff Items..................................29
Mitigation of Market Price Spikes........................30
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V. PROVIDER OF LAST RESORT PILOT PROGRAM........................31
VI. MISCELLANEOUS PROVISIONS......................................33
Binding Effect...........................................33
Further Assurances.......................................33
Execution................................................33
APPENDIX A - Allocation of Rate Benefits
APPENDIX B - Divestiture Proceeds Applied to Deferred Items
APPENDIX C - Con Edison Corporate Structure Conditions
APPENDIX D - Customer Service Incentive Mechanism
APPENDIX E - Electric Service Reliability Performance Mechanism
APPENDIX F - Low Income Program
ii
STATE OF NEW YORK
PUBLIC SERVICE COMMISSION
CASE 00-M-0095 Joint Petition of Consolidated Edison, Inc. and
Northeast Utilities Regarding Merger and Stock
Acquisition.
CASE 96-E-0897 In the Matter of Consolidated Edison
Company of New York, Inc.'s Plans for (1) Electric
Rate Restructuring Pursuant to Opinion No. 96-12; and
(2) the Formation of a Holding Company Pursuant to
PSL, Sections 70, 108 and 110, and Certain Related
Transactions.
CASE 99-E-1020 Petition of Consolidated Edison Company of New York,
Inc. for Permission to Defer Certain Capacity Costs
Associated With the Divestiture of Power Plants.
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT ("Agreement") is made the 2nd day of October
2000, by and among Consolidated Edison, Inc. ("CEI"), Consolidated Edison
Company of New York, Inc. ("Con Edison" or the "Company"), Orange and Rockland
Utilities, Inc. ("Orange and Rockland" or "O&R") and Northeast Utilities ("NU"),
(CEI, Con Edison, Orange and Rockland and NU are collectively referred to herein
as the "Companies"), the Staff of the Department of Public Service ("Staff"),
and such other parties as have executed a signature page appended hereto
(collectively referred to herein as the "Signatory Parties").
I. BACKGROUND TO SETTLEMENT AGREEMENT
Case 00-M-0095 was established by the Public Service Commission (the
"Commission") to review the joint petition of Consolidated Edison, Inc. and
Northeast Utilities requesting review of a merger of the companies and related
actions. In Case 96-E-0897, Con Edison's Competitive Opportunities proceeding,
the Commission has considered various Con Edison electric rate and restructuring
matters, including the ratemaking and accounting issues relating to the proceeds
2
received by Con Edison from the divestiture of its electric generating units and
the issues relating to the various phases of Con Edison's retail access program.
The Commission instituted Case 99-E-1020 to address Con Edison's July 30, 1999
petition concerning over- and under-recoveries of divestiture-related capacity
costs incurred prior to commencement of a NYISO capacity market.
During collaborative discussions on the disposition of divestiture
proceeds and Phase 3 of the retail access program, Con Edison, Staff and other
interested parties explored the possibility of pursuing negotiations to settle
some or all of the issues presented in those proceedings as part of an overall
agreement that might also include an extension of Con Edison's electric rate
plan and various other terms of the Amended and Restated Agreement and
Settlement, dated September 19, 1997 (the "1997 Settlement Agreement"), adopted
by the Commission in Case 96-E-0897,1 as well as achieve a negotiated resolution
of the issues relating to the merger of Consolidated Edison, Inc. and Northeast
Utilities.
In accordance with the Commission's rules, all parties to this
proceeding were notified in writing of the pendency of settlement negotiations,
prior to the commencement of negotiations, and notice of the impending
negotiations was served on all parties and was duly filed with the Secretary of
the Commission by letter dated April 10, 2000.
Negotiations commenced at an in-person settlement conference held by
the parties on May 19, 2000. Additional settlement conferences were held weekly
or bi-weekly in the months of June 2000 through September 2000. The Signatory
Parties believe that this Agreement is in the public
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1 The terms of the 1997 Settlement Agreement were adopted, with modifications,
by the Commission in Cases 96-E-0897 and 96-E-0916, Order Adopting Terms of
Settlement Subject to Conditions and Understandings, issued September 23, 1997;
Confirming Order, issued October 1, 1997; and Opinion No. 97-16, Opinion and
Order Adopting Terms of Settlement Agreement Subject to Conditions and
Understandings, issued November 3, 1997 ("Rate/Restructuring Orders").
3
interest and submit this Agreement to the Commission along with a request that
the Commission expeditiously adopt the terms of this Agreement as set forth
herein.
II. RATE PLAN
1. The existing rate plan embodied in the Rate/Restructuring Orders
will be revised and extended, and will encompass the five-year period beginning
April 1, 2000 and ending March 31, 2005. The first year of the revised plan
("RY4") is the twelve months ending March 31, 2001. The second rate year ("RY5")
is the twelve months ending March 31, 2002. The third rate year ("RY6") is the
twelve months ending March 31, 2003. The fourth rate year ("RY7") is the twelve
months ending March 31, 2004. The fifth rate year ("RY8") is the twelve months
ending March 31, 2005.2 The revised rate plan also establishes certain
principles for its continuation beyond RY8.
2. This rate plan covers Con Edison's rates and charges for retail
electric sales and for electric delivery services. As currently effective, Con
Edison's rates and charges for electric service are contained in Con Edison's
(i) Schedule for Electricity Service, PSC No. 9 - Electricity (this rate
schedule and successors thereto, which are applicable to full service customers,
are referred to herein as "PSC No. 9" or the "PSC No. 9 Rate Schedule"); (ii)
Schedule for Retail Access, PSC No. 2 - Retail Access (this rate schedule and
successors thereto, which are applicable to retail access customers, are
referred to herein as "PSC No. 2" or the "PSC No. 2 Rate Schedule"); (iii) PASNY
No. 4 (FERC No. 96) Delivery Service Rate Schedule Implementing and Part of the
Service Agreement between the Power Authority of the State of
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2 The first three years of the existing rate plan, the twelve months ending
March 31, 1998 ("RY1"), March 31, 1999 ("RY2"), and March 31, 2000 ("RY3") are
not affected by the revised rate plan.
4
New York (PASNY) and the Consolidated Edison Company of New York, Inc. (the
Company), dated March 10, 1989, for the delivery by the Company of Power and
Associated Energy to Authority Public Customers (this rate schedule and
successors thereto are referred to herein as "PASNY No. 4" or the "PASNY No. 4
Rate Schedule"); and (iv) Economic Development Delivery Service No. 2 (FERC Nos.
92 and 96) Economic Development Delivery Service Rate Schedule Implementing and
Part of: (a) the "Service Agreement for the Delivery of Power and Energy"
between the Power Authority of the State of New York ("PASNY") and the
Consolidated Edison Company of New York, Inc. ("the Company"), dated March 10,
1989, for the Delivery by the Company of Power and Associated Energy to
Authority Economic Development Customers; (b) the "Agreement for the Delivery of
Power and Energy from the James A. FitzPatrick Power Project" between the County
of Westchester, acting through the Westchester Public Utility Service Agency and
the Company, made April 24, 1987; and (c) the "Agreement between the City of New
York and Consolidated Edison Company of New York, Inc. for the Delivery of Power
and Energy from the James A. FitzPatrick Nuclear Power Project" between the City
of New York, acting through the New York Public Utility Service and the Company,
made October 23, 1987 (this rate schedule and successors thereto are referred to
herein as "EDDS" or the "EDDS Rate Schedule").
Rate and Revenue Levels
3. The revised rate plan: (i) preserves and makes permanent the rate
reductions that were scheduled to be provided for RY5 under the
Rate/Restructuring Orders; (ii) further reduces rates and, therefore, the
revenues that Con Edison will receive in RY4 and RY5, compared to the levels it
would have received had the existing rate plan remained in effect, and continues
those
5
reduced rate levels through RY8; (iii) provides further short-term and long-term
rate reductions through application of the remaining net divestiture proceeds
that have not yet been applied for the benefit of consumers; (iv) allocates in a
reasonable manner the expected synergy savings resulting from the CEI/NU merger
and provides reasonable reductions and credits to all consumers of Con Edison
and Orange and Rockland; and (v) expands and strengthens the framework for the
transition to competition established in the Rate/Restructuring Orders.
4. Following Commission approval of this Agreement, the Company will reduce
electric distribution rates by $170 million on an annual basis effective no
earlier than October 1, 2000. The rate change will be effectuated as soon as
practicable after issuance of the approval order by the Commission. The amount
of rate reductions associated with the period from the first day of the month
preceding the month in which this Agreement is approved (but no earlier than
October 1, 2000) until the effective date of the rate reduction will be deferred
on the Company's books and set aside for customers' benefit.3
5. Electric rates will be further reduced in accordance with Section III
hereof to reflect synergy savings from the CEI/NU merger.
6. The rate reductions scheduled for RY5 under the existing rate plan will
be implemented as set forth in Sections II.5 and II.13(i) of the 1997 Settlement
Agreement. The $170 million rate reduction and the rate reductions set forth in
Section III hereof will be applied to the Company's PSC No. 9, PSC No. 2, PASNY
No. 4 and EDDS Rate Schedules based on the classes' respective contributions to
transmission and distribution revenues and further allocated among classes of
customers served under the Company's PSC No. 9 and PSC No. 2 Rate
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3 For example, if the Commission were to approve this Agreement on November 15,
2000, and the rate change could be effectuated on December 1, 2000, the amount
of the rate reductions associated with the period October 1 to November 30, 2000
would be deferred for customers' benefit.
6
Schedules based on their respective contribution to total distribution revenues
under the PSC No. 9 and PSC No. 2 Rate Schedules. Rate reductions will be
applied to the distribution component of rates.
7. Rates for all service classes in the PSC No. 9 rate schedule will be
reduced under the revised rate plan. The allocation of these rate benefits to
the affected customers is set forth in Appendix A hereto.
8. The rate benefits reflected in Appendix A may be increased during the
period covered by the revised rate plan. Additional benefits can be derived
from, among other things, the implementation of recent utility tax reform in New
York, from net gains from further sales of generating plants and other utility
property no longer required for utility use, from certain existing ratepayer
credits recorded on the Company's books, from other revenues such as property
tax refunds and from the efficiency benefits of a properly functioning
competitive electricity market. Legislation has recently been enacted to reform
the method of utility taxation in New York State from a gross revenue-based
method to an income-based method.4 Savings resulting from such legislation and
further tax reform savings, if achieved, will benefit ratepayers. While it is
difficult to predict the extent of the efficiency savings that will be produced
by competition, those savings ultimately achieved should generally accrue to
all.
9. Other than as provided in the Rate/Restructuring Orders and in this
Agreement, the base transmission and distribution rates established in the
Company's PSC No. 9, PSC No. 2, PASNY No. 4, and EDDS Rate Schedules for RY4
through RY8 in compliance with the Commission order approving this Agreement
will neither be increased nor decreased prior to
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4 Chapter 63 of the Laws of 2000.
7
April 1, 2005. The Company's "base transmission and distribution rates" do not
include a fuel adjustment, Market Supply Charge, or Monthly Adjustment Clause
(covering various production-related costs), the Statement of Percentage
Increase in Rates and Charges (covering revenue and similar taxes), the
Statement of Case 96-E-0897 Adjustments (Paragraph II.12(vi) herein) and any
system benefits charge (Section II.26 of the 1997 Settlement Agreement and
Paragraph IV.6 herein). It is understood that the rate reductions provided
herein are contingent upon continued recovery by the Company of all
prudently-incurred costs, including embedded costs of retained generation,
currently reflected in the Company's Monthly Adjustment Clause, except as such
costs may be adjusted for scheduled RY5 rate reductions, for cost reductions
resulting from future sales of generation facilities and from post-RY5
restructuring and/or buyouts of power purchase contracts with non-utility
generators ("NUGs"), for disallowance of imprudently-incurred replacement costs
relating to Indian Point 2 (as set forth more fully in Paragraph IV.9 of this
Agreement) and for reallocation of steam-related costs to steam customers
pursuant to a Commission determination in Case 99-S-1621. Nothing herein is
intended to address recovery of such steam-related costs in electric rates
beyond RY5. The revised rate plan precludes the Company from increasing rates
due to increased costs or lower sales levels prior to April 1, 2005, except as
provided in Paragraphs II.12 and II.13 of this Agreement.
Applicability of Existing Rate Plan
10. Con Edison's current electric rates are governed by the
Rate/Restructuring Orders. The fourth year in the current rate plan is the
twelve months ending March 31, 2001 and the fifth year is the twelve months
ending March 31, 2002. Therefore, the fourth and fifth rate years of the
existing rate plan cover the same twenty-four months as the first and second
rate years of the
8
revised rate plan. The parties agree that, in light of the revised rate plan,
the provisions of the current rate plan prescribing overall electric revenue
levels for Con Edison for the twelve months ended March 31, 2001 and March 31,
2002, will be amended by this Agreement.
11. Except as modified below, the applicable provisions of Sections II.9
through II.18 of the 1997 Settlement Agreement will remain in effect through RY8
(and, where applicable, thereafter), and are incorporated into this Agreement.
12. Sections II.9 and II.10 of the 1997 Settlement Agreement are
incorporated herein without modification. Section II.11 of the 1997 Settlement
Agreement is deleted and replaced as follows: The Company's PSC No. 9, PSC No.
2, PASNY No. 4, and EDDS base electric rates are subject to adjustment prior to
March 31, 2005 for the following:
(i) If any law, rule, regulation, order, or other requirement or interpretation
(or any repeal or amendment of an existing rule, regulation, order or other
requirement) of a state, local or federal government body (including a
requirement or interpretation resulting in Con Edison's refunding its
tax-exempt debt and including income or other state, local and federal tax
and state, local and federal fees and levies but excluding local property
tax), results in a change in Con Edison's annual electric utility costs,
compared to the levels in the year 1999, in excess of $7.5 million in any
year, Con Edison will defer on its books of account the total effect of all
such annual cost changes in excess of $7.5 million, with any such deferrals
to be reflected in rates as set forth in this paragraph.
(ii) Con Edison's total local property taxes are estimated to be $529.2 million
in RY4, $545.2 million in RY5, $554.2 million in RY6, $573.6 million in
RY7, and $593.7 million in RY8. These rate-year estimates will be adjusted
for the purposes of this subparagraph solely to reflect reductions in
property taxes actually experienced due to the retirement, sale or transfer
of generating units, the sale of potential generating sites authorized in
the Commission's May 3, 1999 order in Case 96-E-0897, and the sale of
parcels
9
adjoining the Waterside Generating Plant or any other property
having a market value of more than $10 million (and the timing of such
sales and transfers compared with the estimates). Con Edison will defer on
its books of account the full amount of its actual total property taxes
above these estimated total levels (as adjusted as per the preceding
sentence), with any such deferrals to be reflected in rates as set forth in
Paragraph II.12(vi) of this Agreement. Any decrease in actual total
property taxes below these total estimated levels will be deferred for the
benefit of ratepayers as determined by the Commission. The foregoing
excludes the effects of property tax refunds. Eighty-six percent of any
property-tax refund received by the Company in the RY4 through RY8 period
will be deferred for the benefit of customers; the remaining 14 percent
will be retained by the Company.
The deferral, recovery and retention of property taxes set forth above
shall be subject to an annual showing by the Company to the Staff of the
ongoing efforts to reduce its property tax burden.
(iii)Con Edison will defer on its books of account and reflect in rates as
prescribed by this paragraph the following environmental costs: (i) site
investigation and remediation ("SIR") costs for electric operations in
excess of $5 million annually (SIR costs are the costs Con Edison incurs to
investigate, remediate, or pay damages (including natural resource damages
but excluding personal injury damages) with respect to industrial and
hazardous waste or contamination, spills, discharges and emissions for
which Con Edison is responsible. SIR costs do not include fines, penalties,
punitive damages, and imprudence disallowances by the Commission); and (ii)
environmental compliance, prevention and improvement costs (excluding SIR
costs) in excess of $10 million in annual revenue requirement (i.e.,
expenses plus carrying charges on capital additions not reflected in the
Company's 1999-2004 capital forecast) (these costs are the costs of
complying with legislative, regulatory, judicial or other government rules
or policies, including consent decrees, related to the environment, and the
costs of proactive environmental initiatives not required by law,
undertaken either by the Company alone or in conjunction with others to
improve the environment). Any
10
costs deferred under this subparagraph will be net of recoveries of these
costs under insurance policies or from third parties.
(iv) If in any rate year covered by the rate plan, the GDP Implicit Price
Deflator (exclusive of energy costs) as measured by Blue Chip Economic
Indicators increases by an amount greater than four percent, Con Edison
will, in such rate year, defer on its books of account an amount equal to
the product of the actual experienced percentage increase above 4 percent
times the escalation base in effect for that rate year, with such deferred
amount to be reflected in rates as set forth in this paragraph; provided,
however, that any such deferrals will be limited to the amount by which the
Company's actual expenses for that rate year exceed the escalation base
assumed for that rate year. The escalation base in RY4 will be $1,025
million; the escalation base in RY5 through RY8 will be the escalation base
in RY4 increased by the actual percentage increase in the GDP Implicit
Price Deflator in the succeeding rate year or rate years, except that the
escalation base will be reduced to reflect reductions in operations and
maintenance production expenses due to the retirement, sale or transfer of
generating units. Expenses deferred under this subparagraph will be
deferred in each succeeding year through RY8 but such succeeding deferrals
will be netted against the amount by which escalation in a succeeding or
preceding rate year falls below four percent multiplied by the escalation
base for that year. If the GDP Implicit Price Deflator is no longer
published or is re-constituted so as to make it unusable, a suitable
alternative means of inflation measurement will be determined by the
Commission.
(v) Deferrals of extraordinary expenses, including extraordinary operating and
maintenance or capital costs, not covered by subparagraphs (i) through (iv)
above, will be on petition to the Commission and subject to such
materiality and other standards as may then apply.
(vi) Unless the Commission specifies otherwise, amounts deferred on Con Edison's
books of account prior to RY6 under this Agreement, as well as under the
1997 Settlement Agreement as amended herein, whether they are credits or
debits, will be reflected in rates through rate adjustments to be
implemented in RY6 of the rate plan. Deferred debits or credits remaining
on
11
the Company's books after RY8 will be reflected in rates set after March
31, 2005 in a manner to be determined by the Commission. Interest will be
applied to all deferred debits and credits at the Commission-determined
unadjusted customer deposit rate. Any rate adjustment effective under this
paragraph may be implemented pursuant to the "Statement of Case 96-E-0897
Adjustments" under the Company's rate schedules. Such rate adjustments will
be based on each class' relative contribution to electric distribution
revenues; generation-related costs will not be allocated to the PASNY No. 9
and EDDS Rate Schedules.
13. Section II.12 of the 1997 Settlement Agreement is deleted and replaced
as follows:
If a circumstance occurs which, in the judgment of the Commission, so
threatens the Company's economic viability or ability to maintain safe a nd
adequate service as to warrant an exception to this undertaking, Con Edison
shall be permitted to file for an increase in base electricity rates at any time
under such circumstances. Con Edison may seek a general rate increase should its
forecast return on common equity fall below 8 percent.
The parties recognize that the Commission reserves the authority to act on
the level of Con Edison's base electricity rates pursuant to the provisions of
the Public Service Law should it determine that intervening circumstances have
such a substantial impact upon the range of Con Edison's earnings levels or
equity costs envisioned by this Agreement as to render the Company's electric
rates unjust or unreasonable for the provision of safe and adequate service.
12
Disposition of Stranded Costs
14. Section II.13 of the 1997 Settlement Agreement is amended by
deleting Paragraph 13 (iii) thereof.
15. Section II.14 of the 1997 Settlement Agreement is incorporated
herein without modification.
16. Section II.15 of the 1997 Settlement Agreement is incorporated
herein without modification, but is clarified to provide that Con Edison will
be given a reasonable opportunity to recover stranded and strandable costs
remaining at March 31, 2005, including a reasonable return on investments,
under the parameters and during the time periods set forth therein.
Comprehensive Nature of This Agreement
17. Section II.16 of the 1997 Settlement Agreement is incorporated
herein without modification, but is clarified to provide that the revised rate
plan under this Agreement is intended as a comprehensive resolution of the
Company's revenue requirement through RY8.
Reporting
18. Section II.17 of the 1997 Settlement Agreement is modified
as follows:
The Company will report to the Commission Staff, and to other parties requesting
such reports, no later than 90 days after the close of RY5 through RY8, the
utility common equity earnings and supporting computations for the preceding
rate year.
Calculation and Disposition of Certain Earnings
19. Section II.18 of the 1997 Settlement Agreement is deleted and
replaced as follows:
The Company will calculate its rate of return on common equity
capital following RY5 through RY8. The Company will allocate
the revenue equivalent of its earnings in excess of 12.9
percent for RY5 and in excess of 11.75 percent for RY6 through
RY8 as
13
follows: 50 percent will be retained by the investors;
50 percent will be applied to the benefit of utility customers
through rate reductions or as otherwise determined by the
Commission. The earnings for any rate year will be calculated
on a per books basis excluding the effects of (i) Company
incentives including, but not limited to, incentives
prescribed by Paragraph II.12(ii) (property tax refund
incentives) and Paragraph II.15 (NUG cost mitigation
incentives) herein; merger synergy savings allocated to
shareholders; incentives provided under the Company's MAC as
may be amended from time to time; and the retention of $50
million in accordance with Section II.13(v) of the 1997
Settlement Agreement, and (ii) Commission disallowances of
costs directly resulting from imprudence, penalties assessed
against the Company by governmental agencies, payments
incurred pursuant to Appendices D and E hereof and write-offs
relating to pre-ISO capacity costs pursuant to Paragraph II.21
herein. In calculating earned return for RY7 and RY8 to
determine if sharing is to be implemented, the Company will
include amounts by which its earnings fell below the sharing
targets (excluding the effects of incentives) in the preceding
rate year or two rate years (i.e., the preceding year for RY7
and the preceding two rate years for RY8).
20. As set forth in Appendices D and E, the sharing thresholds for RY6
through RY8 set forth in the preceding paragraph are subject to a maximum upward
adjustment of 25 basis points (0.25 percent) based upon superior operating
performance achievements.
Divestiture Proceeds
21. The net after-tax gain available to customers resulting from the
sale of certain fossil generating station bundles (Ravenswood, Arthur Kill,
Astoria and Bowline) is currently estimated to be $303.9 million. Customers will
receive the benefit of such gain in the following manner:
(i) $103.8 million ($159.7 million pre-tax) will be
applied as an offset to estimated existing deferred
debits (amounts owed the Company by customers) shown
on Appendix B hereto and, therefore, avoid the
otherwise required future rate increases.
14
(ii) $7.8 million ($12 million pre-tax) will be set aside
as a partial funding source for low-income ratepayer
programs.
(iii) The balance, $192.3 million, will be applied as a
credit to distribution plant balances resulting in an
immediate and long-term rate benefit. This amount is
subject to change as the underlying estimates are
replaced with actual information.
The Company will supply Staff with the accounting entries
necessary to effectuate the above provisions within 30 days of
approval of the Settlement.
The $303.9 million of estimated net gains is premised on the
following ratemaking principles:
o The Company will set aside $12 million to fund site
separation work on the divested plants. This amount will
be reconciled as actual expenditures are made with any
excess funding returned to ratepayers and all expenditures
in excess of the amount deferred for future collection as
determined by the Commission.
o $30 million of pension costs attributed to the voluntary
retirement program implemented because of divestiture
(VRISO) will be amortized over a 15 year period beginning
October 1, 2000.
o Claims for Injuries and Damages (including Workers
Compensation) associated with the divested plants will
continue to be recovered through Con Edison's electric
rates under the existing Commission practice of allowing
in rates the actual level of payments to recipients even
though the property where the injury occurred is
no longer owned by the Company and even if the Company no
longer operates generating plants and/or sells electric
energy. As the Company accounting practice is to expense
the total expected liability, the Company is authorized to
establish a regulatory asset for its reserve for Injuries
and Damages. Such regulatory asset will be drawn down as
payments are made and reflected in rates. This ratemaking
principle will not increase rates, but will provide a
matching between the expense recognition and rate
recovery for Injuries and Damages.
o Any subsequent change in the level of Federal, State or
local taxes that were assumed in the calculation of the
net gain will be deferred for the benefit of, or
collection from, ratepayers.
15
o However, any IRS ruling on the treatment of Investment Tax
Credits and excess deferred taxes will be assumed to be
effected in the revised rate plan.
o Effective upon Commission approval of this Agreement, Con
Edison withdraws, with prejudice, its Petition in Case
99-E-1020 relating to pre-ISO capacity costs associated
with divestiture. The Company will be permitted to recover
these pre-ISO costs through its share of excess earnings
during the rate plan. If sufficient excess earnings do not
materialize during the rate plan, the Company will
write-off any remaining balance so that there will be no
balance by the end of RY8. Such write-off will be excluded
from the determination of excess earnings under Paragraph
II.19 of this Agreement.
III. MERGER OF CONSOLIDATED EDISON, INC.
AND NORTHEAST UTILITIES
Introduction
1. This Agreement provides the framework for the business merger
("Merger") of CEI and NU - - in a holding company form to be effectuated by
CEI's acquisition of NU's common stock and a merger between NU and a subsidiary
of CEI, such that NU survives and becomes a wholly-owned subsidiary of CEI. The
Agreement provides for rate reductions or credits for all the electric, gas and
steam customers served by Con Edison and the electric and gas customers served
by Orange and Rockland (both are subsidiaries of CEI). Ultimately, the full
future synergistic effect of the Merger will be reflected in the cost of service
of Con Edison and Orange and Rockland, resulting in benefits to consumers that
would not have been available absent the Merger.
16
2. This Agreement also contains customer protections related to the
Merger. These protections include provisions on affiliate transactions and
standards of competitive conduct that govern the relationship among the utility
subsidiaries, the holding company, and other unregulated affiliates. In
addition, the Agreement contains explicit financial disincentives to Con Edison
if it fails to meet stipulated levels of customer service quality and electric
service reliability.
Consummation of Merger Transactions
3. Corporate Transactions. The Signatory Parties agree that CEI and NU
may consummate the Merger and that the Commission should authorize the Merger as
being in the public interest. To effect the Merger, CEI may acquire 100% of the
common shares of NU, and CEI will merge with its subsidiary, new Consolidated
Edison, Inc. ("New CEI"), such that New CEI will survive and ultimately become
the new parent holding company. New CEI's subsidiary, "N Acquisition LLC" will
merge into NU such that NU will survive and become a wholly-owned subsidiary of
New CEI. The authority granted to the Companies to consummate the Merger is
permissive in that nothing in this Agreement will require the Companies to
consummate the Merger.
4. Transfer of Assets. The Companies have not identified the need for
any transfer of assets, requiring Commission approval, to effectuate the Merger.
This Agreement will not be construed as authorization for any transfer of assets
otherwise requiring Commission approval. 5
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5 The Company expects to transfer at no cost office equipment, furniture and
other assets to the service company or companies established pursuant to the
Public Utility Holding Company Act of 1935, which will be considered "regulated"
affiliates or subsidiaries for purposes of the corporate structure conditions
set forth in Appendix C.
17
Corporate Structure Provisions
5. For Con Edison, corporate structure conditions were originally
established in the Rate/Restructuring Orders and, thereafter, were modified in
Case 98-M-0961, when the Commission approved the terms of the March 8, 1999
Settlement Agreement pertaining to CEI's acquisition of O&R. (See Appendix A to
O&R Merger Order, "Revised Con Edison Corporate Structure Conditions.")6 To
ensure that customers are adequately protected following the Merger, the
Signatory Parties agree that, upon consummation of the Merger, the "Revised Con
Edison Corporate Structure Conditions," set forth in the Settlement Agreement in
Case 98-M-0961, will be superseded by the corporate structure conditions set
forth and made a part of this Agreement in Appendix C hereto entitled, "Con
Edison Corporate Structure Conditions As Revised in Case 00-M-0095."
6. For O&R, corporate structure conditions were originally established
in Case 96-E-0900 when the Commission adopted the terms of the November 6, 1997
O&R competitive opportunities settlement entitled "Electric Rate and
Restructuring Plan"7 and, thereafter, were modified by the O&R Merger Order,
(see Appendix B to O&R Merger Order, "Revised O&R Standards Of Competitive
Conduct," and Appendix C to O&R Merger Order, "Revised O&R Affiliate Relations
Conditions"). CEI agrees that it will cause O&R to implement modifications to
the O&R corporate structure conditions, consistent with the revisions made to
the Con Edison corporate structure conditions that are set forth in Appendix C,
within 90 days following consummation of the Merger, with appropriate prior
notice to O&R's electric and gas customers and review by the Commission or its
Staff.
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6 Case 98-M-0961, Order Authorizing Merger, April 2, 1999 "(O&R Merger
Order").
18
Other Assurances
7. Customer Service. The Customer Service Incentive Mechanism, set
forth in Appendix D to this Agreement, will replace Con Edison's Service Quality
and Reliability incentive included in Appendix G to the 1997 Settlement
Agreement in order to provide enhanced incentives for the maintenance of
customer service levels. Con Edison's gas customer service incentive program and
Orange and Rockland's existing electric and gas customer service incentive
programs will not be modified by this Agreement.
8. Reliability. The Electric Service Reliability Performance Mechanism,
set forth in Appendix E to this Agreement, will replace Con Edison's Service
Quality and Reliability incentive included in Appendix G to the 1997 Settlement
Agreement in order to provide enhanced incentives for the maintenance of
electric service reliability levels. Con Edison's existing gas safety and
service reliability incentive program and Orange and Rockland's existing
electric reliability and gas safety and service reliability incentive programs
will not be modified by this Agreement.
9. Labor. (a) No Con Edison employees represented by Local 1-2 will be
transferred involuntarily out of New York during the term of this Agreement as a
result of the merger of Con Edison and Northeast Utilities. It is understood and
recognized that job functions may be moved to and from New England; however, Con
Edison employees represented by Local 1-2 would not be moved to New England
without the consent of the employee, Local 1-2 and Con Edison. If any
significant job functions currently being performed by Con Edison employees
represented by Local 1-2 are moved to a CEI service company, and a majority of
the Con Edison
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7 Case 96-E-0900, Order Adopting Terms of Settlement, November 26, 1997.
19
employees performing those functions become employed by that service company,
the service company will assume the applicable terms and conditions of the
collective bargaining agreement between Local 1-2 and Con Edison for the former
Con Edison employees performing those functions.
(b) Regarding any further divestiture of Con Edison's electric
generating plants, either fossil or nuclear, during the term of this Agreement,
Con Edison will require the buyer of any such generating plant to assume the
applicable terms and conditions of the collective bargaining agreement with
Local 1-2, UWUA in effect at the time of the sale and to make the same other
commitments relating to union-represented employees as the buyers of the fossil
electric generating plants were required to make in connection with their
purchases of those plants.
Allocation of Net Savings from Merger
10. The consolidation of similar functions and processes and other
savings opportunities as a result of the Merger will enable Con Edison and
Orange and Rockland to achieve net post-merger benefits for their customers
(after reflection of merger costs). Con Edison's and Orange and Rockland's
ratepayers will receive an allocation of the net synergy savings anticipated to
result from the Merger over the ten-year period of April 1, 2001 through March
31, 2011. The ratepayer share of the net savings will be in the form of
permanent rate reductions or credits, as set forth below, to be implemented
following consummation of the Merger. The rate reductions or credits will
reflect the annual impact of the ratepayer share of the present value of such
savings as are projected to inure to the benefit of utility operations of Con
Edison and Orange and Rockland.
20
11. Con Edison Rate Reductions and Credits to Ratepayers. Con Edison
will reduce rates for electric service in the amount of $18,480,000 on the later
of April 1, 2001 or the effective date of the Merger. As soon as practicable
after the effective date of the Merger, but no earlier than April 1, 2001, Con
Edison will make accruals on its books of account sufficient to result in
benefits to gas ratepayers totaling $3,422,000 annually. As soon as practicable
after the effective date of the Merger, but no earlier than April 1, 2001, Con
Edison will make accruals on its books of account sufficient to result in
credits for the benefit of steam ratepayers in the sum of $913,000 annually. The
credits to gas and steam ratepayers shall continue for a maximum period of ten
years or until such earlier time that gas and steam rates reflect the allocation
of such net savings benefits to ratepayers. Such credits will be available for
disposition by the Commission at such time and in such manner as shall be
determined by the Commission upon appropriate notice to Con Edison's gas and
steam consumers.
12. Orange and Rockland Credits to Ratepayers. As soon as practicable
after the effective date of the Merger, but no earlier than April 1, 2001,
Orange and Rockland will make accruals on its books of account sufficient to
result in credits for the benefit of electric ratepayers in the sum of
$1,151,000 annually. As soon as practicable after the effective date of the
Merger, but no earlier than April 1, 2001, Orange and Rockland will make
accruals on its books of account sufficient to result in benefits to gas
ratepayers totaling $377,000 annually. The credits to electric and gas
ratepayers shall continue for a maximum period of ten years or until such
earlier time that electric and gas rates reflect the allocation of such net
savings benefits to ratepayers. Such credits will be available for disposition
by the Commission at such time and in such manner
21
as shall be determined by the Commission upon appropriate notice to Orange and
Rockland's electric and gas customers.
13. Future Ratemaking Principles. In the event that new rate levels
designed to set overall revenues for Con Edison's gas or steam operations or
Orange and Rockland's electric or gas operations are established between January
1, 2001 and five years following the consummation of the Merger, the
shareholders' portion of the synergy savings will be recognized and imputed to
cost of service. The amount of such annual imputation will be $3,422,000 for Con
Edison gas operations; $913,000 for Con Edison steam operations; $1,151,000 for
Orange and Rockland's electric operations and $377,000 for Orange and Rockland's
gas operations. Such imputation will be premised on a showing by Con Edison or
Orange and Rockland that the applicable cost of service has been reduced by
achieved synergies of more than the projected synergies; otherwise, the
imputation will be limited to preserve the intent of this Agreement. Beyond five
years following consummation of the Merger, Con Edison or Orange and Rockland
may request continuation of the sharing formula described herein for all Con
Edison and O&R services (with the amount of the annual imputation for Con Edison
electric operations set at $18,480,000). In the event any earnings caps or
sharing mechanisms are in effect for Con Edison or Orange and Rockland during
the ten year period following the consummation of the Merger, the shareholders'
portion of the synergy savings recognized and imputed to cost of service, as
identified above, will be excluded from such calculations.
Ownership of Generation by Nonregulated Affiliates
14. The Signatory Parties recommend that the Commission's Statement of
Policy Regarding Vertical Market Power, issued July 17, 1998 in Cases 96-E-0900,
et al., be applicable
22
to any generating facilities, other than distributed generation units, to be
acquired or constructed in New York State by any unregulated affiliate of New
CEI.
15. New CEI will commission a market power study for unregulated
electric commodity services, encompassing the states with regulated affiliates
of New CEI, to be completed within two years of the Merger. The study, which
will be submitted to the Commission and served on the parties, will be performed
by an independent market power expert approved by the Commission's Staff. The
scope of the study will be developed in consultation with the Commission's
Staff.
IV. OTHER 1997 SETTLEMENT AGREEMENT PROVISIONS
Except as modified below, the applicable provisions in Sections II.19
through II.34 of the 1997 Settlement Agreement will remain in effect through RY8
(and, where applicable, thereafter), and are incorporated into this Agreement.
Case 94-E-0334 Rate Design Changes
1. Section II.19 of the 1997 Settlement Agreement is amended as
follows: For each year through RY8, the Company will file rates to increase the
customer charge applicable to Rate I of SC Nos. 1, 2, and 7 and Rate III of SC
No. 7 annually by $0.57 per month. To maintain revenue-neutrality, the increase
in revenues due to the customer charge increase will be deducted from the per
kWhr delivery charge for the affected service classification.
Industrial Employment Growth
2. Section II.22 of the 1997 Settlement Agreement is continued and
supplemented as follows: Beginning RY4 and continuing through RY8, the Company's
Industrial Employment
23
Growth Rate will continue to provide approximately the same level of rate
reductions provided to IEGC customers in RY4 prior to the rate reductions
provided by this Agreement. Beginning in RY5, the reduction will be applied to
the distribution portion of the bill. No new customers will be added to the
program beginning October 1, 2000. Any variations between actual revenue
shortfalls for the program and the revenue reduction level attributable to the
program per Section II.5 of the 1997 Settlement Agreement will be deferred and
reconciled through September 30, 2000.
Low Income Rate Program
3. Section II.23 of the 1997 Settlement Agreement is amended as
follows: Con Edison's electric low-income programs established in 94-E-0964 and
continued in the Settlement Agreements approved in Cases 96-E-0897 and 98-M-0961
will be supplemented and modified, as described in Appendix F.
Tariffs Implementing the Agreement
4. Section II.24 of the 1997 Settlement Agreement is deleted and
replaced as follows: Except as otherwise specified in this Agreement, tariff
changes required to implement the Agreement terms will be filed at least 30 days
prior to their proposed effective date and will be subject to review in
accordance with procedures generally applicable to compliance tariff filings.
Rate Design Flexibility
5. The provisions of Section II.25 of the 1997 Settlement Agreement
will continue through RY8, except that the Company will not propose during the
term of this Agreement to reallocate revenues among customer groups based on
changes in the cost of service.
24
System Benefits Charge Program
6. Section II.26 of the 1997 Settlement Agreement is continued and
supplemented as follows: Funding for the current system benefits charge ("SBC")
program through RY4 will continue as specified in Section II.26 of the 1997
Settlement Agreement, and Appendix B of the 1997 Settlement Agreement is
incorporated herein to the extent applicable. Funding of SBC programs in the
future will be determined by the Commission, with the full amount of SBC funding
in such period to be collected and recovered through a new, separate SBC charge.
Economic Development Rate Programs
7. Section II.28 of the 1997 Settlement Agreement is continued and
supplemented as follows: The Area Development Rate (ADR), Economic Development
Zones (EDZ), and Business Incentive Rate (BIR) rate programs will be adjusted to
provide customers enrolled in these programs on or before March 31, 2001 with
approximately the same level of bill reductions provided to these customers in
RY4 prior to the rate reductions provided by this Agreement. For customers that
commence receiving BIR rates on or after April 1, 2001, the level of bill
reductions will equal 75% of the above bill reductions. Beginning in RY5,
reductions will be applied to the distribution portion of the bill.
NYPA
8. Section II.31 of the 1997 Settlement Agreement is incorporated
herein with the following modification and clarifications: (a) reimbursement of
NYPA incremental costs for in-City capacity will continue to be made only with
respect to the period through RY5; (b) exemption from stranded generation costs
for PASNY No. 4 customers will continue to the extent that the weather-adjusted
contribution of the PASNY No. 4 customers to the franchise
25
area peak load does not exceed the peak load stated in Appendix E of the 1997
Settlement Agreement for each year specified; (c) the 185 MW cap on exemption
from stranded generation costs for EDDS customers will be increased by 50 MW
(i.e., the exemption will continue to the extent that the aggregate allocations
to the EDDS customers do not exceed 235 MW); provided, however, that 20 MW of
such 50 MW increase will be contingent upon an agreement by Con Edison and Visy
Paper (NY) to terminate their December 1995 Electric Service Contract (and Con
Edison agrees to enter into such an agreement) and the transfer of Visy Paper
(NY) to EDDS service; and (d) exemption of customers served under PASNY No. 4 as
of October 1, 1996 for stranded generation capacity costs will continue, subject
to the conditions set forth in the 1997 Settlement Agreement, irrespective of
the Con Edison tariff under which they receive service.8
MSC/MAC
9. Section II.32 of the 1997 Settlement Agreement is incorporated
herein to the extent applicable. Beginning May 1, 2000, the fuel adjustment
clause was replaced by the Market Supply Charge (MSC)/ Monthly Adjustment Clause
(MAC) mechanism (with modified incentive levels) as described in the Company's
applicable tariffs. Beginning in the first rate year after Indian Point 2 is
returned to service following replacement of the steam generators, the current
monthly incentive/penalty cap of $833,333 will be eliminated from the MAC, but
the $10 million annual sub-cap will be retained. The Company will continue to
recover at least through RY8 all prudently-incurred costs, including the
embedded costs of retained generation, currently reflected
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8 The term "transportation/delivery charge" as used in Section II.31 of the 1997
Settlement Agreement, as well as the term "transportation/delivery component" as
used in Sections II.29 and III therein, is equivalent to the MAC described in
the PSC No. 9 Rate Schedule, as may be amended from time to time.
26
in the MAC, with appropriate adjustments for the scheduled RY5 rate reductions,
for cost reductions resulting from future sales of generation facilities and
from post-RY5 mitigation of NUG costs through contract restructuring and/or
buyouts, and for reallocation of certain steam-related costs to steam rates
pursuant to a Commission determination in Case 99-S-1621;9 provided, however,
that such recoveries relating to Indian Point 2 replacement power costs may be
limited by a final, non-appealable decision in Consolidated Edison Company of
New York, Inc. v. George E. Pataki, et al. (USND, Civ. No. 00-CV-1230) or in PSC
Case No. 00-E-0612.
10. Sections II.33 and II.34 of the 1997 Settlement Agreement are
deleted.
Retail Access Program
11. Section III of the 1997 Settlement Agreement is incorporated herein
with the following modifications: The retail access program will be available to
all customers beginning November 1, 2000. By November 1, 2000, the Company will
file with the Commission and serve on parties to Case 96-E-0897 its Retail
Access Program-Phase 4 plan, applicable to the period commencing May 1, 2001,
and follow-up collaborative discussions will be held among interested parties.
As part of its Phase 4 plan, the Company will propose: (i) the continuation of
at least the current one-time incentive payment to all residential (SC 1 and 7)
and small commercial (SC 2) customers that switch for the first time to retail
access, and (ii) in lieu of the current 2 mill/kWh credit applicable to
demand-billed customers, crediting all existing and new retail access customers
for costs avoided by reduction or elimination of the merchant supply function,
e.g., avoided uncollectible costs associated with energy supply and avoided
costs associated with electric supply procurement functions. The level,
duration, eligibility, allocation and calculation of
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9 Nothing herein is intended to address recovery of such steam-related costs in
electric rates beyond RY5.
27
such incentive payment and credits will be subsequently determined by the
Commission following collaboration among the parties. Additional credits for
customers taking competitive metering or billing services will be applicable
when and as ordered by the Commission. Parties are free in the collaboration
process to present alternative views concerning the level, duration,
eligibility, allocation and calculation of the incentive payment or credits,
other matters pertaining to retail access, and implementation of Commission
determinations in other proceedings relating to retail access. The Signatory
Parties agree that the difference between credits provided to customers and the
Company's actual avoided costs for these functions, as well as incentive
payments made by the Company, should be deferred for later recovery even if such
costs are less than the threshold for recovery for the cost impact of other
regulatory changes set forth in Paragraph II.12(i) of this Agreement. The
parties will endeavor to reach a consensus agreement by January 5, 2001. If
agreement is not reached by January 20, 2001, the parties shall present their
positions to the Commission no later than February 10, 2001, which shall resolve
all contested issues. The parties shall have the right to conduct reasonable
discovery during the collaboration process.
12. Section IV (Divestiture) of the 1997 Settlement Agreement is
incorporated herein to the extent applicable.
13. Section V (Corporate Structure) of the 1997 Settlement
Agreement is deleted and replaced with Appendix C hereto.
14. Section VI (Restructuring-Related Actions) of the 1997
Settlement Agreement is incorporated herein to the extent applicable, including
the continuation of the provisions of Paragraph 3 thereof through RY8.
28
15. Section VII (Customer Education Program) of the 1997
Settlement Agreement is incorporated herein to the extent applicable.
Miscellaneous Tariff Changes
16. The provisions of Appendix A, Paragraphs 1-3, to the 1997
Settlement Agreement are incorporated herein to the extent applicable, but are
clarified to provide that:
(a) The phase-in of the minimum monthly charge for
demand-billed customers will continue, as specified in Paragraph 1 of Appendix
A, with full phase-in to be completed in RY5.
(b) As set forth in Paragraph 2 (iv) of Appendix A, the
Company will be permitted to file during the term of this Agreement for charges
for services, consistent with the principles of unbundling, cost-based rates,
avoidance of subsidies, and customer choice.
Business Incentive Rates
17. Appendix A, Paragraph 4, of the 1997 Settlement Agreement is
continued and supplemented effective April 1, 2001 as follows:
(a) The Company will increase the total allocation of power by
210 MW over the maximum amount already reflected in Rider J - Business Incentive
Rate ("BIR"). Of the MW to be added to the program, 50 MW will be allocated to
the "new and vacant program" and 160 MW will be allocated to the "comprehensive
program." Under the comprehensive program, 140 MW will be available for
allocations to businesses located in New York City and 20 MW will be available
for allocation to businesses located in Westchester County.
(b) Revenue shortfalls resulting from BIR allocations in
excess of 20 MW out of the 210 MW increment will be deferred and recovered per
Paragraph II.12(vi) of this
29
Agreement. Prior to such recovery, the Company will file with the Commission's
Staff, and provide copies to economic development administrators of BIR programs
("EDAs"), the basis for classifying BIR additions as "retention" load for the
purpose of determining such revenue shortfalls. Revenue shortfalls from the
first 20 MW of the 210 MW increment will not be recovered. Allocations to
businesses reflecting new electric loads and new jobs would be assumed not to
result in revenue shortfalls.
(c) The BIR program will not be available to retail
businesses, restaurants, and hotels, nor to energy intensive facilities that
generate relatively few additional jobs, such as web-hosting centers, data
control centers, and data switching stations. In addition, new BIR allocations
will provide a flexible term of three to ten years, plus a three to five year
phase-out. However, governmental EDAs will have the discretion to allocate BIR
to web-hosting and data control centers based upon factors other than the amount
of the anticipated electric demand if there are compelling reasons.
(d) EDAs are not precluded from petitioning the Commission,
with copies served on all parties to Case 96-E-0897, to increase their
allocation of BIR during the term of this Agreement based upon a showing that
(1) all BIR allocations available to the EDA have been depleted, (2) the EDA
requires a BIR allocation, and (3) the deferral and recovery by the Company of
the cost of such increased BIR, consistent with this Agreement, will not have a
material adverse impact on ratepayers.
(e) Of the 50 MW of additional BIR allocation provided to the
"new and vacant program," 8 MW will be reserved for not-for-profit institutions,
or affiliates of not-for-profit institutions, occupying newly constructed or
converted laboratory space contained within
30
newly-constructed buildings, additions to or renovations in existing buildings,
or buildings newly converted to laboratory space, that is solely or
predominantly used for Biomedical Research and/or occupied by Biotechnology
companies. Such BIR allocation will be made available upon a showing of expected
economic development benefits as a result of the provision of BIR over the long
term, including new jobs, and that National Institute of Health grants will not
contribute towards the cost of electric service covered by BIR. The Company will
file an amendment to its BIR tariff (Rider J) to the extent necessary to
implement this sub-paragraph (e).
DC Service
18. Appendix C of the 1997 Settlement Agreement is incorporated herein,
but is modified to further provide that the Company will continue to defer
amounts collected under DC rates, approved by the Commission in Case 96-E-0897,
for use in funding DC conversions. Within 90 days of the Commission's approval
of this Agreement, the Company will file modifications to Rider T, the DC
conversion incentive program, to extend the term of the program and to make
changes intended to simplify the conversion process.
Additional Tariff Items
19. Appendix D to the 1997 Settlement Agreement is deleted.
20 Appendix E to the 1997 Settlement Agreement is incorporated
herein without modification.
21. Appendix F to the 1997 Settlement Agreement is incorporated
herein to the extent it may be applicable in the future.
22. Appendix G to the 1997 Settlement Agreement is deleted and
replaced by Appendices D and E hereto.
31
23 Appendices H, I and K to the 1997 Settlement Agreement are
deleted.
24. Appendix J is incorporated herein without modification.
25. Within 120 days of the Commission's approval of this Agreement, the
Company will submit a proposal, with an opportunity for comment by interested
parties, to establish retail rates for service at 138 kV and above applicable to
customers taking service under SC 3 and SC 10, including customers taking
service under Special Provision A of these Service Classifications. The
Company's proposal may reflect its September 19, 1997 filing in Case 97-E-0251
(Proceeding to Distinguish Bulk Electric Transmission System from Local
Distribution Facilities). Any incremental revenues or shortfalls associated with
this new rate will be deferred.
26. Recent tax law changes will be implemented on a revenue-neutral
basis.
Mitigation of Market Price Spikes
27. The Signatory Parties acknowledge that fuel price increases and the
absence of a fully-competitive wholesale energy market may result in significant
price increases during peak period months. To address this concern, the
Signatory Parties recommend that the Commission establish a proceeding to
consider, among other things, a mechanism designed to ameliorate, where
feasible, sharp month-to-month or year-to-year increases in energy costs in peak
period months. Such mitigation measures, which may not materially modify the
provisions of this Agreement, could include mechanisms to smooth price spikes
through the allocation of ratepayer credits or through the establishment of a
"balancing fund" to enable a smoothing or ramping of such price spikes.
Signatory Parties are not hereby committed to support any specific measure.
Additional issues recommended by the Signatory Parties for consideration in the
proceeding include the need for new electric generating plants and/or
transmission facilities, programs to
32
increase consumers' ability to reduce demand in response to high energy prices,
the effect of the NYISO wholesale market prices on retail rates and possible
wholesale market mitigation measures, and the Company's statutory duty to
provide safe and adequate service at just and reasonable rates. The Signatory
Parties further recommend that any mitigation measures adopted by the
Commission, including deferred recovery, should be designed and implemented so
as not to threaten the development of retail competition in the provision of
electricity to end use consumers nor the Company's financial integrity. To
determine which measures would be most appropriate to achieve these objectives,
and to establish a process for an annual review of the effectiveness and
continued need for such measures, the Commission should establish a
collaborative process, with notice and opportunity for participation by all
interested parties, including parties to Case 96-E-0897, which will commence
within 30 days after the approval of this Agreement. A report describing the
results of this collaborative process should be submitted to the Commission in
sufficient time so that suitable measures may be implemented by the Commission
before the 2001 summer capability period.
V. PROVIDER OF LAST RESORT PILOT PROGRAM
1. Within 90 days of Commission approval of this Agreement, Con Edison
will submit a proposal for a Provider of Last Resort (POLR) Pilot Program. This
program will be designed to encourage participation in the Company's retail
choice programs, thereby reducing the extent of Con Edison's POLR obligations,
and to test alternatives to utility provision of some aspects of its POLR
responsibilities, including HEFPA. This proposal will be consistent with the
33
Transportation Corporations Law and the Public Service Law. The Company will
work with interested parties on a collaborative basis to refine the proposal.
2. The Company's proposal will include components that address the
merchant or wholesale energy procurement function and the customer service
function. The proposal will cover regulated electricity service and may also
cover regulated natural gas service.
The proposal will:
o initially apply, on a pilot basis, to up to 25,000
customers comprising a representative sample of
residential and smaller commercial customers in the
service territory and, assuming it is successful,
thereafter be phased in over a reasonable period to other
eligible customers;
o address the manner in which full protections for residential
ratepayers pursuant to HEFPA will be maintained;
o encourage new and relocating customers ("turn-ons") to participate in
the program, but the program would not be limited to
such customers;
o be designed to encourage and facilitate small and mid-size customer
participation in retail choice programs;
o permit customers to elect not to participate in the pilot program or to
return to CECONY "full service" (bundled service);
o require participating ESCOs to serve directly the
customers selected to participate in the program for a
minimum period, provided such customers do not become
subject to termination of service for non-payment during
that period;
o be designed so that more than one ESCO is participating in the pilot
program(s);
o include a customer education program to describe the program to
customers, including non-English speaking customers, in
advance of implementation; and
o include an evaluation process to determine whether the
program is successful and whether it should be continued,
modified or terminated.
VI. MISCELLANEOUS PROVISIONS
Binding Effect
1. It is the intent of the Signatory Parties that the provisions of
this Agreement be approved by the Commission as being in the public interest.
The Signatory Parties further agree that the terms and provisions of this
Agreement apply solely to and are binding only in the context of the purposes
and results of this Agreement. None of the terms or provisions of this Agreement
and none of the positions taken herein by any party may be referred to, cited,
or relied upon by any other party in any fashion as precedent or otherwise in
any other proceeding before this Commission or any other regulatory agency or
before any court of law for any purpose, except in furtherance of ensuring the
effectuation of the purposes and results of this Agreement.
2. It is understood that each provision of this Agreement is in
consideration and support of all the other provisions and expressly conditioned
upon acceptance by the Commission. If the Commission fails to adopt this
Agreement according to its terms, then the parties to the Agreement shall be
free to pursue their respective positions in this proceeding without prejudice.
Further Assurances
3. The Signatory Parties recognize that certain provisions of this
Agreement require that actions be taken in the future to effectuate fully this
Agreement. Accordingly, the Signatory Parties agree to cooperate with each other
in good faith in taking such actions.
Execution
4. This Agreement is being executed in counterpart originals, and shall
be binding on each Signatory Party when the counterparts have been executed.
34
Agreed to as of this 2nd day of October , 2000.
Staff of The Department of Public Service
-------------------------------
Consolidated Edison, Inc.
-------------------------------
Consolidated Edison Company of New York, Inc.
-------------------------------
Orange and Rockland Utilities, Inc.
---------------------------------
Northeast Utilities
-----------------------------------
(Signatures continued on the following pages)
/s/_______________________________
Association For Energy Affordability
/s/________________________________
Brooklyn Navy Yard Cogeneration Partners, L.P.
/s/_________________________________
City of New York
/s/__________________________________
Consolidated Edison Energy, Inc.
/s/___________________________________
Consolidated Edison Solutions, Inc.
/s/_____________________________________
Consumer Protection Board (NYS)
/s/_______________________________________
New York Energy Buyers Forum
/s/________________________________________
New York Power Authority
/s/_____________________________________
NYS Department of Economic Development
/s/______________________________________
Owners Committee on Electric Rates, Inc.
/s/_______________________________________
Public Utility Law Project
/s/_______________________________________
Small Customer Marketer Coalition
Appendix A
Allocation of Rate Benefits (incl. GRT)
($ millions)
% Cumulative Revenue
Customer Group RY 4 RY 5 [c] RY 5 [d] Total Reduction RY4-RY8 [e]
---------------------------------------------------------------------------------
(Annualized)
SC 4 Rate II and SC 9 Rate II $20.5 $2.2 $18.7 $175.9
(P.S.C. No. 9 & P.S.C. No. 2)
Est. % average distribution
bill reduction 6.8% 0.7% 6.2% 13.7%
All other [a] $132.0 $14.4 $190.0 $1,411.6
(P.S.C. No. 9 & P.S. C. No. 2)
Est. % average distribution
bill reduction 6.8% 0.7% 9.8% 17.3%
PASNY No. 4 $14.4 $1.6 $71.2
Economic Development Delivery $3.1 $0.3 $15.2
Service No. 2 [b]
Total Revenue Reductions $170.0 $18.5 $208.7 $1,673.9
[a] "All other" customer classes in P.S.C. No. 9 and P.S.C. No. 2 rate
schedules are Service Classification No. 1 (residential and
religious), 2 (general-small), 3 (back-up service), 4-Rates I and III
(commercial and industrial-redistribution), 5 (electric traction
systems), 6 (public and private street lighting), 7 (residential and
religious - heating), 8 (multiple dwelling-redistribution), 9 - Rates
I and III (general-large), 10 (supplementary service), 12 (multiple
dwelling-space heating) and 13 (bulk power-high tension-housing
developments).
[b] Includes Power for Jobs customers served under Rider Q of P.S.C. No. 9
who are billed Economic Development Delivery Service No. 2 rates.
[c] Electric rate reductions associated with Con Edison/Northeast
Utilities merger, effective on the later of April 1, 2001 or the
effective date of the merger.
[d] Scheduled reductions as set forth in Sections II.5 and II.13(i) of the
1997 Settlement Agreement.
[e] Cumulative revenue reductions include RY 4 reductions for 4.5 years
and RY 5 reductions for 4 years. This Agreement provides for
incremental revenue reductions of $1,465.2 million through RY8, over
and above the $208.7 million revenue reductions for RY5 committed
under the 1997 Settlement Agreement.
Appendix B
Consolidated Edison Company of New York, Inc.
Divestiture Proceeds
Applied to Deferred Items
(Thousands of Dollars)
Estimated Balance
At 10/1/00
Property Taxes $ 50,527
IPP Buyout 73,063
Phase 3 Retail Access Incentives 32,000
Environmental Liabilities 24,247
EPA/SO2 Allowances plus Interest (711)
Excess Earnings from RY2 (10,256)
O&R Merger
Merger Savings Deferred (7,766)
Westchester Aggregation (82)
Refrigeration Replacement Program (496)
POLR & Aggregation Studies (83)
Total
Rate Year 3 Increase (747)
Total Deferred Items - Net $ 159,696
===============
APPENDIX C
CON EDISON CORPORATE STRUCTURE CONDITIONS
AS REVISED IN CASE 00-M-0095
V. CORPORATE STRUCTURE 10
-------------------
1. Formation of Holding Company
(i) Consolidated Edison, Inc. is permitted to reorganize into a
new holding company form through the mechanism of a tax free
reorganization, after which Con Edison (referred to in this
Section as "the RegCo") will be a subsidiary of the new
holding company ("the HoldCo").11 It is expected that once the
pending merger with Northeast Utilities is consummated that
the HoldCo will become a registered holding company under the
Public Utility Holding Company Act of 1935 ("PUHCA") and will
be subject to the requirements of PUHCA and will establish
pursuant to Section 13 of PUHCA one or more service companies
to provide services to the HoldCo and its subsidiaries. The
HoldCo may form other subsidiaries from time to time. NUG
contracts that are not securitized would remain with the
RegCo.
(ii) The subsidiaries of the HoldCo other than the RegCo are
referred to collectively as the "subsidiaries" or
"affiliates." The HoldCo may also establish one or more
intermediate subsidiary holding companies to hold its Con
Edison common stock and the stock of its other subsidiaries,
provided the Commission's rights under this settlement
agreement are not impaired by such action. For the purpose of
the corporate structure conditions set forth in this Appendix
C, the service company or companies established pursuant to
PUHCA will be considered "regulated" affiliates or
subsidiaries.
2. Functional Unbundling
(i) Within the RegCo, the operations of its generating system,
including fuel and power purchases, will be functionally
unbundled from its transmission and distribution systems in a
"business unit" structure.
- --------
10 All cross references continue to be to the 1997 Amended and Restated
Agreement and Settlement ("1997 Settlement"). All defined terms (e.g., "RY")
continue to be those set forth in the 1997 Settlement.
11 In the other Sections of the 1997 Settlement, "Con Edison" and "the Company"
refer to the corporation existing as of the date of the 1997 Settlement and,
where the 1997 Settlement applies to periods after formation of CEI, to the
RegCo.
2
(ii) Pending formation of a service company or companies, common
services (including administrative, accounting, legal,
purchasing, etc.) will continue to be provided within the
RegCo to all of the RegCo business units.
(iii) The business unit structure contemplates realignment of
existing organizations along functional lines. The wholesale
electricity purchasing function for franchise area customers
was aligned with the purchase of fuel for fossil generation
within the generation organization. The transmission pricing
and planning functions were aligned within the transmission
organization, increasing the separation of the generation and
transmission functions. Future changes include realignment of
the transmission organization with the distribution
organization within the RegCo. Also the maintenance and
construction organization will be realigned to provide
functional separation between transmission and generation.
3. The RegCo
(i) At the inception of the holding company structure, the RegCo
will continue to own all generation, transmission, electric
and gas distribution and steam systems.
(ii) To the extent the RegCo continues to own generation assets or
NUG contracts, it would be permitted to make wholesale
electric energy sales outside its service territory, retail
and wholesale electric energy sales within its service
territory, and retail electric energy sales outside its
service territory until the RegCo has an unregulated affiliate
with all necessary approvals to make retail sales outside the
RegCo's service territory. The RegCo will be permitted to
provide service for the remaining terms of any contracts for
retail sales outside the service territory in effect on the
date the RegCo's authority to make additional sales otherwise
terminates or assign its rights and obligations, under one or
more of such contracts to its affiliates if permitted by the
contract(s).
(iii) The RegCo may also continue to provide certain services, i.e.,
advisory services and maintenance and repair shop services
provided by the Van Nest maintenance facility (until
transferred to an unregulated subsidiary), both within and
outside the service territory. After RY8, Van Nest, if still
owned by RegCo, may not provide any service that the RegCo
will stop providing pursuant to Section V.3(iv).
(iv) Through RY8, to the extent that the RegCo continues to have
sales customers, the RegCo would be permitted to provide
the full range of energy products and services to those sales
customers, including "behind the meter" products and
services, except for any behind the meter service that the
Commission determines generically that the utilities
should not provide, in which case the RegCo would
3
terminate any such existing service(s) by the later of the
date provided in the generic order or three (3) years from the
effective date of the order approving this settlement.
RegCo may, however, elect to provide only basic commodity
service and advise customers to seek energy-related
services from competitive energy service companies that offer
such products and services. After RY8, the RegCo
will, unless otherwise authorized by the Commission, not
provide any separately offered and separately priced
behind-the-meter gas or electric services that are available
from unregulated providers, except: (a) those services
that were part of its historical bundled service and (b) those
reasonably necessary to provide transmission and
distribution service (e.g., services necessary to ensure the
safety and adequacy of service; incidental
environmental work).
4. Affiliate Relations - In General
(i) The RegCo and the HoldCo's other subsidiaries will be operated
as separate entities. No unregulated affiliate will be located
in the same building as the RegCo beyond 180 days after its
formation. The RegCo, its regulated affiliates and the HoldCo
may occupy the same building.
(ii) Any transfer of assets or the provision of goods or services,
other than tariffed services and corporate services (such as
corporate governance, administrative, legal and accounting
services), by the RegCo to a subsidiary or a subsidiary to the
RegCo, will be pursuant to written contracts that will be
filed with the PSC within 30 days of the effective date of the
contract; provided, however, that any contract for the RegCo
to purchase from an unregulated affiliate electric energy or
gas for a term exceeding one year will be submitted to
Commission Staff a minimum of 10 days before the proposed
effective date. Upon notice from Staff before the proposed
effective date, the RegCo will postpone the effective date to
provide for a reasonable period to address Staff's concerns.
(iii) Cost allocation guidelines are set forth in Appendix D to the
O&R Merger Settlement.12 These guidelines will be
amended and/or supplemented, if necessary, to reflect
affiliate transactions not contemplated by the guidelines set
forth in such Appendix D. The rules set forth in this
Appendix C governing transfers of assets and personnel and
the provision of goods and services, and the associated cost
allocation guidelines, will be amended to reflect, to
the extent necessary, any cost allocation rules and guidelines
of the Securities and Exchange Commission under PUHCA
("SEC Rules") to which the HoldCo and any of its subsidiaries
are subject. The Company will file with the Director
of the Office of Accounting and
- --------
12 Case 98-M-0961, Order Authorizing Merger, April 2, 1999.
4
Finance of the Department of Public Service all amendments and
supplements to the guidelines thirty days prior to making
such change(s). If, pursuant to SEC Rules, "push down"
accounting is required for the acquisition premium, interest
expense or tax effects, the Company will eliminate the effect
of such entries for revenue requirement purposes and excess
earnings calculations.
5. Transfer of Assets
(i) Transfers of assets from the RegCo to an affiliate or from an
affiliate to the RegCo will not require prior Commission
approval except for the transfer of generating stations and
other assets from the RegCo whose transfer requires Commission
approval under PSL Sec. 70. It is within the discretion of the
Commission to evaluate all other asset transfers to ensure
compliance with these affiliate rules.
(ii) For all assets other than generating stations (whose value
will be determined in the section 70 proceeding), transfers of
assets from the RegCo to an unregulated affiliate shall be at
the higher of net book value or fair market value and
transfers of assets from an unregulated affiliate to the RegCo
shall be on a basis not to exceed fair market value except
that the RegCo may, as part of its reorganization, transfer to
CEI(at no charge) title to office furniture, equipment and
other assets having an aggregate net book value not to exceed
$5 million. Transfers between regulated affiliates shall be at
net book value.
(iii) Fair market value shall be determined in accordance with the
cost allocation guidelines (Appendix I to the 1997
Settlement). For example, the RegCo may transfer to an
affiliate any computer software system that the RegCo is
authorized to transfer, without data, at a price at which the
RegCo would sell such software to an unaffiliated third party.
(iv) In general, the transfer of generating assets will be
consistent with the divestiture plan.
6. Personnel
(i) The RegCo and the unregulated subsidiaries will have separate
operating employees. The RegCo and its regulated
affiliates may share operating employees.
(ii) Non-administrative operating officers of the RegCo will not be
operating officers of any of the unregulated subsidiaries.
5
(iii) Officers of the HoldCo may be officers of the RegCo and its
other regulated subsidiaries.
(iv) Employees may be transferred between the RegCo and a
subsidiary upon mutual agreement. Transferred employees to an
unregulated subsidiary may not be reemployed by the RegCo for
a minimum of 18 months from the transfer date. Employees
returning from an unregulated subsidiary to the RegCo may not
be transferred to an unregulated subsidiary for a minimum of
18 months from the date of return. The foregoing limitations
will not apply to employees covered by a collective bargaining
agreement.
(v) For employees transferred from the RegCo to an unregulated
subsidiary, the unregulated subsidiary shall compensate the
RegCo with an amount equal to 25 percent of the employee's
prior year's annual salary on a one-time basis, except that
there shall be no compensation (i) for employees transferred
to an unregulated subsidiary not later than six months from
the date CEI becomes the parent of the RegCo or the
unregulated subsidiary to which the employee is transferred is
formed, whichever is later; (ii) for the transfer of employees
covered by a collective bargaining agreement; or (iii) where
the employee's transfer is attributable to the transfer or
reduction of a RegCo function or major asset (e.g., a
generating station).
(vi) The foregoing provisions in no way restrict any affiliate from
loaning employees to RegCo to respond to an emergency that
threatens the safety or reliability of service to consumers.
(vii) The compensation of RegCo employees may not be tied to the
performance of any of the unregulated subsidiaries, provided,
however, that stock of the HoldCo may be used as an element of
compensation and the compensation of common officers of the
HoldCo and RegCo may be based upon the operations of the
HoldCo and RegCo.
(viii) The employees of HoldCo, RegCo and the subsidiaries may
participate in common pension and benefit plans.
7. Provision of Services and Goods
(i) The RegCo may provide corporate services (such as corporate
governance, administrative, legal and accounting) for the
HoldCo and the HoldCo's subsidiaries
6
may purchase such services from the RegCo. The services
would be provided on a fully-loaded cost basis.
(ii) The RegCo may provide other services to an affiliate, except
that the RegCo may not use any of its marketing or sales
employees to provide services to an unregulated affiliate for
business within the RegCo's service territory. The unregulated
affiliate shall compensate the RegCo for the services of
employees performing such services at the higher of the
employees' fully-loaded cost plus 10 percent or the price that
the RegCo charged a third party for such employees' services.
Orange and Rockland shall compensate the RegCo for such
services at the employees' fully-loaded cost except as
otherwise required by PSL ss. 110.
(iii) The affiliates may provide services to the HoldCo and the
RegCo. Any management, construction, engineering or similar
contract between the RegCo and an unregulated affiliate and
any contract for the purchase by the RegCo from an unregulated
affiliate of electric energy or gas shall be governed by PSL
ss.l 10, subject to any applicable FERC requirements. All
other goods and services will be provided by an unregulated
affiliate to the RegCo at a price that shall not be greater
than fair market value, determined in accordance with the cost
allocation guidelines (Appendix D to O&R Merger Settlement).
Con Edison shall compensate its regulated affiliates for such
services at the employees' fully-loaded cost, except as
otherwise required by PSL ss. 110.
(iv) The RegCo, the HoldCo, and the affiliates may be covered by
common property/casualty and other business insurance
policies. The costs of such policies shall be allocated among
the RegCo, the HoldCo and the affiliates in an equitable
manner.
8. Maintaining Financial Integrity
(i) The debt of RegCo would be raised directly by the RegCo and
would not be derived from the HoldCo.
(ii) Without the prior permission of the Commission, the RegCo will
not (i) make loans to the HoldCo or any of the unregulated
subsidiaries, (ii) guarantee the obligations of either the
HoldCo or any of the unregulated subsidiaries; (iii) pledge
its assets as security for the indebtedness of the HoldCo or
any affiliate.
(iii) The RegCo will not pay out more than 100% of income available
for dividends calculated on a two-year rolling average
basis. Excluded from the calculation of "income available for
dividends" for the purposes of this provision will be noncash
7
charges to income resulting from accounting changes or charges
to income resulting from significant unanticipated events.
The foregoing restriction will also not apply to dividends
necessary to transfer to the HoldCo revenues from major
transactions, such as asset sales, divestiture or
securitization or to dividends reducing the RegCo's equity
capital ratio to a level appropriate to the RegCo's business
risk. Senior management personnel of the RegCo will discuss
with senior Commission Staff personnel, on a confidential
basis, the possibility of the payment of a dividend that would
exceed the foregoing restriction at least 10 business days
before declaration of such dividend.
(iv) The RegCo will be required to certify annually to the
Commission that the RegCo has retained or otherwise has access
to sufficient capital to maintain and upgrade its plant, works
and system in order to continue the provision of safe and
reliable service.
(v) Senior management personnel of the RegCo and the HoldCo will
meet annually with senior Commission Staff personnel to
discuss, on a confidential basis, the RegCo's and the HoldCo's
activities, including plans related to capital attraction and
financial performance.
9. Standards of Competitive Conduct
The following standards of competitive conduct shall govern the RegCo's
relationship with any energy supply and energy service affiliates:
(i) There are no restrictions on affiliates using the same name,
trade names, trademarks, service name, service mark or
a derivative of a name, of the HoldCo or the RegCo, or in
identifying itself as being affiliated with the HoldCo or the
RegCo. However, the RegCo will not provide sales leads for
customers in its service territory to any affiliate,
including the ESCO, and will refrain from giving any
appearance that the RegCo speaks on behalf of an affiliate or
that an affiliate speaks on behalf of the RegCo. If a
customer requests information about securing any service or
product offered within the service territory by an affiliate,
the RegCo may provide a list of all companies known to
RegCo operating in the service territory who provide the
service or product, which may include an affiliate, but the
RegCo will not promote its affiliate. The RegCo must process
all similar requests for distribution services in the
same manner and within the same period of time.
(ii) Neither the RegCo nor an affiliate will represent to any
customer, supplier, or third party that an advantage may
accrue to such customer, supplier, or third party in
8
the use of the RegCo's services as a result of that customer,
supplier or third party dealing with any affiliate. This
standard does not prohibit two or more of the unregulated
subsidiaries from lawfully packaging their services. The
RegCo will not pay a premium to a supplier of goods or
services in return for that supplier's agreeing to purchase
goods or services from, or sell goods or services to,
an affiliate.
(iii) All similarly situated customers, including energy services
companies and customers of energy service companies,
whether affiliated or unaffiliated, will pay the same rates
for the RegCo's utility services and the RegCo shall apply any
tariff provision in the same manner if there is discretion in
the application of the provision. If the RegCo provides to an
energy service company or a customer of an energy service
company, whether affiliated or unaffiliated, a delivery,
billing, metering or other service set forth in its tariff or
associated operating procedure, at a discounted or negotiated
rate or pursuant to a special arrangement, the RegCo will
expeditiously post on its website the information that the
Commission requires a utility to file in association with
providing a discount or negotiated rate or special
arrangement, subject to the Commission's trade secret rules,
if applicable, in the same manner and within the same time
period for affiliates and non-affiliates.
If the RegCo makes a new service or facility available (e.g.,
a capacity release program in support of retail choice), and
there is a reasonable likelihood that requests for such new
service or facility may exceed its availability, then the
RegCo will make, in consultation with Staff, the new service
or facility available in a manner designed to provide
interested persons with a fair and equitable opportunity to
participate using, for example, and where reasonable and
practical, competitive bidding or an open season. The
Commission reserves the right to inquire into the manner in
which the new service or facility was made available.
(iv) Transactions subject to FERC's jurisdiction will be governed
by FERC's orders or standards as applicable.
(v) Release of proprietary customer information relating to
customers within the RegCo's service territory shall be
subject to prior authorization by the customer and subject to
the customer's direction regarding the person(s) to whom the
information may be released. If a customer authorizes the
release of information to a RegCo affiliate and one or more of
the affiliate's competitors, the RegCo shall make that
information available to the affiliate and such competitors on
an equal basis.
9
(vi) The RegCo will not disclose to its affiliate any customer or
marketer information relative to its service territory that it
receives from a marketer, customer or potential customer,
which is not available from sources other than the RegCo,
unless it discloses such information to its affiliate's
competitors contemporaneously on an equal basis to the extent
practicable.
(vii) If any competitor or customer of the RegCo believes that the
RegCo has violated the standards of conduct established in
this section of the agreement, such competitor or customer may
file a complaint in writing with the RegCo. The RegCo will
respond to the complaint in writing within twenty (20)
business days after receipt of the complaint. Within fifteen
(15) business days after the filing of such response, the
RegCo and the complaining party will meet in an attempt to
resolve the matter informally. If the RegCo and the
complaining party are not able to resolve the matter
informally, the matter will be referred promptly to the
Commission for disposition.
(viii) The Commission may impose on the RegCo remedial action
(including redress or penalties, as applicable) for the
RegCo's violations of the standards of competitive conduct.
If the Commission finds that the RegCo has engaged in a
consistent pattern of material violations of the standards of
competitive conduct during the course of this
Agreement, it shall provide the RegCo notice of a reasonable
opportunity to remedy such conduct. If the RegCo fails
to remedy such conduct within a reasonable period after
receiving such notice, the Commission may take remedial
action with respect to the HoldCo to prevent the RegCo from
further violating the standard(s) at issue. Such
remedial action may include directing the HoldCo to divest the
unregulated subsidiary, or some portion of the assets
of the unregulated subsidiary, that is the subject of the
RegCo's consistent pattern of material violations, and to
credit the RegCo's customers with an appropriate portion of
such divestiture proceeds, but exclude directing the
HoldCo to divest the RegCo or imposing a service territory
restriction on the unregulated subsidiary. The sum of
any divestiture proceeds credited to customers shall not,
consistent with this Agreement, include royalties and
shall be in lieu of, and not exceed, any penalty that the
Commission could otherwise impose for the RegCo's failure
to remedy such conduct. HoldCo and RegCo are not precluded
from asserting that the portion of divestiture proceeds
credited to customers should be commensurate with the harm
that the RegCo's customers are found to have suffered as a
result of such violations. If the HoldCo is directed to
divest an unregulated subsidiary, it may not thereafter,
without prior Commission approval, use a new or existing
subsidiary of the HoldCo to conduct within its service
territory the same business activities as the divested
subsidiary (e.g., energy services). The RegCo and the HoldCo
may exercise any or all of their administrative and judicial
rights to seek a
10
reversal or modification of remedial actions ordered by the
Commission and may seek to obtain any and all legal and/or
equitable relief from such remedial actions, including but not
limited to injunctive relief. Con Edison will not challenge
the Commission's authority to implement this subparagraph.
10. Access to Books and Records and Reports
(i) Staff will have access, on reasonable notice and subject to
appropriate resolution of confidentiality and privilege
concerns, to the books and records of the HoldCo and the
HoldCo's majority-owned subsidiaries.
Staff will have access, on reasonable notice and subject to
appropriate resolution of confidentiality and privilege
concerns, to the books and records of all other HoldCo
subsidiaries to the extent necessary to audit and monitor any
transactions which have occurred between the RegCo and such
subsidiaries, to the extent the HoldCo has access to such
books and records.
(ii) The RegCo will supplement the information that the
Commission's regulations require it to report annually with
the following information: Transfers of assets to and from an
affiliate, cost allocations relative to affiliate
transactions, identification of RegCo employees transferred to
an affiliate, and a listing of affiliate employees
participating in common benefit plans.
(iii) The HoldCo will provide a list on a quarterly basis to the
Commission of all filings made with the Securities and
Exchange Commission by the HoldCo and any subsidiary of the
HoldCo, including the RegCo.
(iv) A senior officer of the HoldCo and the RegCo will each
designate a company employee, as well as an alternate to act
in the absence of such designee, to act as liaison between the
HoldCo, the RegCo and Staff ("Company Liaisons"). The Company
Liaisons will be responsible for ensuring adherence to the
established procedures and production of information for
Staff, and will be authorized to provide Staff access to any
requested information to be provided in accordance with this
Agreement.
(v) Access to books and records shall be subject to claims of
privilege and confidentiality concerns as set forth in
Appendix J to the 1997 Settlement.
11. Independent Auditor
11
(i) The Commission may, during the term of this agreement, require
that an independent auditor review the compliance of the
HoldCo, the RegCo and the unregulated subsidiaries with the
terms of this agreement. The identity of the independent
auditor will be determined by the Commission. The cost of such
audit and review shall be reasonable under the circumstances
and shall be recorded by RegCo as a deferred debit and be
recoverable from ratepayers.
12. Royalty
(i) The rate plan covers all royalties that otherwise would be
credited to RegCo's customers, at any time, including after
the expiration of the agreement.
13. Miscellaneous
(i) Upon the date of the Commission's order approving the 1997
Settlement, the existing limitations on the services that
ProMark may provide are eliminated. ProMark will be permitted
to offer all the retail and wholesale energy services and
related services and products, both within and outside Con
Edison's service territory, that other unregulated energy
service companies are permitted to offer. Affiliate
transactions between Con Edison and its subsidiaries,
including the transfer of assets and employees and provision
of goods and services, shall be governed in accordance with
the terms of this agreement.
(ii) Upon the date of the Commission's order approving the 1997
Settlement, Con Edison's relationships with its existing and
future affiliates will be governed prospectively by the 1997
Settlement. Accordingly, the following Commission orders will
not apply to Con Edison:
- Order Approving Use Of Up To $50 Million To Invest In
Unregulated Subsidiaries, issued July 12, 1996, in
Case No. 95-M-0418;
- Order Approving Use Of Utility Revenue To Establish A
Gas Marketing Subsidiary, issued May 13, 1993, and
Order Denying Petition For Reconsideration, issued
January 7, 1994, in Case No. 92-G-0841; and
- Order Approving Use Up To An Additional $26,000,000
Of Utility Revenue To Invest In Con Edison Gas
Marketing, Inc., filed in 92-G-0841, issued
November 16, 1994, in Case No. 94-G-0294.
Similarly, Section 1.A.v of the June 7, 1994 Agreement and
Settlement Concerning Gas Rates of Consolidated Edison of New
York, Inc. in Case 93-G-
12
0996 and Section L.7 of the October 24, 1996 Settlement
Agreement in Case 96-G-0548, which address royalty and other
affiliate issues, will have no prospective effect.
(iii) The standards of conduct set forth in this Agreement will
apply in lieu of any existing generic standards of conduct
(e.g., the interim gas standards established in Case
93-G-0932) and in lieu of any future generic standards of
conduct established by the Commission through RY8 and will
continue to apply after RY8 given the Company's need for
stability in rules governing the HoldCo structure. Thereafter,
before the Commission makes any changes to these standards, it
will consider the Company's specific circumstances, including
its performance under the existing standards.
Appendix D
Customer Service Incentive Mechanism
A customer service incentive mechanism will be in effect for the period
of April 1, 2001 through March 31, 2005 (i.e., rate years ("RY") 5, 6, 7, and 8
under this Settlement Agreement). This incentive mechanism, as well as the
Electric Service Reliability Performance Mechanism established in this Agreement
(See Appendix E), supersedes the Service Quality and Reliability incentive
established by the 1997 Settlement Agreement with respect to RY5. The
measurement periods are the successive twelve-month periods ending March 31,
2002, 2003, 2004, and 2005. This mechanism will operate as follows:
1. Operation of Incentive
a) The Customer Service Incentive Mechanism establishes two sets of
incentives. "Performance" incentives establish performance levels that
the Company must achieve if its cap on common equity earnings
established in this Settlement Agreement ("earnings cap") is to be
increased up to 12.5 basis points in any or every year during RY6, 7,
and 8). There are no payments under the performance incentives.
"Threshold" incentives will set specified targets that the Company must
achieve if it is to avoid a payment of up to $18 million. There are no
rewards under the "threshold" incentives. The "performance" and
"threshold" areas to be measured, the targets to be set for each area,
and the rewards and payments that will apply are stated in the
attachment to this appendix.
b) Any resulting payments will be deferred for ratepayer benefit. The
performance and threshold levels established in this mechanism are
fixed for the life of this mechanism except as provided in Paragraph 2
below.
2. Exclusions
(a) For measurement purposes, results from periods having abnormal
operating conditions will not be considered.
(b) Abnormal operating conditions are deemed to occur during any period of
emergency, catastrophe, strike, natural disaster, major storm, or other
unusual event not in the Company's control affecting more than ten
percent of the customers in an operating area during any month. "Major
storm" is defined as a period of adverse weather resulting in a service
interruption affecting at least ten percent of the customers in an
operating area or causing customers to be without electric service for
at least 24 hours as stated in 16 NYCRR Part 97.
c) In the event that normal operating conditions are interrupted in one of
the Company's six geographical areas and the interruption affects the
Company's ability to perform any activity that is part of this
mechanism, the data for the geographic area(s) experiencing the
interruption will be omitted from the calculation for the period of the
interruption and the Company's results in the measured areas will be
measured only by the data from the other
2
geographic area(s). If normal operating conditions are interrupted in
more than three geographical areas so that monthly results cannot be
measured for a given activity, the month will be eliminated in the
calculation of the actual annual average performance for each activity
for the purpose of determining any payment or earnings cap increase.
In the event that normal operating conditions are interrupted in more
than three geographical areas for an entire rate year, the activity
will be inapplicable in that year unless Staff and the Company agree
on an alternative method of determining how to allocate any assessable
payments or earnings cap increase under this incentive mechanism.
d) If changes in Company operations render it impractical to continue to
measure performance in an agreed-upon activity, the measurement method
and/or threshold/performance standard will be revised, an alternative
method or activity selected, or the payments or earnings cap increases
associated with the affected activities spread proportionately among
all remaining activities for the remainder of the period during which
the incentive mechanism is operative. Any such modifications must be
mutually agreed upon by Staff and the Company in writing.
3. Reporting
a) The Company will prepare an annual report on its performance that will
be filed with the Director of the Office of Consumer Education and
Advocacy. The annual report will address (i) any changes anticipated to
be implemented in the following measurement period in any activity
reflected in this Agreement and (ii) a summary of any significant
changes in operations which led to the reported performance level
during the measurement period. These reports are subject to an audit
and review by Staff. The Company will maintain sufficient records to
support such reports.
4. Threshold Standards
a) The Company's threshold performance will be measured for the following
nine activities:
i) "Commission Complaints" is the number of complaints per 100,000
Con Edison customers received by the Office of Consumer
Services of the Public Service Commission. A complaint is a
contact by a customer, applicant, or customer's or applicant's
agent that follows a contact with the utility about the issue of
concern as to which the utility, having been given a reasonable
opportunity to address the matter, has not satisfied the customer.
The issue of concern must be one within the utility's
responsibility and control, including an action, practice or
conduct of the utility or its employees, not matters within the
responsibility or control of an alternative service provider.
Complaints about high bills resulting from the price of electric
energy and capacity or natural gas or the operation of the
Company's Market Supply Charge (MSC) and that do not otherwise
present just cause for charging a complaint against the Company,
shall not be counted as complaints for the purposes of this
mechanism.
3
One or more contacts by a rate consultant raising the
same issue as to more than one account, whether such contacts are
made at the same time or different times, shall not be counted as
more than one complaint if the issue is under consideration by the
Department or the Commission and no utility deficiency is found.
Contacts by customers about the Shared Meter Law shall not be
complaints if the contact is about the requirements of the shared
meter law and no utility deficiency is found.
ii) "Days to Complete Routine Investigation" is the number of calendar
days to complete investigation of a customer inquiry, received by
telephone, mail, facsimile or in person, that cannot be resolved
on the day it is received. Performance in any month will be
measured by the number of investigations completed within 30
calendar days, when the date of completion falls within that
month, divided by the total number of investigations completed
during the reporting month.
iii) "Call Answer Rate" is the percentage of calls answered by Company
Call Centers between the hours of 9:00 AM and 5:00 PM Monday
through Friday (excluding holidays). The performance rate is the
sum of the system-wide number of calls answered divided by the sum
of the system-wide number of calls offered. Calls offered are
calls received by the operating areas' Automatic Call
Distributors. Calls abandoned are calls where the customer hangs
up before the voice response unit ("VRU") responds or when the
customer choses to speak to a representative but hangs up before
contact is made. The number of calls answered is equal to the
number of calls received minus the number of calls abandoned.
iv) "Satisfaction of Callers, Visitors, and Emergency Center Contacts"
means the average of the satisfaction index ratings on the two
semi-annual surveys (second and fourth quarter surveys) of
callers, visitors, and emergency center contacts (electric portion
only) conducted by Communication Research Associates (CRA) or
other professional survey organization during each reporting year.
v) "Days to Complete (Initial Phase)" means, with respect to initial
phase of work orders, the average number of business days from
receipt of the customer's request for an electric non-vault
service job by the Energy Services Department to issuance of a
service layout to the customer for all initial phase jobs
completed in the reporting month. The date of receipt of the
customer's request will be the earlier of (1) the date on the
Contractor Work Request Form or (2) the receipt date entered in
the Commercial Operations Reporting System. The date of issuance
of the service layout (Form 2-80) to the customer will be the
earlier of (1) the date shown in the service date confirmation
letter issued to the customer or (2) the completion date recorded
in the Commercial Operations Reporting System.
vi) "Days to Complete (Final Phase)" means, with respect to final
phase of work orders, on all non-vault electric final phase jobs
completed in the reporting month, the average number of business
days measured from receipt of a city certificate or completion of
final inspection, whichever is later, to the date of final
inspection displayed on the
4
"field call sheets," which must be retained until staff has
verified the reported performance level.
vii) "Percentage of Meters Read on Schedule" is determined by dividing
the sum of actual meter readings obtained in the reporting month
by the total number of meters scheduled to be read for all
operating areas in the reporting month, as indicated in the Cycle
Meter Reading Statistics Report. Actual meter readings are
readings obtained from meter readers in the field, or through
receipt of completed customer "drop cards" or through phoned-in
readings from customers, either directly to a customer service
representative or by message left on a VRU.
viii) "Bill Accuracy" means the number of bills not adjusted as a
result of a Company error in the reporting month divided by the
total number of bills rendered during the reporting month.
ix) "Outage Notification" will be defined upon further discussion
among the Company, Staff and other interested parties. The Company
shall propose a definition of outage notification, and criteria
for measuring its performance, within sixty days of Commission
approval of this agreement. The Company's performance of outage
notification will not be subject to measurement until the
definition and measurement criteria are approved by the
Commission.
b) For each area, annual performance that fails to meet the applicable
threshold performance standard established for that area will result in
a payment in the amount of $2.0 million except that the payment for
"Satisfaction of Callers, Visitors, and Emergency Center Contacts" will
be $667,000, respectively, for satisfaction of callers, visitors, and
emergency center contacts as measured by survey.
5. Operation of the Performance Standards
a) The Company's achievement on performance standards will be evaluated
first against the Company's performance in the areas of Commission
Complaints and "Satisfaction of Callers, Visitors, and Emergency Center
Contacts." If Commission complaints are above the threshold established
in this agreement, or any one of the customer satisfaction measures is
below the threshold level, then no performance incentive will accrue.
If Commission complaints are maintained at or below the threshold
established in this agreement and all three customer satisfaction
levels are at or above threshold levels, then a further review of
performance standards is conducted to determine the Company's
eligibility for a performance incentive.
b) The performance standards will measure the Company's performance in the
following six areas as defined in paragraph 4 above: "Days to Complete
Routine Investigation," "Call Answer Rate," "Days to Complete (Initial
Phase)," "Days to Complete (Final Phase)," "Percentage of Meters Read
on Schedule," and "Bill Accuracy."
5
c) For each area, annual performance that meets or surpasses the
applicable performance standard established for that area will result
in an increase of 5/6 basis point in the earnings cap. If in any year,
the Company meets or surpasses the performance standards in all six
areas, the earnings cap will be increased by a total of 12.5 basis
points.
Attachment to Appendix D
Customer Service Incentive Mechanism
Threshold Levels and Performance Standards
Indicator Threshold Level Payment Performance Incentive Award
Standard
Commission Complaints 7.0 $2 million
Customer Satisfaction
Surveys
Emergency Calls 80.0 $667,000
(electric only)
Phone Center Calls 82.0 $667,000
(non emergency)
Service Center 83.0 $667,000
Visitors
Outage Notification $2 million
New and Additional
Service Jobs
Initial Phase =>7.5 Days $2 million =<4.1 days 5/6 basis point*
Final Phase =>10.0 Days $2 million =<6.3 Days 5/6 basis point*
Calls Answered = <94.9% $2 million =>96.0% 5/6 basis point*
Meters Read on Cycle =<86.9% $2 million =>87.6% 5/6 basis point*
Billing Accuracy =<97.2% $2 million =>98.9% 5/6 basis point*
Routine Investigations =<94.9% $2 million =>96.5% 5/6 basis point*
Comp.w/in 30 days
Total $18 million **
* Increase in the equity cap established in this Settlement Agreement.
**If all six performance standards are met or exceeded, the earnings cap
will be increased by a total of 12.5 basis points.
Appendix E
Electric Service Reliability Performance Mechanism
I. Operation of Program
This electric service reliability performance mechanism ("reliability
mechanism") will be in effect for Con Edison during for the period of
January 1, 2001 through December 31, 2004, except that the Major Outage
Penalty Mechanism will be in effect for the entire term of this
Agreement commencing with its approval by the Commission. Effective
January 1, 2001, this reliability mechanism supersedes the Service
Quality and Reliability Incentive established by the 1997 Settlement
Agreement with respect to Con Edison reliability performance. The
measurement periods are the successive twelve-month periods ending
December 31, 2001, 2002, 2003, and 2004.
This reliability mechanism establishes two performance mechanisms.
"Threshold Standards," consisting of "area performance targets" and a
"major outage penalty mechanism," will be one performance mechanism and
will be applicable for the period of January 1, 2001 through December
31, 2004. Con Edison's performance in maintaining electric reliability
must fall within the Threshold Standards, and a total of $22 million
annually is at risk for the Company's failure to meet the threshold
standards. The Threshold Standards and associated penalties are stated
in Section V. Any resulting penalties will come from shareholder funds
and will be deferred for the benefit of ratepayers.
"Objective Standards" will be another performance mechanism and will be
applicable for the period of January 1, 2002 through December 31, 2004
(three years). If the Company meets the objective standards, the cap on
common equity earnings established in the Settlement Agreement will be
increased by up to 12.5 basis points. The Objective Standards and
associated financial impacts are stated in Section VI.
II. Exclusions
The following exclusions will be applicable to operating performance
under this reliability mechanism:
o Any outages resulting from a major storm, as defined in 16 NYCRR,
Part 97 (for at least 10% of the customers interrupted within an
operating area or customers out-of-service for at least 24 hours);
this includes secondary network interruptions that occur in an
operating area during winter snow/ice events that meet the 16
NYCRR Part 97 definition (10%/24 hour rule).
o Heat-related outages are not a major storm. However, the Company
may petition the Director of the Office of Electricity and
Environment for an exemption for an outage if the Company can
prove that such outage, whether heat-related or not, was beyond
the Company's control taking into account all facts and
circumstances;
2
o Any incident resulting from a strike or a catastrophic event
beyond the control of the Company, including but not limited to
plane crash, water main break, or natural disasters (e.g.,
hurricanes, floods, earthquakes); and
o Any incident where a problem outside of the Company's control
involving the non-Con Edison generation or bulk transmission
system is the key factor in the outage, including New York State
Independent System Operator (ISO) mandated load shedding. This
criterion is not intended to exclude incidents that occur as a
result of unsatisfactory performance by the Company.
III. Reporting
The Company will prepare annual reports on its performance under this
reliability mechanism. The annual report will be filed by March 31st of
each year with the Director of the Office of Electricity and
Environment. The report will (a) state the Company's annual system-wide
and operating area performance under the Threshold Standards and show
the computation of whether a penalty is applicable, (b) state the
Company's performance under the Objective Standards and show the
computation of whether any earnings cap increase is applicable, and (c)
state the basis and provide adequate support for all exclusions.
Within 45 days for any event that meets the Major Outage criteria, the
Company shall file an interim report on the event containing, among
other things, information pertinent to determining whether a penalty
for the event is applicable. Any requests for exemption under Section
II must be made at that time.
IV. Threshold Standards Mechanisms and Criteria
Threshold Standards consist of Area Performance Targets and Major
Outage Penalty Mechanism.
Area Performance Targets
In Cases 90-E-1119, 95-E-0165, and 96-E-0979, the Commission adopted
standards establishing minimum performance levels for both frequency
and duration of service interruptions for the network and radial
systems in the six operating areas of Con Edison's service territory.
Under these standards, the frequency of service interruptions is
measured under the System Average Interruption Frequency Index (SAIFI),
and the duration of service interruptions is measured under the
Customer Average Interruption Duration Index (CAIDI). The minimum
performance levels established in those cases are set forth as certain
minimum SAIFI and CAIDI values. The Area Performance Targets for Con
Edison's reliability established in this reliability mechanism are
those minimum performance levels as modified herein.
3
During the period of January 1, 2001 through December 31, 2004, Con
Edison's year-end SAIFI (hereafter referred to as "frequency") index
for each of its network and radial operating areas (nine reliability
performance areas) will be measured against the Operating Area
Performance Target for interruption frequency performance established
in this reliability mechanism for that operating area.
During the period of January 1, 2001 through December 31, 2004, Con
Edison's year-end weighted average CAIDI (hereafter referred to as
"duration") indices for its entire network system and its entire radial
system (two system-wide performance areas) will be measured against the
Area Performance Targets for customer interruption duration established
in this reliability mechanism for the Company's network and radial
systems.
The Area Performance Targets are stated in Section V. The Company's
annual performance in maintaining reliability, as measured by the Area
Performance Targets for operating area interruption frequency and
system-wide customer interruption duration stated in Section V, must
meet or be better than those targets. A total of $12 million is at risk
for performance not meeting those targets.
Major Outage Penalty Mechanism
The Company will be penalized for a network shutdown event or a radial
system interruption event (collectively "major outages"). The amount of
the penalty is stated in Section V. For purposes of this performance
mechanism, a network shutdown event is defined as a loss of all supply
feeders to any of the 55 secondary networks in Manhattan, Brooklyn,
Queens, and the Bronx for three hours or more in duration. (The 55
secondary networks are identified in Attachment A to this Appendix E.).
A radial system interruption event is defined as the sustained
interruption of service to 70,000 customers in a load area for three
hours or more.
Any single occurrence that results in multiple network shutdowns or
radial system interruption events will result in only one penalty being
assessed. An example is the loss of an area substation that shuts down
two or more networks or a combination of network and radial system
load.
This single occurrence exception will not apply if each major outage
that takes place during any single occurrence results from separate and
distinct causes. For example, if there are two network shutdowns during
a single heat wave, and each network shutdown results from failures on
that particular network that were not beyond the Company's control, the
single occurrence exception would not apply and the Company will be
penalized for two network shutdowns.
In any year that a major outage penalty is not incurred, the amount
associated with such penalty will not be applied to the operating area
frequency and system-wide duration
4
penalty calculations for that year or any other year.
To avoid multiple penalties for the same operating performance or
occurrence, interruptions and customer hours of interruption associated
with major outage penalties will be excluded from the appropriate
year-end calculations of duration and frequency performance.
V. Threshold Standards and Penalty Amounts
The total penalty amount that can be assessed under this reliability
mechanism will be $22 million per year. Of this sum, a maximum annual
amount of $12 million can be assessed for failure to meet the Area
Performance Targets and a maximum amount of $10 million can be assessed
for Major Outages
Area Performance Targets - System-Wide Customer Interruption Duration
Performance
A total of $3 million per year is at risk for customer interruption
duration performance. $1.5 million each will be applied for radial and
network system-wide duration performance if Con Edison's year-end
weighted system-wide network and radial duration performance is not
equal to or lower than the duration values stated below:
System-Wide Customer Interruption Duration Targets:
--------------------------------------------------
(duration in hrs) Penalty Amount
radial systems - 1.75 $1,500,000
network systems - 3.35 1,500,000
Area Performance Targets - Operating Area Interruption Frequency
Performance
A total of $9 million per year is at risk for radial and network
operating area interruption frequency performance. This amount will be
divided among performance targets for nine operating areas and prorated
on the basis of customers served in each operating area. The minimum
amount at risk for an operating area will be $500,000. A penalty will
be applied in the amount stated below if Con Edison's year-end
frequency performance in an operating area is not equal to or lower
than the interruption frequency values stated below:
5
Operating Area Interruption Frequency Targets:
(per 1,000 Penalty
customers) Amount
Bronx Radial 620 $ 500,000
Network 8 600,000
Brooklyn Radial 550 500,000
Network 14 1,850,000
Manhattan Network 15 2,000,000
Queens Radial 340 550,000
Network 6 1,500,000
Staten Island Radial 550* 500,000
Westchester Radial/ Network 480** 1,000,000
Major Outage Penalty
A penalty of $5 million will be assessed for each major outage (i.e.,
network shutdown event or radial system interruption event) up to a
total of $10 million per year.
VI. Objective Standards Mechanism and Criteria
The Objective Standards for Con Edison's reliability established in
this reliability mechanism are comprised of interruption frequency
performance targets for performance in nine operating areas and
customer interruption duration targets for system-wide performance on
the network and radial systems (two areas). The operating area
interruption frequency targets are the objective performance levels for
operating area interruption frequency established for Con Edison in
Cases 90-E-1119, 95-E-0165, and 96-E-0979. The system-wide customer
interruption duration targets are the weighted average of the objective
customer interruption duration performance levels for Con Edison's
operating areas established in Cases 90-E-1119, 95-E-0165, and
96-E-0979. The Objective Standards will measure the Company's
performance in these eleven areas.
The Objective Standards performance mechanism will be applicable for
the period of January 1, 2002 through December 31, 2004. The Company's
achievement of the Objective Standards in each such year will be
evaluated first against the Company's performance in the areas of the
Area Performance Targets and Major Outages. In any year that Con Edison
incurs penalties for failure to meet at least two of the nine operating
area interruption frequency targets or incurs a penalty for a Major
Outage, the Company will not be eligible for an increase in its
earnings cap for that year. In any year that Con
- --------
* For the last two years of this reliability mechanism, the Staten Island
frequency target will be 530.
** For the last two years of this reliability mechanism, the Westchester
frequency target will be 460.
6
Edison does not incur more than one penalty for failure to meet the
Area Performance Targets and does not incur a penalty for a Major
Outage, a further review of Con Edison's performance under the
Objective Standards, as described below, will be conducted to
determine the Company's eligibility for an increase in its earnings
cap.
During the period of January 1, 2002 through December 31, 2004, Con
Edison's year-end frequency index for each of its network and radial
operating areas (nine performance areas) will be measured against the
Objective Standard for interruption frequency performance for that
operating area stated below.
During the period of January 1, 2002 through December 31, 2004, Con
Edison's year-end weighted average duration indices for its entire
network system and its entire radial system (two system-wide
performance areas) will be measured against the Objective Standards for
customer interruption duration for the Company's network and radial
systems stated below.
For each Objective Standard (eleven standards) that the Company's
year-end frequency or duration performance meets or betters, the cap on
common equity earnings established in this Settlement Agreement
("earnings cap") will be increased by the amount of basis points stated
below, up to a maximum of 12.5 basis points.
System-Wide Customer Interruption Duration Objective Standards:
--------------------------------------------------------------
(duration in hrs) (basis points)
radial systems - 1.18 1.5625
network systems - 2.27 1.5625
Operating Area Interruption Frequency Objective Standards:
---------------------------------------------------------
(per 1,000
customers) (basis points)
Bronx Radial 380 0.5225
Network 5 0.625
Brooklyn Radial 350 0.5225
Network 4.5 1.9275
Manhattan Network 7 2.0838
Queens Radial 290 0.5725
Network 1.8 1.5625
Staten Island Radial 310 0.5212
(i) Westchester Radial/ Network 360 1.0375
7
Attachment A to Appendix E
Attachment A
Brooklyn(9) Manhattan(33) Queens(7) Bronx(6)
Bay Ridge Battery Park City Flushing Central Bronx
Borough Hall Beekman Jackson Heights Fordham
Crown Heights Bowling Green Jamaica Northeast Bronx
Flatbush Canal Long Island City Riverdale
Ocean Parkway Central Park Maspeth Southeast Bronx
Park Slope Chelsea Rego Park West Bronx
Ridgewood City Hall Richmond Hill
Sheepshead Bay Columbus Circle
Williamsburg Cooper Square
Cortlandt
Fulton
Grand Central
Greeley Square
Greenwich
Harlem
Herald Square
Hunter
Kips Bay
Lenox Hill
Lincoln Square
Madison Square
Park Place
Pennsylvania
Plaza
Rockefeller Center
Roosevelt
Sheridan Square
Sutton
Times Square
Turtle Bay
Washington Heights
World Trade Center
Yorkville
APPENDIX F
LOW INCOME PROGRAM
The low income program will consist of a low income customer rate
program, including a reduced electric Customer Charge component and a
reconnection charge waiver component; a low income customer aggregation program;
a low income customer arrears avoidance program, and an energy efficiency
program targeted to low income customers.
Rate Program
There will be a reduction in the Customer Charge for low-income
customers served under the non-time-of-day rates of SC Nos. 1 and 7 who are
enrolled in this program and are Direct Vendor customers ("DVCs"), or are
receiving a benefit under the Supplemental Security Income (SSI), Temporary
Assistance to Needy Persons, Safety Net Assistance, Medicaid, Food Stamps, Child
Health Plus, Veteran's Disability Pension (Non-Service Disability), Veteran's
Surviving Spouse Pension (Non-Service Disability) or have received a Home Energy
Assistance Program (HEAP) grant in the preceding 12 months. The Customer Charge
for participating customers will be fixed at $5.00 per month through March 31,
2005. In addition, Con Edison will not charge a reconnection charge to any
customer who becomes a DVC or who is a recipient of SSI at the time the
reconnection is requested or who has received HEAP benefits in the 12-month
period prior to the reconnection request.
Within one year of the Commission's approval of this Agreement, a plan
for automatic enrollment of customers through matching of the records of the New
York City Human Resources Administration (HRA) and the Westchester Department of
Social Services (DSS) with the Company's customer records (together with
negative checkoff) will be developed by Con Edison with input from the signatory
parties and used to the greatest extent practicable subject to
2
the maximum enrollment and expenditure levels stated herein. In addition, any
customer meeting the eligibility criteria above and participating in the low
income aggregation program described below will be automatically enrolled in
this rate program. Other enrollment strategies will be developed jointly by Con
Edison with the signatory parties. By the end of RY8, it is anticipated that
175,000 customers will be participating in this rate program.
Assuming average customer participation in RYs 5-8 of 40,000, 75,000,
125,000 and 175,000 customers respectively and given incremental annual
increases in the residential Customer Charge of $0.57 per month, the cost of the
targeted rate program is estimated to be about $1,714,000, $3,726,000,
$7,065,000, and $11,088,000 in the four respective years. The cost of the
program will include any expenses associated with the use of a third-party
administrator to conduct electronic matching of public benefit recipient and
Company customer lists.
The cost of the low income rate program for DVCs is currently recouped
from customers in the SC 1 and 7 classes at the rate of approximately $900,000
per year. The net incremental cost of the rate program described above, taking
into consideration the amount currently in rates, is estimated to be about $20
million over the four year period. A sum of $12 million has been set aside from
divestiture proceeds as a partial funding source for low income programs. Any
portion of the $12 million remaining at the end of RY8 will inure to the benefit
of ratepayers as determined by the Commission. The parties expect that the
balance of about $8 million will be secured from one-time non-recurring sources,
such as future expected proceeds from the sale of Company properties, but if
these sources are not available the balance will be deferred for future
recovery.
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The Company will annually report to the Commission, within 60 days of
the end of each rate year, the number of customers enrolled in the rate discount
program and the total amount expended for the rate year and the program to date.
The Company and signatory parties will review the status of the program at least
annually. The parties agree that the cost of the rate program will be $23.6
million and the cost of the aggregation program will be $1.6 million over the
term of this Agreement. If enrollments and/or expenditures differ significantly
from expected levels, the parties reserve the right to propose for Commission
approval alternatives to the rate program design detailed herein. Those
alternatives may include, but are not be limited to, adjusting the amount of the
rate benefit, widening or restricting enrollment, and diverting funds to or from
other components of the low income program, including outreach activities. Upon
a demonstration of changed circumstances, the signatory parties may petition the
Commission for changes in this or the other programs described in this Appendix,
including an increase in funding, provided that increased funding will have no
material adverse impact on ratepayers. Any petition filed hereunder shall be
served on all parties in Case 96-E-0897. No such modifications will be
effectuated without express Commission approval.
Aggregation Program
Within four months after Commission approval of this Agreement, the
Company, the signatory parties and HRA will develop a plan for the
implementation of a low income customer aggregation program that provides
opportunities for low income customers to aggregate for the purchase of both
electricity and natural gas. The plan will cover customer eligibility, customer
enrollment, energy procurement, and general program administration. The plan
will include outreach and education activities by the Company or others and may
provide for reimbursement
4
of the program administrator's actual expenses related to competitive energy
procurement, with a process for the prior approval of such expenditures by the
Company in consultation with Staff and, if appropriate, any applicable
governmental agency or entity.
Customers participating in the aggregation program will automatically
be enrolled in the rate discount program described above and, in addition, will
be eligible to receive the benefits of the arrears avoidance and energy
efficiency programs described below.
Preference will be given to energy procurement conducted by a
competitive bid process, and winning bidders will be expected to provide a rate
comparable to or less than the MSC component of the Company's full service
rates. Program outreach will be coordinated with other outreach efforts, and
supplemented by the marketing efforts of winning bidders. Among the marketing
tools that ESCOs can potentially utilize will be the availability of the arrears
avoidance and energy efficiency programs as further described below.
Over the term of this Agreement, $1.6 million will be made available
for customer outreach and education for the low income customer aggregation
program, as well as reimbursement of the program administrator for pre-approved,
actual expenses related to competitive energy procurement. Some portion of these
funds may also be used for outreach and education related to the rate program.
Any portion of these funds not expended during the term of this agreement shall
be allocated to the low-income rate program. The parties expect that the $1.6
million will be secured from one-time non-recurring sources, such as future
expected proceeds from the sale of Company properties, but if these sources are
not available the balance will be deferred for future recovery.
5
Arrears Avoidance Program
This program will provide arrears avoidance for customers participating
in the aggregation program described above and who are eligible to enter into a
deferred payment agreement (DPA) with the Company. However, if, for any reason,
the aggregation program described above is not implemented by the commencement
of RY6, participation will then be open to customers who are receiving
Supplemental Security Income (SSI) or have received a Home Energy Assistance
Program (HEAP) grant in the preceding year or who are being served under a
Utility Guarantee (as a "UG Customer" or "UGC") or as a DVC.
Eligible participating customers, except UGCs and DVCs to the extent
precluded by law, will be required to enter into a DPA in conformance with HEFPA
and Commission rules. Customers who make timely payments under the DPA for one
year will qualify for a grant against their arrears of up to a maximum of $200
per customer on a one-time basis. Grants provided under this program are limited
to $2 million, with the expectation that grants will be provided in RYs 5 and 6.
One-half of the total amount will be secured from one-time non-recurring
sources, such as future expected proceeds from the sale of Company properties,
but if these sources are not available one-half of the Company's actual
expenditures will be deferred for future recovery. The Company will submit an
evaluation of the program to Staff and the signatory parties within 60 days
after the end of RY6.
Energy Efficiency Program
As noted elsewhere in this Agreement, funding of system benefits charge
(SBC) programs in the future will be determined by the Commission at a later
date. The parties endorse the
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concept that delivery of low income energy efficiency programs administered
through the SBC be coordinated with delivery of the programs described in this
Appendix F. Specifically, Staff recommends that the Commission should consider
whether a portion of SBC funding should fund a program for direct installation
of energy efficient measures as an incentive for participation in the
aggregation program, with a portion reserved for participating customers, and a
second portion targeting owners of privately-owned multi-family buildings
housing predominantly low income tenants. The latter is intended to provide a
means of enlisting building owners in marketing the program. Implementation of
such measures should be considered in the development of the aggregation plan.