These excerpts taken from the ED 10-K filed Feb 22, 2010.
CECONY provides electric service to approximately 3.3 million customers in all of New York City (except part of Queens) and most of Westchester County, an approximately 660 square mile service area with a population of more than nine million.
O&R and its utility subsidiaries, Rockland Electric Company (RECO) and Pike County Power & Light Company (Pike) (together referred to herein as O&R) provide electric service to approximately 0.3 million customers in southeastern New York and in adjacent areas of northern New Jersey and northeastern Pennsylvania, an approximately 1,350 square mile service area.
In October 2007, the NYSPSC issued an order that continued O&Rs rates for electric service rendered in New York at current levels. The order, which was based on an allowed annual rate of return on common equity of 9.1 percent increased, effective July 1, 2007, by $13.1 million annually the amount recognized for pension and other postretirement benefit costs. Because O&R, in accordance with applicable New York regulatory provisions, defers the difference between the actual amount of such costs and the amounts for such costs reflected in rates, the effect of the increase was to decrease the companys deferrals of such costs and increase other operations and maintenance expense by a like amount. As required by the order, the company also reduced other operating revenues and recorded a regulatory liability of $3 million for earnings attributable to its New York electric business in excess of a 9.1 percent annual rate of return on common equity applicable to the period March through June 2007. In June 2007, O&R commenced an action in New York State Supreme Court seeking to annul the March 2007 NYSPSC order that initiated the proceeding in which the October 2007 order was issued.
In July 2008, the NYSPSC approved a Joint Proposal among O&R, the NYSPSC staff and other parties for the rates O&R can charge its New York customers for electric service from July 2008 through June 2011. The rate plan approved by the NYSPSC provides for electric rate increases of $15.6 million, $15.6 million and $5.7 million effective July 1, 2008, 2009 and 2010, respectively, and the collection of an additional $9.9 million during the 12-month period beginning July 1, 2010.
The Joint Proposal reflected the following major items:
In March 2007, the New Jersey Board of Public Utilities (NJBPU) approved a three-year electric base rate plan for Rockland Electric Company (RECO), O&Rs New Jersey regulated utility subsidiary that went into effect on April 1, 2007. The plan provides for a $6.4 million rate increase during the first year, with no further increase during the final two years. The plan reflects a return on common equity of 9.75 percent and a common equity ratio of 46.5 percent of capitalization.
In August 2009, RECO filed a request with the NJBPU for a net increase in the rates it charges for electric service, effective May 15, 2010, of $9.8 million. The filing reflects a return on common equity of 11.0 percent and a common equity ratio of 53.6 percent. The filing proposes the continuation of the current provisions with respect to recovery from customers of the cost of purchased power and proposes a reconciliation of actual expenses to amounts reflected in electric rates for pension and other postretirement benefit costs. In January 2010, RECO increased its requested rate increase to $13.8 million, primarily to reflect lower estimated sales volumes.
This excerpt taken from the ED 10-K filed Feb 23, 2009.
O&Rs electric sales and deliveries, excluding off-system sales, in 2008 compared with 2007 were:
O&Rs electric operating revenues increased $62 million in 2008 compared with 2007 due primarily to increased recoverable purchased power costs ($49 million) and the impact of the electric rate plan that went into effect July 1, 2008 ($8 million). Effective July 2008, O&Rs revenues from electric sales are subject to a revenue decoupling mechanism, as a result of which, revenues are generally not affected by changes in delivery volumes from levels assumed when rates were approved. Other electric operating revenues generally reflect changes in regulatory assets and liabilities in accordance with the companys electric rate plan. See Note B to the financial statements.
Electric delivery volumes in O&Rs service area decreased 0.1 percent in 2008 compared with 2007. After adjusting for weather
variations and unbilled volumes, electric delivery volumes in O&Rs service area decreased 1.0 percent in 2008 compared with 2007.
Electric operating income decreased by $6 million in 2008 compared with 2007. The decrease reflects primarily higher operations and maintenance expense ($19 million, due primarily to higher maintenance costs ($6 million), pension expense ($4 million) and demand management program expenses ($3 million)), depreciation ($1 million) and taxes other than income taxes ($1 million, principally property taxes), offset by higher net revenues ($13 million) and lower income taxes ($1 million).
This excerpt taken from the ED 10-K filed Feb 22, 2006.
In September 1997, the PSC approved a restructuring agreement between Con Edison of New York, the PSC staff and certain other parties (the 1997 Restructuring Agreement). The 1997 Restructuring Agreement provided for a transition to a competitive electric market through the development of a retail access plan, a rate plan for the period ended March 31, 2002, the divestiture of most of the companys electric generating capacity, and a reasonable opportunity for recovery of strandable costs (costs that may not be recoverable in a competitive electric supply market).
At December 31, 2005, approximately 190,000 Con Edison of New York customers representing approximately 31 percent of aggregate customer peak demand were purchasing electricity from other suppliers under the electric retail access program (which is available to all of the companys electric customers). The company delivers electricity to participating customers in this program through its regulated transmission and distribution systems. In general, its delivery rates for retail access customers are equal to the full-service rates applicable to other comparable customers, less the cost of supplying customers with energy and capacity.
In November 2000, the PSC approved an agreement (the 2000 Electric Rate Agreement) that revised and extended the rate plan provisions of the 1997 Restructuring Agreement. Pursuant to the 2000 Electric Rate Agreement, the company reduced the distribution component of its electric rates by $170 million on an annual basis, effective October 2000.
Notes to the Financial Statements Continued
Under the 2000 Electric Rate Agreement, as approved by the PSC and as modified in December 2001, 35 percent of any earnings in each of the rate years ending March 2002 through 2005 above a specified rate of return on electric common equity were to be retained for shareholders and the balance was to be applied for customer benefit as determined by the PSC. There was no sharing of earnings for the rate years ended March 2002 and 2005. In 2002 and 2003, Con Edison of New York established an electric shared earnings reserve totaling $49 million for the rate year ending March 2003. In 2004, an electric shared earnings reserve of less than $1 million for the rate year ending March 2004 was established. In addition, the company recorded penalties relating to reliability standards tied to targets established in regulatory proceedings of $2 million, $8 million and $3 million in 2004, 2003 and 2002, respectively.
The 2000 Electric Rate Agreement also continued the rate provisions pursuant to which Con Edison of New York recovers its potential strandable costs and its purchased power and fuel costs from customers. See Recoverable Energy Costs in Note A.
In March 2005, the PSC approved a Joint Proposal by Con Edison of New York, the staff of the PSC and other parties with respect to the rates the company can charge its customers for electric delivery service (the 2005 Electric Rate Agreement). The 2005 Electric Rate Agreement covers the three-year period April 2005 through March 2008, and provides for increases in electric base rates of $104.6 million, effective April 1, 2005, and $220.4 million, effective April 1, 2007. In addition, the company will retain the first $60 million of auction proceeds from the sale of transmission rights on the companys transmission system (transmission congestion contracts) in each of the three years. The rate increases also include the amortization of certain regulatory assets and liabilities. The net effect of this amortization will be to increase electric revenues by $128 million, $173 million and $249 million in the first, second and third rate years, respectively.
The 2005 Electric Rate Agreement provides for annual reconciliations of the differences between the actual amount of transmission and distribution utility plant, net of depreciation (Net T&D) and the actual amount of certain operating costs experienced over the term of the agreement, as compared in each case to the amounts reflected in electric rates.
If the actual Net T&D is greater than the Net T&D reflected in rates, the company will accrue a regulatory asset and increase its revenues by the revenue requirement impact of such difference (i.e., a return on investment, depreciation and income taxes). If the actual Net T&D is less than the Net T&D reflected in rates, the company will accrue a regulatory liability and decrease its revenues by the revenue requirement impact of such difference. At December 31, 2005, a regulatory asset of $38 million was deferred related to this reconciliation.
If the actual amount of pension or other postretirement benefit costs, environmental remediation costs and, if the variation exceeds 2.5 percent, property taxes or the cost of moving facilities to avoid interfering with government projects is greater than the respective amount for each such cost reflected in rates, the company will accrue a regulatory asset for the difference and defer recognition in income of the difference. If the actual amount is less than the amount reflected in electric rates, the company will accrue a regulatory liability for the difference and decrease its revenues by the amount of such difference. Any regulatory asset resulting from these cost reconciliations is subject to offset, as described below, if the company earns, excluding the effect of the incentives and penalties discussed below (Adjusted Earnings), between an 11.4 percent and a 13 percent return on equity (based on the companys actual capitalization, subject to a maximum equity ratio of 50 percent). No regulatory asset is to be accrued if Adjusted Earnings exceed a 13 percent return on equity.
Under the 2005 Electric Rate Agreement, any Adjusted Earnings between an 11.4 percent and a 13 percent return on equity are to be used to offset 50 percent of any regulatory asset resulting from the cost reconciliation. The company can retain 50 percent of any remaining above-target Adjusted Earnings, with the balance being deferred for the benefit of customers. If Adjusted Earnings exceed a 13 percent return, the company can retain 25 percent of the above-target Adjusted Earnings, with the balance being deferred for the benefit of customers.
The 2005 Electric Rate Agreement also provided for the continuation of the rate provisions pursuant to which the company recovers its potential strandable costs and its purchased power and fuel costs from customers.
The 2005 Electric Rate Agreement included potential positive earnings adjustments (incentives) if the company meets certain standards for its retail access and demand side management programs, and potential negative earnings adjustments (penalties), which could be substantial, if it does not meet certain standards for (i) frequency and duration of service interruptions; (ii) major outages; (iii) repair, removal or replacement of damaged poles, temporary shunts, street lights, traffic signals and circuit breakers; and (iv) customer service. In 2005, an $8 million penalty for not meeting certain standards for duration of service interruptions was recorded.
In accordance with the 2005 Electric Rate Agreement, the company recognized a $100 million pre-tax charge in 2004 to
Notes to the Financial Statements Continued
resolve certain issues raised in the proceeding, relating primarily to prior period pension credits.
In accordance with the 2005 Electric Rate Agreement, at December 31, 2005, Con Edison of New York estimated that its Adjusted Earnings above 11.4 percent for the rate year ending March 31, 2006 would exceed the target sharing level by $59 million, of which $47 million was applied to reduce regulatory assets arising from the cost reconciliations, and $6 million was reserved for customer benefit.
In 1997, the PSC approved a four-year O&R restructuring plan pursuant to which O&R sold all of its generating assets and made retail access available to all of its electric customers effective May 1999. In 1998 and 1999, similar plans for O&Rs utility subsidiaries in Pennsylvania and New Jersey were approved by state regulators.
In October 2003, the PSC approved agreements among O&R, the staff of the PSC and other parties with respect to the rates O&R can charge to its New York customers for electric service. The electric agreement, which covers the period from July 2003 through October 2006, provides for no changes to electric base rates and contains provisions for the amortization and offset of regulatory assets and liabilities, the net effect of which will reduce electric operating income by a total of $11 million (pre tax) over the period covered by the agreement. The agreement continues to provide for recovery of energy costs from customers on a current basis. It also provides for O&R to share equally with customers earnings above a 12.75 percent return on common equity during the three-year period from July 2003 through June 2006. Beginning July 2006, O&R will not be subject to earnings sharing.
In July 2003, the New Jersey Board of Public Utilities (NJBPU) ruled on the petitions of Rockland Electric Company (RECO) for an increase in electric rates and recovery of deferred purchased power costs. The NJBPU ordered a $7 million decrease in RECOs electric base rates, effective August 2003, authorized RECOs recovery of approximately $83 million of previously deferred purchased power costs and associated interest and disallowed recovery of approximately $19 million of such costs and associated interest. At December 31, 2002, the company had accrued a reserve for $13 million of the disallowance, and at June 30, 2003 reserved an additional $6 million for the disallowance.
In July 2004, the NJBPU approved RECOs Phase II petition to increase base rates annually by $2.7 million (2.0% increase), effective August 1, 2004. The Phase II decision provides for the recovery of carrying costs for two substation projects and specified additional reliability programs. Also in July 2004, a special purpose entity formed by RECO (which is included in the consolidated financial statements of Con Edison) issued $46 million of 5.22% Transition Bonds and used the proceeds thereof to purchase from RECO the right to be paid a Transition Bond Charge (TBC) and associated tax charges by its customers relating to the balance of previously deferred purchased power costs, discussed above. The TBC replaced a Transition Recovery Charge, a temporary surcharge that was effective August 1, 2003.
Pike County Light & Power Company (Pike) is obligated under Pennsylvania law to serve those customers who do not purchase electricity from other suppliers. In January 2006, Pike began charging new rates to these customers that reflected prices resulting from a competitive auction, overseen and approved by the Pennsylvania Public Utility Commission (PPUC). As a result, customers bills increased substantially. Subsequently, the PPUC initiated a fact-finding investigation into the competitive electric market in Pikes service territory.