Building to Meet Rising Demand Key to O&R Rate Request; If Granted by NYSPSC, Increase Would Be First in 14 Years

PEARL RIVER, NY Aug. 10, 2007 — Electric system expansion and service reliability improvements driven by a growing customer base and increasing demands for electricity has prompted Orange and Rockland Utilities, Inc. (O&R) to file today with the New York State Public Service Commission (NYSPSC) an electric base rate case seeking an increase in electric delivery rates.

If approved by the NYSPSC, this increase would not go into effect until July 2008 and would be the first O&R electric base rate increase since 1993. During that period, O&R reduced its base rates five times for a total of 16 percent.

The filing calls for tens of millions of dollars in investment in the communities O&R serves in Rockland, Orange and Sullivan counties in New York for building new substations, upgrading infrastructure, including transmission and distribution lines and facilities, and further automating key electric system operations, including a Smart Grid pilot program, to provide greater service reliability and control over costs for customers.

In addition to enabling investments to help provide O&R customers with safe, adequate and proper service at reasonable rates, the rate proposal would, at the same time, help to provide O&R with the necessary financial security to attract the required capital to finance these projects at a reasonable cost.

O&R President and Chief Executive Officer John D. McMahon said, "O&R has not had a rate increase since 1993 due in large part to our success in continuing to achieve increased productivity and greater operating efficiencies in our business. Now, we have reached the point where we require rate relief to continue to meet our customers' electric needs."

He added, "Since O&R's last electric base rate increase in 1993, our customers' use of electricity has dramatically changed as has their dependence on the services electricity makes possible. Virtually every new home built in our service territory has central air conditioning. From the rise of the Internet to the increased affordability of home computers to the development of plasma screen TVs, electricity usage has grown substantially. To meet that substantial growth reliably, O&R must fortify and expand its electric delivery system."

He said, "At the same time, we have developed a number of innovative and creative programs to help our customers use energy more wisely, more efficiently, and at a lower cost. We are making those proposals, as directed by the regulators, under a separate proceeding in September."

McMahon said, "This significant continuing investment in the communities we serve offers more than increased electric service reliability. This plan offers residential customers greater well-being and comfort, business customers' more confidence in the continuity and security of their operations, and public officials the potential for greater prosperity for our communities, for our people and for our economy through new development, more jobs and an expanding tax base."

To provide for the continued reliable operation of the O&R delivery system for the benefit of its 221,000 New York electric customers, O&R is seeking approval of a $47.8 million increase in electric base delivery rates, an overall increase in electric revenues of 7.8 percent or a 25.7 percent increase in delivery revenues.

If this filing is approved by the NYSPSC, the total electric bill for a typical residential electric full service customer using a monthly average of 677 kilowatt hours (kWh) would increase overall on average $12.35 per month, from $114.17 to $126.52, or a 10.8 percent increase from today's rates.

Since O&R's last rate increase in 1993, the typical residential customer's monthly electric usage has increased 22.5 percent, from 552 kWh to 677 kWh.

That demand continues to rise. O&R's customers' demand for electricity, chiefly for air conditioning, broke O&R's all-time record for the second year in a row with 1,617 megawatts (MW) of demand on August 2, 2006.

In fact, five of the top 10 highest demand records in O&R history were set in the summer of 2006. The seventh highest demand day in O&R's history was this summer on July 10 with 1,474 MW of demand. The other four records in the top 10 were set in 2005. The eleventh and twelfth highest demand days were also this year: August 8, with 1,450 MW of demand and August 2 with 1,446 MW of demand.

This rate filing only covers the cost of delivering electricity to O&R's customers. The other two components that affect the monthly electric bill are the cost of the electricity itself which is set by largely unregulated market activity and the amount of electricity the customer uses, both of which have grown substantially over the past 14 years.

O&R is planning approximately $185 million in new capital investment over the next three years that will directly benefit the communities O&R serves. Chief among those projects are these:

In Rockland County, the plan calls for more than $60 million in new capital investment including two new substations (Little Tor - $9.7 million and Snake Hill Road - $7.02 million) and a substation expansion (New Hempstead - $8.0 million) in Clarkstown, two new substations (Orangeburg - $9.8 million and Tappan - $8.8 million) in Orangetown and the upgrading of transmission lines from Hillburn to Sloatsburg ($1.6 million) and Stony Point to West Nyack ($1.5 million).

In Orange County, the plan calls for almost $90 million in new capital investment including three new substations (Mount Hope - $7.6 million, Goshen - $7.6 million and Warwick - $11.7 million), two substation upgrades (Monroe - $6.6 million and Port Jervis - $9 million), and a substation expansion (Sugarloaf - $5.25 million). Also outlined in the plan are upgrades on transmission lines running between Port Jervis and Rio ($1.5 million) and Sugarloaf and Middletown ($13.9 million).

That Orange County total also includes the Shoemaker substation expansion ($1.3 million) completed this spring and the new transmission line between Westtown and Port Jervis ($14 million) completed this summer. Today's proposal includes another $36 million in capital investments that benefit both Orange and Rockland Counties.

To maintain the ongoing reliability, safety and security of the electric distribution system, O&R also will initiate a number of high-tech projects to serve the expanding needs of the communities it serves.

Smart Grid

O&R is proposing to develop a new and innovative pilot project that couples state-of-the-art equipment design with cutting-edge technological advances in computer analysis, system monitoring and control to enhance electric system reliability and service.

This advanced system would be capable of providing a significantly higher level of electric service reliability by restoring customers' electric service automatically when disturbances occur and minimizing the extent of outages through expanded distribution automation.

O&R proposes to implement its Smart Grid pilot project in the vicinity of the Company's West Nyack substation and the proposed Snake Hill substation, both in West Nyack, N.Y. The Smart Grid pilot project would be implemented over a three-year period at a capital cost of approximately $4.4 million.

Advanced Metering Initiatives (AMI)

AMI systems consist of metering and communications infrastructure as well as the related computers and software applications. While the metering function is the largest cost element of the system, the communication system that would permit two-way communication between the utility and the meter may have even greater potential value for improving service reliability and giving customers greater control over their costs.

To explore the feasibility of employing this radio-signal based technology in O&R's service territory, the Company proposes two field demonstrations. One of the demonstration projects would take place at approximately 5,000 metering points divided among gas and electric customers in the rolling hills of the Orange County communities of Unionville and Westtown.

The other demonstration projects would take place among the same number of metering points in the low-lying areas where gaps exist with traditional radio technologies near the Hudson River in the Rockland County communities of Nyack and Valley Cottage, where it will integrate with the Smart Grid program.

The total electric costs associated with these projects from mid-2008 through 2011 would be $2.4 million in capital and $359,000 in maintenance.

Enhanced Distribution Automation

O&R plans to expand this successful program which reduces the number, scope and duration of outages on O&R's electric distribution system by shortening the length of existing circuits through the installation of sectionalizing devices. O&R's plan is to increase the number of these devices and to coordinate their installation with new substation construction.

The new devices also will be equipped with two-way communication capabilities (and the already installed devices will be retrofitted) so that they can be monitored and operated remotely rather than by hand in the field as they are now. O&R estimates that the incremental capital costs for this program will total approximately $1 million annually.

Further, this filing addresses significant costs for manufactured gas plant remediation projects, wage and benefit schedules for employees and pensions and benefits for retired employees, which are consistent with the industry in our region.