<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(Mark One)

       X          ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1997

                                       OR

                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from            to

                  Commission file number            1-4315


                       ORANGE AND ROCKLAND UTILITIES, INC.
             (Exact name of registrant as specified in its charter)


                    New York                             13-1727729
         (State or other jurisdiction of              (I.R.S. Employer
         incorporation or organization)              Identification No.)

        One Blue Hill Plaza, Pearl River, New York                10965
         (Address of principal executive offices)               (Zip code)

                                 (914) 352-6000
              (Registrant's telephone number, including area code)

           Common Stock, $5 Par Value -- New York Stock Exchange, Inc.
          (Securities registered pursuant to Section 12(b) of the Act)


                         Preference Stock, No Par Value
          (Securities registered pursuant to Section 12(g) of the Act)


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X


                                   (Continued)
<PAGE>   2
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

                           (Continued from first page)



                       ORANGE AND ROCKLAND UTILITIES, INC.
             (Exact name of registrant as specified in its charter)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                                       Yes   X              No

At February 28, 1998, the approximate aggregate market value of the voting stock
held by non-affiliates of the registrant was $592,748,071*.

At February 28, 1998, the registrant had 13,518,690 shares of Common Stock ($5
par value) outstanding.

Documents incorporated by reference:

       Annual Report to Shareholders for the year ended December 31, 1997
       incorporated in Part I, Part II and Part IV to the extent described
       therein.

       The Company's definitive Proxy Statement in connection with the 1998
       Annual Meeting of Common Shareholders incorporated in Part III to the
       extent described therein.

*   For purposes of this calculation, it is assumed that only directors and
    officers of the registrant are affiliates of the registrant.


<PAGE>   3
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
PART I.                                                                     PAGE
<S>                                                                         <C>
ITEM 1.          Business
                 General Development of Business                             1
                 Financial Information about Industry Segments               1
                 Narrative Description of Business:                          2
                     Principal Business                                      2
                     Electric Operations                                     2
                     Gas Operations                                         10
                     Diversified Activities                                 13
                     Construction Program and Financing                     14
                     Regulatory Matters                                     16
                     Utility Industry Risk Factors and Competition          18
                     Environmental Matters                                  19
                     Research and Development                               23
                     Franchises                                             23
                     Employee Relations                                     24
ITEM 2.          Properties                                                 25
ITEM 3.          Legal Proceedings                                          28
ITEM 4.          Submission of Matters to a Vote of Security Holders        41

Executive Officers of the Registrant                                        42

PART II.
ITEM 5.          Market for the Registrant's Common Equity and
                     Related Stockholder Matters                            44
ITEM 6.          Selected Financial Data                                    44
ITEM 7.          Management's Discussion and Analysis of Financial
                     Condition and Results of Operations                    45
ITEM 8.          Financial Statements and Supplementary Data                45
ITEM 9.          Changes in and Disagreements with Accountants on
                     Accounting and Financial Disclosure                    45

PART III.
ITEM 10.         Directors and Executive Officers of the Registrant         45
ITEM 11.         Executive Compensation                                     45
ITEM 12.         Security Ownership of Certain Beneficial Owners
                     and Management                                         45
ITEM 13.         Certain Relationships and Related Transactions             45

PART IV.
ITEM 14.         Exhibits, Financial Statement Schedules and
                     Reports on Form 8-K                                    46

Signatures                                                                  55
Report of Independent Public Accountants on Financial
  Statement Schedules                                                       57
Consent of Independent Public Accountants                                   57
</TABLE>
<PAGE>   4
                                     PART I


ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS:

Orange and Rockland Utilities, Inc. (the "Company") is a New York corporation,
with its principal office at One Blue Hill Plaza, Pearl River, New York 10965
(telephone number 914-352-6000), which was formed originally under the name
Rockland Light and Power Company on May 21, 1926 through the consolidation of a
company having the latter name (organized in 1899), Catskill Power Corporation
and Orange County Public Service Company, Inc. Its present name was adopted on
February 28, 1958, when The Orange and Rockland Electric Company was
consolidated with Rockland Light and Power Company.

The Company has two wholly-owned utility subsidiaries, Rockland Electric Company
("RECO"), a New Jersey corporation, and Pike County Light & Power Company
("Pike"), a Pennsylvania corporation. The Company has two wholly-owned active
non-utility subsidiaries, Clove Development Corporation ("Clove"), a New York
corporation and O&R Development, Inc. ("ORD"), a Delaware corporation. RECO has
two wholly-owned non-utility subsidiaries, Saddle River Holdings, Corp. ("SRH")
and Enserve Holdings, Inc. ("Enserve"), both Delaware corporations. Enserve has
two wholly-owned non-utility subsidiaries, Palisades Energy Services, Inc.
("Palisades") and Compass Resources, Inc. ("Compass") and a wholly-owned
non-utility subsidiary, NORSTAR Holdings, Inc. ("NHI"), all Delaware
corporations. NHI has two wholly-owned non-utility subsidiaries, NORSTAR
Management, Inc. ("NMI"), and Millbrook Holdings, Inc. ("Millbrook"), both
Delaware corporations. NMI is the sole general partner of a Delaware limited
partnership, NORSTAR Energy Limited Partnership ("NORSTAR Partnership"), of
which NHI is the sole limited partner. The NORSTAR Partnership is the majority
owner of NORSTAR Energy Pipeline Company, LLC ("NORSTAR LLC"), a Delaware
limited liability company. The business of the non-utility subsidiaries are
described under the subheading "Diversified Activities" in this Item 1.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS:

Consolidated financial information regarding the Company's principal business
segments, Electric Operations, Gas Operations and Diversified Activities is
contained in Note 13 of the Notes to Consolidated Financial Statements on page
29 of the 1997 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.


                                     - 1 -
<PAGE>   5
NARRATIVE DESCRIPTION OF BUSINESS:

PRINCIPAL BUSINESS

The Company and its utility subsidiaries supply electricity and gas to a
territory covering approximately 1,350 square miles. The eastern boundary of the
Company's service territory extends along the west bank of the Hudson River from
a point in New Jersey six miles north of the George Washington Bridge northerly
for approximately 37 miles to a point in New York a short distance north of the
United States Military Academy at West Point. From the Hudson River, the
Company's territory in New York State extends westward to the Delaware River,
embracing all of Rockland County, most of Orange County and a part of Sullivan
County. In New Jersey, RECO supplies electricity to the northern parts of Bergen
and Passaic Counties and small areas in the northeastern and northwestern parts
of Sussex County. Pike supplies electricity and gas to the northeastern corner
of Pike County, Pennsylvania.

As of December 31, 1997, the Company and its utility subsidiaries furnished
electric service to approximately 269,000 customers in 96 communities with an
estimated population of 681,000 and gas service to approximately 114,000
customers in 57 communities with an estimated population of 482,000. There were
no significant changes in either the population of the Company's service
territory or in the number of customers served in 1997. At December 31, 1996,
electric service was provided to approximately 266,000 customers in 96
communities with an estimated population of 676,000 and gas service was provided
to approximately 113,000 customers in 57 communities with an estimated
population of 478,000. At December 31, 1997 and 1996, 95% of the Company's
residential gas customers used gas as their major heating fuel. While the
territory served is predominantly residential, the Company and its utility
subsidiaries also serve a number of commercial and industrial customers in
diversified lines of business activities from which significant electric and gas
revenues are derived. No single customer accounts for more than 10% of either
gas or electric revenue. The business of the Company and its utility
subsidiaries is seasonal to the extent that sales of electricity are higher
during the summer, mainly due to air conditioning requirements, and sales of gas
are greater in the winter months, primarily as a result of heating requirements.

ELECTRIC OPERATIONS

Sale of Generating Assets. The electric operations of the Company and its
utility subsidiaries have historically included the traditional, vertically
integrated utility services of production, transmission and distribution of
electricity. The Company currently supplies substantially all of the electric
power needs of customers in its retail electric franchise areas in the three
states in which the Company and its utility subsidiaries operate. The
electricity


                                     - 2 -
<PAGE>   6
required to supply such demand is either produced at the Company's generating
plants or purchased by the Company for distribution to its customers. In
addition, the Company has historically provided related utility services such as
customer accounting and billing activities, meter reading and customer services.

As a result of efforts at the Federal and state levels to increase competition
in the electric utility industry, the nature of the Company's electric
operations will change. The primary change is the planned sale by the Company of
its electric production assets. On November 6, 1997, in response to the
competitive initiatives undertaken by the New York State Public Commission (the
"NYPSC"), the Company filed its Electric Rate and Restructuring Plan (the
"Restructuring Plan") in Case 96-E-0900 with the NYPSC. The Restructuring Plan,
which was subsequently approved by the NYPSC by its Orders dated November 26 and
December 31, 1997, provides, among other things, for the sale by auction of all
of the Company's generating assets. The NYPSC's November 26, 1997 order
approving the Restructuring Plan provided that, subject to certain other
conditions, the Company could participate as a bidder in the auction of its
generating assets. The Company elected not to participate as a bidder in this
auction, and on December 11, 1997, distributed its Preliminary Divestiture Plan
to the NYPSC staff and the other parties in Case 96-E-0900. After reviewing
comments submitted by the NYPSC and other parties on its Preliminary Divestiture
Plan, on February 3, 1998 the Company filed its Final Divestiture Plan with the
NYPSC.

As a result of the foregoing, the following description of the Company's
electric operations should be read in conjunction with disclosures regarding the
competitive initiatives at the Federal and state level, the filings made by the
Company and its utility subsidiaries regarding these initiatives, and the
anticipated effect that these initiatives will have on the future operations of
the Company and its utility subsidiaries. Such disclosure is contained in Item
3, Legal Proceedings, of this Form 10-K under the captions "Restructuring
Litigation" and "Regulatory Matters - Competition" and in the 1997 Annual Report
to Shareholders, in Note 4 and in Note 12 under the caption "Restructuring
Litigation" of the Notes to Consolidated Financial Statements on pages 23 and
28, respectively, which information is incorporated by reference in this Form
10-K Annual Report.

Generating Capacity and Purchased Power. As described more fully in Item 2 of
this Form 10-K Annual Report under the subheading "Electric Generating
Facilities," the nameplate capacity of the Company's plants provides the Company
with a net generating capacity of 981 megawatts ("Mw") in the summer and 993 Mw
in the winter. Additionally, the Company purchases capacity, as more fully
described below, to satisfy its reserve requirements, as well as any demand in
excess of its installed capacity. The electric energy which RECO and Pike
distribute to their customers is supplied by the Company. The maximum


                                     - 3 -
<PAGE>   7
historical one-hour demand for the Company and its utility subsidiaries occurred
on July 15, 1997 and was 1,143 Mw.

In addition to the energy produced at its generating facilities, the Company,
through various transmission interconnections, purchases both capacity and
energy when needed to meet load and reserve requirements and also when such
power is available at a price lower than the Company's cost of production. The
Company maintains transmission interconnections with Central Hudson Gas and
Electric Corporation ("Central Hudson"), Public Service Electric and Gas Company
("PSE&G") and Consolidated Edison Company of New York, Inc. ("Con Ed"). Through
these interconnections, and as a member of the New York Power Pool ("NYPP"), the
Company can exchange power directly with the above utilities and, through the
facilities of other members of the NYPP, the Company can exchange power with all
members of the NYPP and with utilities in pools in neighboring states. In
addition, members of the NYPP are able to coordinate inter-utility transfers of
bulk power in order to achieve economy and efficiency, cooperate in long range
planning of generation and transmission facilities and coordinate inter-utility
operating and emergency procedures to assure reliable, adequate and economic
electric service throughout the state. Through the NYPP control center, the
Company is able to purchase power in order to optimize its
generation-interchange mix, using the lowest cost energy available to the
Company in the interconnected system.

On January 31, 1997, the Company, in conjunction with the other seven member
systems of the NYPP, filed tariffs with the Federal Energy Regulatory Commission
("FERC") seeking to establish an Independent System Operator ("ISO") and related
institutions which would replace the NYPP. The ISO structure is intended to
foster a fully competitive market in New York State by facilitating a more
efficient electricity market and by providing for a visible spot energy market
as well as a state-wide locational pricing mechanism and an associated
transmission congestion pricing mechanism. On December 19, 1997 a supplemental
filing was made with the FERC which provides for a revised governance structure
with an ISO board comprised of individuals unaffiliated with the member systems
or any other market participant.

The contemplated ISO structure, if approved by the FERC, would provide enhanced
operating efficiencies regarding the transfer of power between power producers
and power purchasers. The primary economic difference between the existing NYPP
structure and the ISO structure will be the move from the current cost-based
rates to a market-based rate structure for pricing power transactions. Power
producers seeking to sell power through the ISO would have their power
dispatched based on price, with the least expensive power being dispatched
first, and the price of power at any location would be the lowest price
generation that is the next available for dispatch. Regional operating problems,
such as load pockets and transmission constraints, would be addressed through a
locational marginal pricing mechanism. While the Company and the other members
of the NYPP have


                                     - 4 -
<PAGE>   8
requested that the FERC act expeditiously on the filing, the Company cannot
predict either the timetable or the outcome of this proceeding.

During 1997, the Company had agreements in place for both capacity and energy
purchases. Capacity purchases included an agreement with PSE&G which provided
100 Mw of winter capacity and 175 Mw of summer capacity, an agreement with the
New York Power Authority ("NYPA") for 25 Mw of year-round capacity from the
Blenheim-Gilboa pumped storage facility (the "Gilboa Facility") and an agreement
with North American Energy Conservation, Inc. ("NAEC") which provided for 100 Mw
of capacity in the winter capability period and 150 Mw during the summer
capability period.

With regard to energy, the Company purchased approximately 47% of its energy
requirements during 1997. These purchases, which were made primarily through
short-term purchase agreements and interchange agreements, were primarily
economy transactions made in the interest of lowering costs to the Company's
customers. This is demonstrated by the fact that the Company's installed
generating capability for the 1997 summer capability period could have provided
over 86% of the Company's energy requirements at the time of the Company's peak
demand. The use of purchased power under these circumstances reflects the
Company's policy of supplementing its electric generation with purchased power
not only when needed to meet load requirements but also when such power is
available at a cost lower than the cost of production.

Information regarding future power supply, particularly the status of capacity
purchase contracts with Independent Power Producers and Qualifying Facilities,
is contained under the caption "Future Energy Supply and Demand" in this Item 1.
Reference is also made to the information contained under the caption "Utility
Industry Risk Factors and Competition" in this Item 1.


                                     - 5 -
<PAGE>   9
Fuel Supply. The Company's 981 Mw summer generating nameplate capacity rating is
available from the following fuel sources:

<TABLE>
<CAPTION>
                                                      COAL,
                                       OIL             OIL                                  GAS
    PLANT                             & GAS           & GAS              HYDRO            TURBINE          TOTAL
----------------------------------------------------------------------------------------------------------------
                                                    (MEGAWATTS)
<S>                                   <C>           <C>                 <C>               <C>              <C>
Lovett Plant
   Unit 3                             63.0                                                                  63.0
   Units 4 & 5                                         399.6                                               399.6

Hydro Plants
   Swinging Bridge
   Mongaup, Rio and
   Grahamsville                                                          43.8                               43.8

Gas Turbine Plants
   Hillburn and
   Shoemaker                                                                               74.0             74.0

Bowline Point Plant
   Units 1 & 2                       400.6                                                                 400.6
                                     -----             -----            -----             -----            -----
                                     463.6             399.6             43.8              74.0            981.0
                                     =====             =====            =====             =====            =====
</TABLE>

*   For a description of the Company's generating plants, see Electric
    Generating Facilities" in Item 2 of this Form 10-K Annual Report.

The Company's principal generating plants use natural gas, coal, or oil as their
primary fuels. This tri-fuel strategy enables the Company to control, to some
extent, the risks associated with one of the most volatile components of
electric production costs based on relative fuel prices and fuel availability.
In addition, the Company's fuel strategy has enabled it to reduce its dependence
on oil through the use of coal as the primary fuel for the Lovett Plant's two
largest generating units and incorporates economy power purchases from other
systems when such purchases are less expensive than generation. There are,
however, certain factors which affect fuel price and availability which are
beyond the control of the Company. These factors include the domestic and
international fuel supply situation, environmental regulations, conservation
measures and the availability of alternative fuels.


                                      - 6 -
<PAGE>   10
Electricity available for sale is provided through a mix of Company generation
by various fuel types, supplemented by purchased power when such power is
available at a price lower than the price of generation or is needed to meet
load requirements. Details for the years 1993 through 1997 are as follows:

<TABLE>
<CAPTION>
                                        1993            1994           1995           1996            1997
                                        ----            ----           ----           ----            ----
<S>                                     <C>             <C>            <C>            <C>             <C>
         Gas                              16%             23%            23%             8%             14%
         Coal                             33              36             27             33              34
         Oil                               5               6              7              1               2
         Hydro                             4               3              3              4               3
         Purchased Power                  42              32             40             54              47
                                          --             ---            ---            ---             ---

              Total                      100%            100%           100%           100%            100%
                                         ===             ===            ===            ===             ===
</TABLE>

Gas - Natural gas is used as fuel for electric generation at the Company's
Lovett and Bowline Point Plants and at the Hillburn and Shoemaker Gas Turbine
Plants when it is available and economic. Substantially all of the gas used in
electric generation is acquired through spot market purchases. During 1997, gas
was the predominant fuel burned at the Bowline Point Plant. The Company expects
to use natural gas in the Bowline Point Plant and the Lovett Plant during 1998,
whenever such gas is more economical than alternative fuels. In 1997, the
Company used 3.0 billion cubic feet ("Bcf") and 4.3 Bcf of gas at the Lovett
Plant and the Bowline Point Plant, respectively.

Coal - The low sulfur coal (1.0 lbs - SO2 per million British Thermal Unit
("MMBTU")) used in Lovett Plant Units 4 and 5 is supplied to the Company
primarily through a long term contract with Massey Coal Sales Company, Inc.
Under this contract, the Company maintains the ability to purchase alternative
fuel in place of coal whenever it is in its best interest to do so. The coal
burned in the Lovett Plant is low in ash (typically 8%) and high in BTU content
(26 MMBTU's per ton). During 1997 coal was the predominant fuel burned at the
Lovett Plant, and the Company expects it to be the predominant fuel burned
during 1998. Information regarding the Company's coal supply contract is
contained in Note 12 of the Notes to Consolidated Financial Statements under the
caption "Coal Supply Contracts" on page 27 of the 1997 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.

Oil - The Company has the ability to burn oil at all of the generating units at
the Lovett Plant and the Bowline Point Plant. The Company purchased no oil for
its Lovett Plant in 1997 and does not anticipate purchasing any significant
quantity of oil for the Plant in 1998. Con Ed supplies #6 oil (0.37% maximum
sulfur content by weight) to the Bowline Point Plant under a contract between it
and the Company. Pursuant to that contract, Con Ed has also agreed to provide a
backup oil supply for the Company's Lovett Plant under certain conditions.


                                     - 7 -
<PAGE>   11
Hydro - Water for the operation of the Company's Mongaup River Hydro Plants is
controlled by the Company through the ownership of the necessary land in fee or
through easements. In the case of the Company's Grahamsville Hydro Plant, water
is obtained under contract with the City of New York Board of Water Supply. This
contract, which expires in 2005, entitles the Company to 8.1 Bcf of free water
each year. In 1997, the total amount of water used was 19.0 Bcf. Of this total,
10.9 Bcf was billed at varying rates based on an average cost of all fuels used
in power generation.

Purchased Power - The Company's practice regarding purchased power is to
supplement the Company's electric generation by purchasing both capacity and
energy when needed to meet load and reserve requirements and also when such
power is available at a price lower than the cost of production. Details
regarding purchased power arrangements are contained under the captions
"Generating Capacity and Purchased Power" and "Future Energy Supply and Demand"
in this Item 1.

Additional information regarding fuel and purchased power costs, including a
description of the fuel adjustment clauses contained in the Company's tariff
schedules, is contained in the 1997 Annual Report to Shareholders in the "Review
of the Company's Results of Operations and Financial Condition" under the
caption "Electric Energy Costs" on page 14 and in Note 1 of the Notes to
Consolidated Financial Statements under the caption "Fuel Costs" on page 21,
which information is incorporated by reference in this Form 10-K Annual Report.

Future Energy Supply and Demand. The Company continues to be committed to
meeting customer energy needs by providing reliable energy service at the lowest
prudent cost and in an environmentally sound manner. The transition to a
competitive business environment will affect the traditional vertically
integrated utility structure and will necessitate changes in the way the
Company's customers provide for their power needs. As a result, this section
should be read in conjunction with the disclosures regarding competition in the
electric utility industry, which can be found in this Form 10-K Annual Report in
Item 1 under the captions "Sale of Generating Assets," and "Utility Industry
Risk Factors and Competition" and in Item 3, Legal Proceedings, under the
captions "Restructuring Litigation" and "Regulatory Matters - Competition."

The Company has responded to the changes that have occurred in the utility
industry and has incorporated a significant number of conservation and demand
reduction alternatives as well as purchased power into its energy strategy. The
Company's Demand Side Management ("DSM") program involves efforts to control
electric peak demand and energy usage, and addresses the need to improve plant
utilization by making customer demand more complementary, over time, to the
available capacity. DSM programs are available to all market segments. Through
December 31, 1997, DSM efforts have reduced the annual need for


                                     - 8 -
<PAGE>   12
increased energy of 250,000 Mwh through programs administered by the Company and
by RECO as well as through contracts with outside energy service companies
pursuant to a competitive bidding program. The costs of DSM programs are
recoverable on a current basis in both the New York and New Jersey service
territories. Additional information regarding the recovery of DSM costs is
contained under the caption "Other Utility Operating Expenses and Taxes" in the
"Review of the Company's Results of Operations and Financial Condition" on page
15 of the 1997 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report. With regard to the status of the
Company's public policy programs such as DSM in the move to a competitive
utility environment, the Company's Restructuring Plan, as approved by the NYPSC,
provides for a nonbypassable System Benefits Charge ("SBC") which will be used
to collect the costs of public policy programs. The NYPSC may appoint a
state-wide third-party administrator to administer the SBC funded programs,
although the establishment of such a state-wide administrator will not preempt
program funding for commitments made by the Company prior to the approval of the
Restructuring Plan.

The Company's Supply Side Management program involves the acquisition of future
increments of capacity and energy as needed to meet anticipated load and reserve
requirements and, in particular, to reduce the cost of electricity to the
Company's customers. With regard to future purchases of capacity, contracts are
in place with the NYPA, NAEC and PSE&G. The NYPA agreement for firm purchases
from the Gilboa Facility, which provides for 25 Mw of year-round capacity, will
be in effect through April 2015. The agreement with NAEC will provide capacity
ranging between 100 Mw and 150 Mw through October 1998, and includes an option
for the Company to extend the contract through October 2001. In addition, a firm
purchased power agreement with PSE&G will provide between 100 Mw and 200 Mw of
capacity during the contract term which extends through October 2000. At the
option of the Company, additional capacity purchases are available throughout
the term of the PSE&G contract which, together with the firm contract capacity,
would bring the total capacity available under the PSE&G contract to between 300
Mw and 400 Mw. Information regarding future payments under capacity purchase
contracts is contained in Note 12 of the Notes to Consolidated Financial
Statements under the caption "Power Purchase Agreements" on page 27 of the 1997
Annual Report to Shareholders, which information is incorporated by reference in
this Form 10-K Annual Report.

Regarding future purchases of energy, the Company's contract with NAEC provides
for a minimum of 1.3 million megawatt hours of firm economy purchases during the
winter capability periods beginning with the 1995/1996 period and ending with
October 1998. In addition, the Company will continue to seek opportunities to
secure economical increments of purchased power, particularly through
interchange transactions, short-term firm contracts and spot purchases.


                                     - 9 -
<PAGE>   13
During 1994 and 1995, the Company negotiated termination agreements with three
independent power producers scheduled to provide capacity and energy to the
Company in the late 1990's. The costs associated with the termination of these
contracts have been approved for recovery by the NYPSC and the New Jersey Board
of Public Utilities ("NJBPU"). Information regarding these costs is contained in
the "Review of the Company's Results of Operations and Financial Condition"
under the caption "Other Utility Operating Expenses and Taxes" and in Note 1 of
the Notes to Consolidated Financial Statements under the caption "IPP Settlement
Agreements" on pages 15 and 22 of the 1997 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.

GAS OPERATIONS

The Company distributes purchased natural gas, supplemented at times of peak
load by gas produced in its propane air gas plants.

As of December 31, 1997, the gas distribution system included 1,758 miles of
mains. The highest historical maximum firm daily gas sendout of 206,038 thousand
cubic feet ("Mcf") occurred on January 19, 1994. The maximum firm daily sendout
during 1997 occurred on January 18 and amounted to 177,395 Mcf.

Competitive Initiatives. As a result of initiatives at both the Federal and
state level to foster competition in the gas utility industry, the nature of the
gas operations of local gas distribution companies ("LDCs"), such as the
Company, has undergone certain changes, and it is expected that additional
changes will occur. At the Federal level, the FERC issued Order 636 in 1992,
which was aimed at increasing competition on interstate natural gas pipelines. A
detailed discussion of competitive initiatives at the Federal level, including
the impact on the Company of FERC Order 636, is contained in Item 3, Legal
Proceeding of this Form 10-K under the caption "Regulatory Matters -
Competition." At the state level, the NYPSC, by its orders issued in March and
September 1996, approved gas utility restructuring plans designed to open local
natural gas markets to competition by allowing residential and small commercial
customers of LDCs to purchase gas from a variety of sources other than the
franchised local utility company. A detailed discussion of competitive
initiatives at the state level is contained in Item 3, Legal Proceedings of this
Form 10-K under the caption "Regulatory Matters - Competition." Accordingly, the
following description of the Company's gas operations should be read in
conjunction with disclosures regarding regulatory competitive initiatives
contained elsewhere in this Form 10-K Annual Report. Additional disclosures are
contained in the 1997 Annual Report to Shareholders as follows: in the "Review
of the Company's Results of Operations and Financial Condition" on page 12 under
the headings "Rate Activities, New York -Gas" and on page 14 under the heading
"Gas Energy Costs," as well as in Note 12, of the Notes to Consolidated
Financial Statements under


                                     - 10 -
<PAGE>   14
the heading "Gas Supply and Storage Contracts" on page 27, which material is
incorporated by reference in this Form 10-K Annual Report.

Supply, Transportation and Storage. The Company has firm, long-term gas supply
contracts with seven gas producers. Together these contracts account for all of
the Company's firm gas requirements and include a contract with a Canadian
producer which accounts for approximately 28% of firm contracted supply and
expires in the year 2002. Contracts for the remaining 72% of the Company's firm
gas supply have been executed with six domestic producers. Three of these
contracts are scheduled to expire in 1998. Replacement gas supplies will be
negotiated, consistent with the Company's firm gas requirements. The remainder
have expiration dates ranging between 1999 and 2010. All of the gas supply
contracts contain options for renewal and certain of the agreements contain
"re-opener" provisions which allow the Company to modify price and operating
terms under certain conditions.

In addition to its long-term contracted supply sources, the Company purchases
spot gas from producers primarily for the Company's use in electric generation.
During 1997, the Company made spot purchases of approximately 13.7 million Mcf
of gas or 34% of the total gas supply.

To supplement purchased gas, the Company manufactures gas at its propane air gas
plants located in Middletown, Orangeburg and Suffern, New York which have a
combined capacity of 30,600 Mcf per day of natural gas equivalent. This
capacity, together with gas purchases under contracts between the Company and
its suppliers, is expected to provide adequate peak day supplies to serve
existing customers.

In addition to the gas supply contracts, the Company has provided for the
transportation of gas through firm, long-term transportation agreements with
four major pipeline companies: Tennessee Gas Pipeline Company ("Tennessee"),
Columbia Gas Transmission Corporation ("Columbia"), Algonquin Gas Transmission
Company ("Algonquin") and Texas Eastern Transmission Corporation ("Texas
Eastern"). The transportation agreements with one of these pipelines will expire
during November 2000. Transportation contracts with the other three pipeline
companies have expiration dates from 2004 through 2012. The Company also has
entered into interruptible transportation agreements with the same pipeline
companies. All transportation contracts contain options for renewal.

With regard to gas storage, the Company also has long-term gas storage contract
arrangements with Tennessee, Columbia and Texas Eastern. The earliest expiration
date of any of these storage contracts is 2000 and all storage contracts contain
options for renewal.

As noted earlier, the Company's maximum firm daily sendout of gas occurred
during January 1994 and amounted to 206,038 Mcf. This compares to the maximum
daily firm gas delivery capability of 225,839


                                     - 11 -
<PAGE>   15
Mcf which is available from the following sources: direct purchases - 118,471
Mcf; storage withdrawals - 76,768 Mcf; and Company manufactured gas - 30,600
Mcf.

Additional information regarding gas supply and gas storage contracts is
contained in Note 12 of the Notes to Consolidated Financial Statements under the
caption "Gas Supply and Storage Contracts" on page 27 of the 1997 Annual Report
to Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.

Transportation for Others. The Company provides firm and interruptible gas
transportation services for end users in its service territory who elect to
obtain their own direct gas supplies. During 1997, approximately 4.5 Bcf of gas
was transported for such end users.

Pipeline Capacity and Off-System Sales. As a result of the provisions of FERC
Orders 636 and 63, and in conjunction with the NYPSC Order in Case 92-G-0050,
the Company has marketed excess pipeline transmission capacity and has retained
certain profit levels attributable to both the marketed capacity and to
off-system gas sales. Information regarding these items is contained in the
"Review of the Company's Results of Operations and Financial Condition" under
the caption "Gas Sales and Revenues" on page 14 of the 1997 Annual Report to
Shareholders, which information is incorporated by reference in this Form 10-K
Annual Report.

Take-or-Pay Surcharge Costs and FERC Order No. 636 Transition Costs. As a result
of a 1987 FERC order, as well as other legal and regulatory actions since that
time, the Company has deferred certain gas supplier take-or-pay costs. A
settlement with the NYPSC in Case 88-G-062 granted the Company full recovery of
its take-or-pay liability over an amortization period which extends to March
1999.

In addition, certain costs incurred by gas pipeline companies in complying with
FERC Order No. 636 have been approved, by the FERC, for allocation to
distribution companies, including the Company. It is currently estimated that
the Company's obligation related to Order No. 636 transition costs will amount
to $28.6 million, of which $27.3 million has been paid through December 31,
1997.

Information regarding take-or-pay charges and FERC Order No. 636 transition
costs, including the recoverability of these costs under the Company's rate
structure, is contained under the caption "Gas Energy Costs" in the "Review of
the Company's Results of Operations and Financial Condition" and in Note 1 of
the Notes to the Consolidated Financial Statements under the caption "Rate
Regulation" on pages 14 and 21, respectively, of the 1997 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report. Reference is also made to Item 3, "Legal Proceedings," of this
Form 10-K Annual Report under the caption "Regulatory Matters - Competition."


                                     - 12 -
<PAGE>   16
DIVERSIFIED ACTIVITIES

Both the Company and RECO have certain non-utility subsidiaries which, at
December 31, 1997, were engaged in energy services ventures and land
development. The Company's Consolidated Financial Statements, which are
incorporated in this Form 10-K Annual Report by reference to the Company's 1997
Annual Report to Shareholders, include the results of operations of all
diversified activities, including the activities of the gas marketing business
which has been discontinued and, as such, are reported on the Company's
consolidated financial statements as "Discontinued Operations." With the
exception of the discontinued gas marketing operations, neither the assets of
the non-regulated businesses nor the continued operation of the non-regulated
business lines are material to the operations of the Company. For these reasons,
the disclosure related to the Company's ongoing diversified activities, as
prescribed by Regulation S-K, has, with few exceptions, been omitted from other
sections of this Form 10-K Annual Report.

Capital contributions to the non-utility subsidiaries by the Company and RECO
are borne by the Company's shareholders. Any profits, losses, or tax savings
from investments in non-utility subsidiaries accrue to such shareholders and are
not included in the cost of service for ratemaking purposes. A description of
the non-utility subsidiaries of the Company and RECO follows.

Saddle River Holdings Corp. SRH, a wholly-owned subsidiary of RECO, was
established for the purpose of investing in non-utility business ventures. NMI,
an indirect subsidiary of SRH which was engaged in natural gas marketing, has
discontinued all gas marketing activities and is winding-up the remaining
portion of the gas marketing business. NMI is the sole general partner of
NORSTAR Partnership, of which NHI is the sole limited partner and Shell NORSTAR
Inc., a wholly-owned subsidiary of Shell Gas Trading Company, was a limited
partner until August 20, 1997. The NORSTAR Partnership is the majority owner of
NORSTAR LLC. Additional information regarding the discontinued gas marketing
operations, including its effect on the Company's consolidated financial
position and results of operations, is contained in the 1997 Annual Report to
Shareholders in the "Review of the Company's Results of Operations and Financial
Conditions" beginning on page 13 under the captions "Discontinued Operations,"
"Financial Performance" and "Results of Operations" which information is
incorporated by reference in this Form 10-K Annual Report. Reference is also
made to Note 3 of the Notes to Consolidated Financial Statements on page 23 of
the 1997 Annual Report to Shareholders, which information is also incorporated
by reference in this Form 10-K Annual Report.

Millbrook, a subsidiary of NHI, leases approximately twelve acres of non-utility
real estate in Morris County, New Jersey, pursuant to a renewable ten-year
leasehold agreement. In 1997, Millbrook secured an


                                     - 13 -
<PAGE>   17
option to purchase the leased property, or otherwise arrange for the transfer or
sale of the property, including Millbrook's leasehold interest, to a third party
under an arrangement that would defer payment until a third party sale is
completed.

Enserve Holdings, Inc. Enserve, a wholly-owned subsidiary of RECO, was formed
during 1997 to hold investments in energy-related ventures. Enserve has one
wholly-owned active subsidiary, Palisades, formerly a subsidiary of SRH which
began active business operations during 1997. Palisades' business plan call for
it to market a variety of energy services, including energy audits, performance
contracting, operations contracting and energy consulting.

Clove Development Corporation. Clove, a wholly-owned subsidiary of the Company,
holds approximately 5,200 acres of real estate, located primarily in the Mongaup
Valley region of Sullivan County, New York. Historically, Clove's revenues have
been derived primarily from the sale of timber and sand, property rentals and
periodic sales of land.

Certain portions of Clove's property lend themselves to recreational
development. Two small subdivisions have been developed and substantially sold
off. A third development, Lakeside Forest at Swinging Bridge, is being marketed.

O&R Development, Inc. ORD, a wholly-owned subsidiary of the Company, was
established to promote industrial and corporate development within the Company's
service territory by providing improved sites and buildings. ORD owns
Interchange Commerce Center ("ICC Project"), a 250 acre tract of land in Orange
County, New York, which is being marketed for sale. The ICC Project has
governmental approvals for the development of 2.7 million square feet of light
industrial, office, warehouse and retail space. Approximately 2,000 linear feet
of street and utilities have been installed, and one building owned by ORD, is
fully leased.

Additional information regarding the non-utility subsidiaries of the Company and
of RECO is contained in the 1997 Annual Report to Shareholders, which
information is incorporated by reference in this Form 10-K Annual Report, as
follows: in the "Review of the Company's Results of Operations and Financial
Condition" beginning on page 13 under the captions "Discontinued Operations,"
"Financial Performance," "Results of Operations" and "Diversified Activities;"
and in the Notes to Consolidated Financial Statements beginning on page 21 in
Note 1 under the captions "Principles of Consolidation," in Note 3, and in Note
13.

CONSTRUCTION PROGRAM AND FINANCING

Construction Program. The construction expenditures, excluding allowance for
funds used during construction, of the Company and its utility subsidiaries for
1998 are estimated at approximately $51.0


                                     - 14 -
<PAGE>   18
million, which consist primarily of routine projects for capital replacements or
system betterments and do not include any additions to generating capacity. The
Company's construction program is under continuous review and the estimated
construction expenditures are, therefore, subject to periodic revision to
reflect, among other things, changes in energy demands, economic conditions,
environmental regulations, changes in the timing of construction activities, the
level of internally generated funds and other modifications to the construction
program.

Information regarding the Company's construction program is contained under the
caption "Liquidity and Capital Resources" in the "Review of the Company's
Results of Operations and Financial Condition" and under the caption
"Construction Program" in Note 12 of the Notes to Consolidated Financial
Statements on pages 15 and 27 respectively, of the 1997 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.

Financing. The Company has historically used short-term borrowings in the form
of commercial paper to finance construction expenditures when such expenditures
exceeded internally generated funds and to finance short-term working capital
requirements. Short-term borrowings undertaken for construction expenditures are
periodically repaid with internally generated funds and the proceeds of
long-term debt and equity offerings.

At December 31, 1997, the Company and its utility subsidiaries had unsecured
bank lines of credit totaling $167 million. Effective January 1, 1998, such
lines were reduced to $140 million. Commercial paper borrowings, which are
supported by such credit lines, amounted to $130.4 million at year end.
Additional information regarding the Company's short-term debt position is
contained in Note 8 of the Notes to Consolidated Financial Statements on page 25
of the 1997 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.

The financing activities of the Company and its utility subsidiaries during 1997
consisted of the redemption of one series of preferred stock, a debt
refinancing, refunding of certain debt maturities and the repurchase of Company
common stock. In addition, during January 1998, the Company entered into a
Credit Agreement for up to $25 million, the proceeds of which will be used to
provide funds for the repurchase of Company common stock. Information regarding
these activities is found in the "Review of the Company's Results of Operations
and Financial Condition" under the caption "Liquidity and Capital Resources" on
page 15 of the 1997 Annual Report to Shareholders as well as in Note 6, and Note
7 in the Notes to Consolidated Financial Statements beginning on page 24 of the
1997 Annual Report to Shareholders, which information is incorporated by
reference in this Form 10-K Annual Report.


                                     - 15 -
<PAGE>   19
Neither the Company nor its utility subsidiaries have any plans at the present
time for additional external financing other than securities issued for debt
refinancing purposes and to provide funds for the repurchase of Company common
stock. It is expected that all other capital requirements will be met primarily
with internally generated funds, supplemented with short-term debt as required.

Information regarding certain financial statistics of the Company is contained
under the caption "Financial Statistics" on page 32 of the 1997 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.

Credit Ratings. The current ratings of the Company's principal securities and
its commercial paper are as follows:

<TABLE>
<CAPTION>
                                               MOODY'S            STANDARD             DUFF AND PHELPS
                                             INVESTOR'S           & POOR'S                 CREDIT
                                            SERVICE, INC.           CORP.              RATING COMPANY
                                            -------------           -----              --------------

<S>                                         <C>                   <C>                  <C>
Pollution Control Bonds                        A3                    A-                      A-
Unsecured Debt                                 A3                    A-                      A-
Preferred Stock                                baa1                  BBB+                    BBB+
Commercial Paper                               P-2                   A-2                     D-1-
</TABLE>

The Company's credit ratings are subject to periodic revision or withdrawal by
the particular rating agency, and each rating should be evaluated independently
of any other rating. The ratings assigned to the Company's securities by the
rating agencies are not a recommendation to buy, sell or hold the Company's
securities, but rather are assessments of the respective credit-worthiness of
the Company's various securities by the rating agencies.

REGULATORY MATTERS

A description of the general character of rate regulation and its effect on the
financial statements of the Company and its utility subsidiaries, including a
disclosure of the Company's regulatory assets, is contained in Note 1 of the
Notes to Consolidated Financial Statements under the caption "Rate Regulation"
on page 21 of the 1997 Annual Report to Shareholders, which information is
incorporated by reference in this Form 10-K Annual Report.

State Regulation. The Company and its utility subsidiaries are subject to the
jurisdiction of state commissions in their respective states of incorporation.
The state commissions have the authority to regulate, among other things, rates,
services, the issuance of securities and accounting and depreciation procedures.
The Company is subject to the jurisdiction of the NYPSC, which covers
approximately 77% of consolidated utility energy sales. RECO is subject to the
jurisdiction of the NJBPU, which covers approximately 21% of consolidated
utility energy sales. Pike is subject to the


                                     - 16 -
<PAGE>   20
jurisdiction of the Pennsylvania Public Utility Commission ("PAPUC"), which
covers approximately 1% of consolidated utility energy sales. Sales for resale,
which are subject to regulation by the FERC, accounted for 1% of consolidated
utility energy sales.

Federal Regulation. The Company, pursuant to an order of the Securities and
Exchange Commission, has been exempted from all of the provisions of the Public
Utility Holding Company Act of 1935, except Section 9(a)(2) thereof relating to
the acquisition of securities of other public utility companies.

The Company and its utility subsidiaries are subject to the jurisdiction of the
FERC as "public utilities". This regulation primarily relates to sales and
exchanges of electricity for resale, certain transportation, sales and exchanges
of natural gas under the Natural Gas Act, Company sales to its utility
subsidiaries and certain other matters including accounting, recordkeeping and
reporting.

Other Regulation. The Company and its utility subsidiaries are also subject to
regulation by various other Federal, state, county and local agencies under
numerous regulations dealing with, among other things, environmental matters,
energy conservation, long-range planning, fuel use, plant siting and gas
pricing.

Competitive Proceedings. Regulatory agencies at the Federal level as well as the
three states in which the Company has retail electric and gas franchises are
currently evaluating changes in regulatory and rate-making practices designed to
promote increased competition consistent with safety, reliability and
affordability standards. Depending on future developments in this area, the
Company's market share and profit margins will become subject to competitive
pressures in addition to regulatory constraints with respect to both its
electric and gas operations. A discussion of the current Federal and state
competitive initiatives with respect to electric and gas operations is contained
in Item 3, Legal Proceedings, of this Form 10-K under the captions
"Restructuring Litigation" and "Regulatory Matters - Competition." Reference is
also made to the 1997 Annual Report to Shareholders in the Notes to Financial
Statements on page 23 in Note 4 and on page 27 in Note 12 under the captions
"Gas Supply and Storage Contracts" and "Legal Proceedings - Restructuring
Litigation" which material is incorporated by reference to this Form 10-K Annual
Report.

Current Rate Activities. Information regarding recent electric and gas rate
activities of the Company and its utility subsidiaries is contained in Item 3,
Legal Proceedings, of this Form 10-K under the caption "Regulatory Matters -
Rate Activities."


                                     - 17 -
<PAGE>   21
UTILITY INDUSTRY RISK FACTORS AND COMPETITION

The electric and gas utility industry is exposed to many of the general business
and financial risks which affect all industries on a local, national or
international level. It is also exposed to business and financial risks that are
particular to the provision of utility services and to operating a business in a
changing regulated environment. In particular, the industry is exposed to risks
relating to, among other things, increasing competition in the wholesale power
markets and a move to competition in the retail sector; uncertainties regarding
the transition mechanisms, both operating and financial, as the industry moves
to deregulation, including the potential for stranded, or non-recoverable costs;
increases in fuel costs and uncertainties as to fuel supplies; numerous
environmental restrictions, including potential liabilities for environmental
matters; regulatory constraints, including the timing and adequacy of rate
relief; increases in the cost of, and delays in, construction in an industry
which is fixed-asset intensive; the attraction of capital in an industry which
is capital intensive; the effects of energy conservation and weather related
sales fluctuations, both of which have the potential of causing revenue erosion;
and the requirement to provide for growth in demand for energy services.

In addition, there are competitive factors present in the electric and gas
industry which affect utility companies in varying degrees. Among these are the
use by interruptible or dual-fuel customers of lower priced alternative fuels;
the establishment of municipal distribution agencies; the ability of gas
producers to sell gas directly to end users, usually through an independent gas
marketer; the presence of cogenerating systems, small power producers and
independent power producers; and the increasing interest in, and research on,
the development of energy sources other than those now in use. In addition,
regulatory agencies in the states in which the Company has retail electric and
gas franchises are currently evaluating, and have implemented, changes in
regulatory and ratemaking practices designed to promote increased competition.
Depending on future development in this area, the Company's market share and
profit margins are expected to become subject to competitive pressures in
addition to regulatory constraints.

As the electric and gas industries move to increased competition and potential
deregulation, the Company has taken an active role in the competitive
opportunities proceedings in the states in which it operates and has worked
extensively with industry groups and the NYPP in designing the future framework
for the utility industry. With regard to such proceedings in New York State, the
NYPSC approved the Company's Restructuring Plan during 1997. The Restructuring
Plan provides the framework for the transition to a competitive market for the
Company's electric operations. The Restructuring Plan provides for the sale of
the Company's generation assets and includes provisions for mitigating the risk
of loss on the sale of such assets.


                                     - 18 -
<PAGE>   22
As a result of the approval of the Restructuring Plan by the NYPSC, certain
aspects of risk associated with the transition to a competitive electric market
have been mitigated. Information regarding the competitive initiatives
undertaken at the Federal and state levels with regard to the Company's electric
and gas utility operations is contained in Item 3, Legal Proceedings of this
Form 10-K under the captions "Restructuring Litigation" and "Regulatory Matters
Competition." Reference is also made to the 1997 Annual Report to Shareholders
in the Notes to Consolidated Financial Statements beginning on page 23 in Note 4
and Note 12 under the captions "Gas Supply and Storage Contracts" and "Legal
Proceedings - Restructuring Litigation," which information is incorporated by
reference in this Form 10-K Annual Report.

The Company is committed to managing the risks which are present in the changing
utility environment. Included in this strategy are the maintenance of low
construction and operating budgets and avoiding external financing. The
Company's tri-fuel strategy provides flexibility regarding fuel availability and
pricing and the continuance of fuel clause adjustment mechanisms in the rate
structures of the Company and its utility subsidiaries assures fuel cost
recovery on a current basis. With regard to future power supply, the Company
will continue to utilize competitive bidding procedures to mitigate the risks
associated with the Company's purchase of both electric capacity and energy,
particularly with regard to prudency determinations and cost recovery, and to
maintain sufficient power supply to meet the growth in demand.

In addition, rate procedures which are in effect for the Company's New York gas
operations have the effect of mitigating certain risks related to the effect of
weather on the Company's gas sales. Information concerning the gas weather
normalization adjustment is contained under the caption "Gas Sales and Revenues"
in the "Review of the Company's Results of Operations and Financial Condition"
on page 14 of the 1997 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report. Reference is also
made to the caption "Future Energy Supply and Demand" in this Item 1.

The problems associated with nuclear energy have not affected the Company as it
has no operating nuclear plants nor any under construction, and has no plans for
future participation in nuclear projects.

ENVIRONMENTAL MATTERS

The Company is subject to regulation by Federal, state, county and, to some
extent, local authorities with respect to the environmental effects of its
operations, including regulations relating to air and water quality, aesthetics,
levels of noise, hazardous wastes, toxic substances, protection of vegetation
and wildlife and limitations on


                                     - 19 -
<PAGE>   23
land use. In connection with such regulation, various permits are required with
respect to the Company's facilities. The sale by the Company of its electric
generating facilities, pursuant to the Restructuring Plan, will impact the
extent to which the Company remains subject to the environmental regulations
discussed below. Generally, the principal environmental areas and requirements
to which the Company is subject are as follows:

Water Quality. The Company is required to comply with Federal and State water
quality statutes and regulations, including the Federal Clean Water Act ("Clean
Water Act"). The Clean Water Act requires that Company generating stations be in
compliance with state issued State Pollutant Discharge Elimination System
Permits ("SPDES permits"), which prescribe applicable conditions to protect
water quality. Effective July 1, 1994, the State of New York Department of
Environmental Conservation (the "NYSDEC") issued a new SPDES permit for the
Company's Lovett Coal Ash Management Facility. The NYSDEC also has issued a
SPDES permit, effective October 1, 1991 for the Company's Lovett generating
station. The Lovett SPDES permit expired on October 1, 1996. Since a renewal
application was filed within the statutory deadline, the expired permit remains
in effect until a new permit is issued by the NYSDEC.

The Bowline Point generating station currently operates under a SPDES permit
which expired on October 1, 1992. This permit remains in effect since a permit
renewal application was filed within the statutory deadline for renewal
application. The Company is now proceeding with the State Environmental Quality
Review Act ("SEQRA") process as part of the permit renewal procedure. The SEQRA
process, and the resulting delay in issuance of a new permit to the Company, has
had no practical impact on the operation of the Bowline Point generating
station.

The Company entered into a settlement with the United States Environmental
Protection Agency ("EPA") and others that relieved the Company for at least 10
years from a regulatory agency requirement that, in effect, would have required
that cooling towers be installed at the Bowline Point generating station. In
return, the Company agreed to certain plant modifications, operating
restrictions and other measures. This settlement expired in May 1991. Pursuant
to an Interim Agreement between the Company, the NYSDEC and others, as well as a
Consent Order, including extensions to the Consent Order, by which the Company
agreed to certain operating limitations and biological monitoring requirements,
the Bowline Point plant has continued to operate without cooling tower
installation. The most recent extension of the Consent Order expired on February
28, 1998. The parties are currently negotiating another extension of the Consent
Order. During the negotiation process, the Company will continue to abide by the
operating limitations and biological monitoring requirements set forth in the
Consent Order.


                                     - 20 -
<PAGE>   24
Air Quality. Under the Federal Clean Air Act ("Clean Air Act"), the EPA has
promulgated national primary and secondary air quality standards for certain
pollutants, including sulfur oxides, particulate matter and nitrogen oxides. The
NYSDEC has adopted, and the EPA has approved, the New York State Implementation
Plan ("SIP") for the attainment, maintenance and enforcement of these standards.
In order to comply with the SIP, the Company burns #6 fuel oil with a 0.37%
maximum sulfur content by weight at its Lovett and Bowline Point generating
stations.

Pursuant to the SIP, the Company is governed by the following limitations when
it is burning coal at Lovett Units 4 and 5: if one unit is burning, the Company
may emit sulfur dioxide at a rate not to exceed 1.5 lb./MMBTU, and if two units
are burning, the Company may emit sulfur dioxide at a rate not to exceed 1.0
lb./MMBTU per unit.

The SIP provides a mechanism for air emissions fee billing pursuant to Title V
of the Clean Air Act. The owners of Title V sources in New York State, which
sources include the Company's Lovett and Bowline Point Plants and the Shoemaker
and Hillburn Gas Turbines are required to pay an emission fee based upon actual
air emissions reported to NYSDEC at a rate of approximately $28 per ton of air
emissions. In 1997, the Company paid approximately $327,500 in such emission
fees, approximately $25,700 of which was recovered from Con Ed pursuant to the
Bowline Point Plant operating agreement. In 1998, this emission fee will be
based on 1997 air emissions at a rate established by the NYSDEC not to exceed
$50 per ton.

The Clean Air Act Amendments of 1990 could restrict the Company's ability to
meet increased electric energy demand after the year 2000 or could substantially
increase the cost to meet such demand. The Company has spent approximately $28.7
million to comply with the Reasonably Available Control Technology ("RACT")
Phase I emissions limitations for nitrogen oxide established by the NYSDEC to
achieve ozone attainment. New York and eleven other member states of the Ozone
Transport Commission have entered into a Memorandum of Understanding which calls
for the states to adopt more stringent nitrogen oxide emissions limits for
Phases II and III reductions. Phases II and III are to take effect in 1999 and
2003, respectively. The NYSDEC will propose regulations that will establish an
annual NOx allocation program during the ozone season (May - September) to limit
emissions. The Company does not anticipate incurring additional capital costs to
comply with these requirements.

The EPA finalized, during July 1997, new national ambient air quality standards
for ozone and particulate matter. The Company will continue to assess the impact
of the Clean Air Act Amendments of 1990 and new ozone and particulate matter
standards on its power generating operations as additional regulations
implementing these Amendments and standards are promulgated.


                                     - 21 -
<PAGE>   25
Toxic Substances and Hazardous Wastes. The Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("Superfund"), provides that both the
owners and operators of facilities where releases of hazardous substances into
the environment have occurred or are imminent, and the generators and
transporters of hazardous substances disposed of at the facilities, are,
regardless of fault, jointly and severally liable for all response, removal and
remedial action costs and also for damages to natural resources.

As part of its operations, the Company generates materials which are deemed to
be hazardous substances under Superfund. These materials include asbestos and
dielectric fluids containing polychlorinated biphenyls ("PCBs"), both of which
are disposed of at licensed, off-site locations not owned by the Company. Other
hazardous substances may be generated in the course of the Company's operations
or may be present at Company-owned locations.

The Company has, from time to time, received process or notice of claims under
Superfund or similar state statutes relating to sites at which it is alleged
that hazardous substances generated by the Company (and, in most instances, by a
large number of other potentially responsible parties) were disposed of. Similar
claims may be asserted from time to time hereafter, involving additional sites.
Typically, many months, and sometimes years, are required to determine fully the
probable magnitude of the cleanup costs for a site, the extent, if any, of the
Company's responsibility, the number and responsibility of other parties
involved, the financial ability of the other parties to pay their proportionate
share of any costs, and the probable ultimate liability exposure, if any, of the
Company. This process is still under way at most of the sites of which the
Company has notice, and the costs at some of these sites may be substantial. The
Company does not believe that certain proceedings will have a material effect on
the Company, while as to others, the Company is unable at this time to estimate
what, if any, costs it will incur.

Information concerning certain Superfund claims involving the Company is
included in Item 3, "Legal Proceedings" of this Form 10-K Annual Report.

Environmental Expenditures. The Company's environmental expenditures amounted to
approximately $16 million in 1997.

Compliance with Federal, state and local laws and regulations which have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment is not anticipated to
have a material effect on the financial condition of the Company.

The Company's projected environmental expenditures are under continuous review
and are revised periodically to reflect changes in


                                     - 22 -
<PAGE>   26
environmental regulations, inflation, technology and other factors which are
beyond the control of the Company. Although the Company is unable to predict the
ultimate impact of environmental regulations on existing or proposed facilities
or on the operations of the Company, the Company believes that its expenditures
for compliance with environmental regulations will be given appropriate rate
treatment by the respective regulatory commissions.

Information concerning environmental issues and their potential effect on the
Company's operations is included in Note 12 of the Notes to Consolidated
Financial Statements under the captions "Environmental Litigation" and
"Environmental" beginning on page 28 of the 1997 Annual Report to Shareholders,
which information is incorporated by reference in this Form 10-K Annual Report,
as well as in Item 3 "Legal Proceedings" of this Form 10-K Annual Report.

RESEARCH AND DEVELOPMENT

The Company supports research and development agencies involved in utility
research, provides funds for joint utility research projects and conducts its
own internal program. Research and development expenditures amounted to
approximately $2.4 million in 1997, $2.6 million in 1996 and $2.9 million in
1995.

The Company provides support to national agencies such as the Electric Power
Research Institute and the Gas Research Institute. At the state level, the
Company supports Empire State Electric Energy Research Corporation, the New York
State Energy Research and Development Authority and the New York Gas Group
Research, Development and Demonstration Committee.

The Company's internal research and development program includes projects which
seek improvement of transmission and distribution systems, mitigation of
environmental impacts of electric power generation, and enhancement of the value
of electric energy for customers. Current projects include an evaluation of the
performance characteristics of underground distribution cable, Year 2000
compliance solutions, alternative methods to reduce fish impingement at power
plants, small business electrotechnologies studies, and submetering system
development. Additional information regarding the Company's Year 2000 compliance
strategy is contained on page 16 of the 1997 Annual Report to Shareholders in
the "Review of the Company's Results of Operations and Financial Condition"
under the caption "Year 2000 Compliance," which information is incorporated by
reference in this Form 10-K Annual Report.

FRANCHISES

The Company and its utility subsidiaries, RECO and Pike, have municipal consents
or franchises, together with their corporate or charter powers, which give each
of them the right to carry on their


                                     - 23 -
<PAGE>   27
respective operations in the territories served. The municipal consents or
franchises held by the Company and its utility subsidiaries are not exclusive.
In certain municipalities, the areas served by the Company, RECO and Pike are
limited either by the terms of the consents or franchises or by order of the
NYPSC, the NJBPU, or the PAPUC, respectively. Under the present provisions of
the State laws of New York, New Jersey and Pennsylvania, no other private
corporation can commence public utility operations in any part of the
territories now served by the Company, RECO or Pike, respectively, without
obtaining a certificate of public convenience and necessity from the applicable
State utility commission.

A certificate of public convenience and necessity would not be required with
respect to a municipality furnishing electric or gas service within its borders
under the present provisions of the State laws of New York, New Jersey or
Pennsylvania. Municipal corporations, upon compliance with the State laws of New
York, New Jersey or Pennsylvania, as applicable, are authorized to acquire the
public utility service of any public utility company by purchase or by
condemnation. The Company does not expect any municipal corporation to acquire
the public utility service of the Company or its utility subsidiaries through
either purchase or condemnation.

The municipal consents or franchises of the Company and its utility subsidiaries
are not uniform and contain, in certain instances, provisions relating to, among
other things, the time of commencing operations, the furnishing of service to
the particular municipality, the approval by the municipal authorities of the
location and construction of distribution facilities, indemnification of the
municipality against liabilities and damages in consequence of construction, and
administrative matters. Such provisions are not considered by the Company to be
unduly burdensome.

As discussed in Item 3, Legal Proceedings, of this Form 10-K under the caption
"Regulatory Matters - Competition," efforts are underway in New York, New Jersey
and Pennsylvania to restructure the electric utility industry and allow
customers to purchase energy and capacity from suppliers other than the Company,
RECO or Pike, respectively. The Company, RECO and Pike all have proposed to open
their franchise service territories to full retail competition by May 1, 1999.
Unless otherwise ordered by the respective state utility commissions, the
Company, RECO and Pike will remain the provider of last resort of energy and
capacity and will remain the electric distribution company in their respective
franchise territories.

EMPLOYEE RELATIONS

At December 31, 1997, the Company had 1,473 full-time employees and 36 part-time
employees. The Company considers its relationship with its employees to be
satisfactory. The current contract with Local 503 of the International
Brotherhood of Electrical Workers ("IBEW")


                                     - 24 -
<PAGE>   28
representing 862 production, maintenance, commercial and service employees of
the Company became effective June 1, 1997 and expires June 1, 2000. This
contract does not cover supervisory employees.

The Company's Restructuring Plan, as approved by the NYPSC includes, among other
things, the sale of the Company's electric generating assets. The Company
expects that the sale of such assets will result in reductions in the Company's
workforce. The Company has agreed to provide career management, outplacement
services and certain benefits to affected management employees. Any changes
affecting bargaining unit employees must be negotiated with the IBEW.
Information regarding the separation of employees and the recovery of employee
costs associated with the divestiture is included in Item 3, Legal Proceedings,
of this Form 10-K under the caption "Regulatory Matters - Competition," as well
as in the 1997 Annual Report to Shareholders in the "Review of the Company's
Results of Operations and Financial Condition" beginning on page 16 under the
caption "Other Developments - SFAS 88," which information is incorporated by
reference in this Form 10-K Annual Report.

The Company's utility subsidiaries, RECO and Pike, have no employees other than
officers. All services are performed for the utility subsidiaries by employees
of the Company pursuant to Joint Operating Agreements approved by the NJBPU and
the PAPUC, through which the Company is reimbursed for these services. Several
employees of the Company provide managerial and clerical services for the
non-utility subsidiaries of the Company and of RECO, the cost of which are
either paid directly by the subsidiaries or are reimbursed to the Company
through periodic billings. In addition, the non-utility subsidiaries, at
December 31, 1997, had 11 full-time employees, none of whom were participants in
the Company's various employee benefit plans or were covered by the Company's
contract with the IBEW.


ITEM 2.  PROPERTIES

The Company's property consists primarily of electric generation, transmission
and distribution facilities and gas distribution facilities. This property is
required for the continued operation of the Company's major business segments.
In addition, the Company maintains certain miscellaneous utility and non-utility
property. The Company's facilities are in satisfactory condition, are suitable
for the particular purpose for which they were acquired, and are adequate for
the Company's present operations.

Sale of Generating Assets. The Restructuring Plan, as approved by the NYPSC,
provides, among other things, for the sale by auction of all of the Company's
generating assets. Information regarding the Restructuring Plan, including a
description of the auction process and the disposition of any gain or loss on
the sale of the generating assets, is contained in Item 3, Legal Proceedings, of
this Form 10-K


                                     - 25 -
<PAGE>   29
under the captions "Restructuring Litigation" and "Regulatory Matters -
Competition," and in the Company's 1997 Annual Report to Shareholders in the
Notes to Consolidated Financial Statements in Note 4 and in Note 12 under the
caption "Legal Proceedings Restructuring Litigation" on pages 23 and 28,
respectively, which information is incorporated by reference in this Form 10-K
Annual Report.

Electric Generating Facilities. The Company's generating plants, all of which
are located in New York State, are as follows:

<TABLE>
<CAPTION>
                                                                      MAXIMUM
                                                                      SUMMER           PERCENT          NET Mwh
                                                                      NET Mw          OF TOTAL         GENERATED
PLANT NAME                    UNITS       ENERGY SOURCE              CAPACITY         CAPACITY          IN 1997
------------------------------------------------------------------------------------------------------------------
<S>                           <C>         <C>                        <C>              <C>               <C>
Swinging Bridge,
 Mongaup & Rio                  8         Hydroelectric                 25.8             2.6%               39,192
Grahamsville                    1         Hydroelectric                 18.0             1.8               117,623
Hillburn                        1         Jet Fuel/Gas                  37.0             3.8                 1,674
Shoemaker                       1         Jet Fuel/Gas                  37.0             3.8                11,249
Lovett                          3         Coal/Oil/Gas                 462.6            47.2             2,172,765
Bowline Point                   2         Oil/Gas                      400.6(1)         40.8               527,096
                                                                       -----           -----             ---------
                                                                       981.0           100.0%            2,869,599
                                                                       =====           =====             =========
</TABLE>

(1)      Company's share of maximum summer net megawatt capability.

Electric Transmission and Distribution Facilities. The Company and its utility
subsidiaries own, in whole or in part, and operate overhead and underground
transmission and distribution facilities which include 617 circuit miles of
transmission lines, 77 substations, 86,153 in-service line transformers, 4,985
pole miles of overhead distribution lines and 2,347 miles of underground
distribution lines. With the exception of the Grahamsville Substation, the
electric transmission and distribution facilities of the Company and its utility
subsidiaries are located within the Company's New York, New Jersey and
Pennsylvania service territory, which is described under the caption "Principal
Business" in Item 1 of this Form 10-K. The Bowline Substation and the related
transmission facilities are jointly owned by the Company and Con Ed and are
operated by the Company. The Ramapo Substation and certain related transmission
facilities consist of property which is either owned by the Company, owned by
Con Ed or jointly owned by the Company and Con Ed and which is operated and
maintained by the Company except for the 500/345 Kv section of the Ramapo
substation and a 500 Kv transmission line which is operated and maintained by
Con Ed. In addition, certain minor portions of substation equipment are jointly
owned by the Company and major customers of the Company.

Gas Facilities. The Company owns and operates three propane air gas plants at
Middletown, Orangeburg and Suffern, New York, and the Company and Pike own their
gas distribution systems, which are located


                                                      - 26 -
<PAGE>   30
within their gas franchise territories in New York and Pennsylvania and include
1,758 miles of mains.

Miscellaneous Properties. The Company owns office buildings and operating
facilities in Middletown, Spring Valley, Blooming Grove and West Nyack, New
York, and other structures at different locations within the Company's service
territory which are used as offices, service buildings, store houses and
garages. The Company leases its corporate headquarters in Pearl River, New York,
as well as office space at other locations. In addition, the Company has lease
agreements covering certain of its data processing equipment, office equipment
and vehicle fleet.

Character of Ownership. The Company's electric and gas plants and its major
electric substations are located on land owned by the Company in fee, except for
the Grahamsville Plant and the Bowline Point Plant. The greater portion of the
Grahamsville Plant is located on land leased from The City of New York, and the
Bowline Point Plant is located on land in which the Company has a one-third
undivided interest, with the remainder being owned by Con Ed. Water power and
flowage rights for the operation of its Mongaup River Hydro Plants are
controlled by the Company either through ownership of the necessary land in fee
or through easements which are, in practically all cases, perpetual. In the case
of the Grahamsville Plant, however, water is obtained under contract with the
City of New York.

Electric transmission facilities of the Company and its utility subsidiaries
(including substations) are, with minor exceptions, located on land owned in fee
or occupied pursuant to perpetual easements. Electric distribution lines and gas
mains are located in, on or under public highways or private lands pursuant to
lease, easement, permit, municipal consent, agreement or license, express or
implied through use by the Company or its utility subsidiaries without objection
by the owners. In the case of distribution lines, the Company and its utility
subsidiaries own approximately 60% of the poles upon which their wires are
installed and have a joint right of use in the remaining poles on which their
wires are installed, which poles are owned, in most cases, by telephone
companies.

The Company's electric and gas plants are owned by the Company except for the
gas turbines at Hillburn and Shoemaker which are leased and the Bowline Point
Plant which is jointly owned with Con Ed and operated by the Company. Additional
information regarding the investment in the Bowline Point Plant by the Company
and Con Ed is included in Note 1 of the Notes to Consolidated Financial
Statements under the caption "Jointly Owned Utility Plant" on page 22 of the
1997 Annual Report to Shareholders, which material is incorporated by reference
in this Form 10-K Annual Report.


                                     - 27 -
<PAGE>   31
Substantially all of the utility plant and other physical property of the
Company's utility subsidiaries, RECO and Pike, is subject to the liens of the
respective indentures securing first mortgage bonds.


ITEM 3.  LEGAL PROCEEDINGS

RESTRUCTURING LITIGATION:

The Company, the six other New York State investor-owned electric utilities, and
the Energy Association of New York State filed a petition in New York State
Supreme Court on September 18, 1996 challenging the NYPSC's May 20, 1996 Order
in the Competitive Opportunities Proceeding (Case 94-E-0952) under Article 78 of
the New York Civil Practice Law and Rules. Details concerning the Competitive
Opportunities Proceeding are contained under the subheading "Regulatory Matters
- Competition" in this Item 3. In their Article 78 petition, the petitioners
alleged that the Order is vague, ambiguous and procedurally defective, that the
May 20, 1996 Order fails to assure the utilities a reasonable opportunity to
recover strandable costs, and the NYPSC lacks the authority to order retail
wheeling or divestiture.

On November 26, 1996, the Supreme Court issued a ruling denying the Article 78
petition. In its ruling, the Court determined that because the Commission has
not yet directed retail wheeling, generation deregulation and asset divestiture,
there is no justiciable controversy regarding these issues. Despite this
finding, the Court proceeded to opine that the Commission is not precluded by
state or Federal law from ordering retail wheeling or generation divestiture.
The Court also determined that the utilities are not entitled, as a matter of
law, to recover from customers the full amount of the utilities' strandable
costs. On December 24, 1996, the Energy Association and the New York utilities
appealed to the Appellate Division of the Supreme Court for the Third Judicial
Department from the Supreme Court's November 26, 1996 decision. On October 31,
1997, the Supreme Court of the State of New York, Appellate Division, Third
Department, granted the petitioners' motion for an extension of time to perfect
the appeal for a period of six months through and including March 24, 1998. The
Company's Restructuring Plan requires the Company to petition the Appellate
Division to withdraw its appeal. This petition must be filed "following final
Commission approval of this agreement" ("i.e., when any appeals from such
approval are exhausted or the time to appeal has expired"). If no party
initiates an Article 78 appeal, this petition will be filed after expiration of
the statute of limitations for challenging the Commission's December 31, 1997
order. The Company is unable to predict the final result of this litigation.


                                     - 28 -
<PAGE>   32
ENVIRONMENTAL LITIGATION AND ADMINISTRATIVE PROCEEDINGS:

On March 29, 1989, the New Jersey Department of Environmental Protection
("NJDEP") issued a directive under the New Jersey Spill and Control Act to
various potentially responsible parties ("PRPs"), including the Company, with
respect to a site formerly owned and operated by Borne Chemical Company in
Elizabeth, Union County, New Jersey, ordering certain interim actions directed
at both site security and the off-site removal of certain hazardous substances.
Certain PRPs, including the Company, signed an administrative consent order with
the NJDEP requiring them to remove and dispose of the hazardous substances
located above ground at the Borne site, which removal and disposal was completed
on June 22, 1992. In October 1995, the PRPs entered into an additional
administrative consent order with the NJDEP which obligated the PRPs, including
the Company, to perform a remedial investigation to determine what, if any,
subsurface remediation at the Borne site is required. The remedial investigation
is proceeding. The Company does not believe that this matter will have a
material effect on the financial condition of the Company.

On May 29, 1991, a group of ten electric utilities (the "Metal Bank Group")
entered into an Administrative Consent Order with the United States
Environmental Protection Agency ("EPA") to perform a remedial investigation and
feasibility study ("RIFS") at the Cottman Avenue/Metal Bank Superfund site in
Philadelphia, Pennsylvania. PCBs have been discharged at the Cottman Avenue site
from an underground storage tank and the handling of transformers and other
electrical equipment at the site. On May 25, 1994, the Company entered into a
tolling agreement pursuant to which the Metal Bank Group reserved its right to
file suit against the Company while the Metal Bank Group and the Company entered
into discussions to determine the extent of the Company's involvement with the
Cottman Avenue site. These discussions continue. The RIFS was completed and
submitted to the EPA for determination of what remedial measures will be
required at the Cottman Avenue site. The Metal Bank Group has assigned the
Company with a 2.87% share although, to date, because the Company is not a
member of the Group, the Company has been unable to confirm this allocation. In
addition, the Company has responded to a letter from the EPA received in
November 1996 requesting information and documentation concerning the Company's
connection to the site. On February 10, 1998, the Company received another
letter from the EPA related to this site. The letter encloses, inter alia, the
Record of Decision ("ROD"), which presents the final remedial action selected
for the site (estimated by the EPA to cost approximately $17.2 million on a
present worth basis). The letter formally notifies the Company of its potential
liability with respect to the site; formally demands reimbursement for costs
paid by the EPA (with interest) in conducting and/or overseeing response actions
at the site; notifies the Company of a limited period of formal negotiations for
an agreement under which the Company would implement the requirements of the
ROD; and includes other related documents. The EPA estimated its past costs to


                                     - 29 -
<PAGE>   33
exceed $985,000 as of June 24, 1997, and encourages the Company to join with
other PRPs to select a steering committee to negotiate with the EPA. The Company
is currently reviewing the letter and ROD. The Company is unable at this time to
estimate its share, if any, of past or future costs at this site.

On August 2, 1994, the Company entered into a Consent Order with the New York
State Department of Environmental Conservation ("DEC") in which the Company
agreed to conduct a remedial investigation of certain property it owns in West
Nyack, New York. Polychlorinated biphenyls ("PCBs") have been discovered at the
West Nyack site. Petroleum contamination related to a leaking underground
storage tank has been found as well. The Company has completed this remedial
investigation. In November 1996, the Company submitted to the DEC a Feasibility
Study Report which evaluates various remedial actions to eliminate the
contamination discovered at the West Nyack site. On August 28, 1997, the DEC
issued a Proposed Remedial Action Plan ("PRAP") which, inter alia, approved the
Feasibility Study Report and proposed a remedy for clean-up of the soil
contamination at the site. The DEC issued a ROD, dated October 20, 1997 which
provides for the removal and off-site disposal of soils contaminated with PCBs
and other petroleum-related contaminants, as well as the post-remedial
monitoring of groundwater. The Company and the DEC have executed a Consent Order
to implement the clean-up provided for by the ROD. The Company does not believe
that this matter will have a material effect on the financial condition of the
Company.

The Company has identified six former Manufactured Gas Plant ("MGP") sites which
were owned or operated by the Company or its predecessors. The Company may be
named as a PRP for these sites under relevant environmental laws, which may
require the Company to clean up these sites. To date, no claims have been
asserted against the Company. The Company and the DEC have executed a Consent
Order, dated as of January 8, 1996, which provides for preliminary site
assessments of these six MGP sites. In November 1996, the Company submitted to
the DEC, for its review and approval, a draft work plan for the preliminary site
assessment of three of the MGP sites. In April 1997 the DEC approved the work
plans for these three sites. Field work was subsequently completed and
Preliminary Site Assessment reports for the three sites were submitted to the
DEC on September 1, 1997. These reports showed varying degrees of contamination
at each of the sites which will necessitate further investigation. The DEC has
provided written comments on these reports, and the Company expects to conduct
the further investigation in the Spring of 1998. In addition, the Company has
submitted draft work plans for two additional sites to the DEC for its review
and approval. The Company is unable at this time to estimate the total costs to
be incurred at the six MGP sites.

The Company has been named as a defendant or third-party defendant in a number
of proceedings involving alleged personal injuries, primarily to construction
workers, as a result of exposure to asbestos at


                                     - 30 -
<PAGE>   34
facilities owned and operated by the Company. Discovery with regard to these
cases will determine, among other things, if the plaintiffs in each of these
cases worked at Company facilities. The Company anticipates that similar
asbestos-related claims may be asserted against the Company from time to time in
the future. However, at this time the Company does not believe that the
asbestos-related lawsuits currently outstanding, nor those which may be brought
in the future, will, individually or in the aggregate, have a material effect on
the financial condition of the Company.

Superfund and certain similar state statutes authorize various governmental
authorities to issue orders compelling responsible parties to take cleanup
action at sites determined to present an imminent and substantial danger to the
public and to the environment because of an actual or threatened release of
hazardous substances. As discussed above, the Company is a party to a number of
administrative and litigation proceedings involving potential impact to the
environment. Such proceedings arise out of, without limitation, the operation
and maintenance of facilities for the generation, transmission and distribution
of electricity and natural gas. Information regarding the Company's involvement
in these various proceedings is included in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Environmental" on page 29 of the 1997
Annual Report to Shareholders, which information is incorporated by reference in
Item 1 of this Form 10-K Annual Report, as well as under the subheading,
"Environmental Matters" of this Form 10-K Annual Report. As noted above, the
Company does not believe that certain proceedings will have a material effect on
the Company, while as to others, the Company is unable at this time to estimate
what, if any, costs it will incur.

OTHER LITIGATION:

On November 19, 1996, the Company was served with a Summons and Complaint in a
litigation entitled Crossroads Cogeneration Corporation v. Orange and Rockland
Utilities, Inc., filed in the United States District Court for the District of
New Jersey. The litigation relates to a power sales agreement between the
Company and Crossroads Cogeneration Corporation ("Crossroads"), which requires
the Company to purchase electric capacity and associated energy from a
cogeneration facility in Mahwah, New Jersey. The Complaint alleges damage claims
for breach of contract, breach of the implied covenant of good faith and fair
dealing and violations of the Federal Antitrust laws and seeks a declaration of
Crossroads' rights under the Agreement. In February 1997 the Company filed a
motion to dismiss the action, and Crossroads opposed the Company's motion and
filed a cross-motion for partial summary judgment in its favor on the contract
claims. By Opinion and Order dated June 30, 1997 ("Order"), the Court dismissed
Crossroads' Complaint in its entirety with prejudice and dismissed Crossroads'
cross-motion for partial summary judgment as moot. Crossroads filed an appeal
from the Order to the United States Court of


                                     - 31 -
<PAGE>   35
Appeals for the Third Circuit. The appeal has been fully briefed, and the Court
has scheduled the appeal for disposition on April 24, 1998. The Company cannot
predict the ultimate outcome of this proceeding.

REGULATORY MATTERS:

COMPETITION

Regulatory agencies at the Federal level as well as the three states in which
the Company has retail electric franchises are currently evaluating changes in
regulatory and rate-making practices designed to promote increased competition
consistent with safety, reliability and affordability standards. Depending on
future developments in this area, the Company's market share and profit margins
will become subject to competitive pressures in addition to regulatory
constraints. A discussion of current Federal and state competitive initiatives
follows.

         ELECTRIC

Federal Initiative. On April 24, 1996, the FERC issued its final order (FERC
Order 888) requiring electric utilities to file non-discriminatory open access
transmission tariffs that would be available to wholesale sellers and buyers of
electric energy. The order also provided for the recovery of related legitimate
and verifiable strandable costs subject to FERC's jurisdiction. The Company's
open access transmission tariff, as originally filed with the FERC on July 9,
1996 and amended through August 1997, offers transmission service and certain
ancillary services to wholesale customers on a basis that is comparable to that
which it provides itself. The Company is operating under the filed tariff,
subject to refund, pending final FERC approval of the Company's filing. The
Company participates in the wholesale electric market primarily as a buyer of
energy and, as a result, Order 888 is not expected to materially impact the
Company's financial condition or results of operations.

On January 31, 1997, the Company, in conjunction with the other members of the
NYPP, filed tariffs with the FERC seeking permission to restructure the NYPP
into an ISO. On December 19, 1997, the Company and the other members of the NYPP
made a supplemental filing with the FERC which provides for a revised ISO
governance structure. While the Company and the other members of the NYPP have
requested that the FERC act expeditiously on the filing, the Company is unable
to predict either the timetable for or outcome of this regulatory proceeding.

New York Competitive Opportunities Proceeding. On May 20, 1996, the NYPSC issued
an order setting forth its vision and goals for the future of the electric
industry in New York. The order endorsed a fundamental restructuring of the
industry based on competition in the generation and energy services sectors of
the industry.


                                     - 32 -
<PAGE>   36
On November 26 and December 31, 1997, the NYPSC issued orders approving the
Restructuring Plan, which had been filed on November 6, 1997 by the Company, the
New York State Department of Public Service (the "Staff") and other parties in
the Company's Competitive Opportunities Proceeding (Case 96-E-0900). The
Restructuring Plan provides for the sale of all of the Company's generating
assets (i.e., all units at the Lovett Generating Station, the Company's
one-third interest in the Bowline Generating Station, as well as its
hydro-electric facilities and gas turbines) and for lower electric rates.

Under the terms of the Restructuring Plan, which covers a four-year period
commencing with NYPSC approval, the Company has agreed to commence immediately
the process of auctioning all of its generating assets. The Restructuring Plan
provides that if the Company selects a winning bidder prior to May 1, 1999, the
New York share of any net book gains associated with the sale are to be
allocated between shareholders and customers on a 25%/75% basis, respectively,
and any net book losses are to be allocated between shareholders and customers
on a 5%/95% basis, respectively. If the Company selects a winning bidder on or
after May 1, 1999, the New York share of the net book gains or losses associated
with the sale are to be allocated between shareholders and customers on a
20%/80% basis. The Restructuring Plan further provides for a $20 million cap on
the New York share of net book gains allocable to shareholders from the sale of
generating assets. The NYPSC, in approving the Restructuring Plan, offered the
Company the opportunity to participate as a bidder in the auction of the
Company's generating assets, subject to the conditions that the auction be
conducted by an independent third party and that the Company renounce the
shareholders' share of any net book gain or loss from the sale provided for in
the Restructuring Plan. By letter dated December 10, 1997, the Company notified
the NYPSC that it had elected not to be a bidder in the auction. On December 11,
1997, in accordance with the Restructuring Plan, the Company submitted its
Preliminary Divestiture Plan to the NYPSC Staff, and its Final Divestiture Plan
was filed on February 4, 1998.

The terms of the Restructuring Plan permit the Company to defer and recover up
to $7.5 million (New York electric share) of prudent and verifiable non-officer
employee costs associated with the divestiture, such as retraining,
outplacement, severance, early retirement and employee retention programs. Under
the terms of the Restructuring Plan, the Company will be authorized to petition
the NYPSC for recovery of employee costs in excess of $7.5 million. In addition,
the Restructuring Plan provides for the recovery of all prudent and verifiable
costs of the sale.

In addition, the terms of the Restructuring Plan permit the Company to retain
all earnings up to an 11.4% return on equity and provide that earnings in excess
of 11.4% are to be shared, with 75% to be used to offset NYPSC approved
deferrals or otherwise inure to the Company's


                                     - 33 -
<PAGE>   37
customers, and 25% to be retained by the Company's shareholders. The Company's
existing PowerPick(TM) program, whereby customers can purchase energy (but not
capacity) from suppliers other than the Company, will be expanded to all
customers on May 1, 1998. The Restructuring Plan further provides that full
retail access to a competitive energy and capacity market will be available for
all customers by May 1, 1999. Unless otherwise ordered by the NYPSC, the Company
will remain the provider of last resort.

The Restructuring Plan also provides for electric price reductions of
approximately $32.4 million over its four-year term and for recovery, through a
Competitive Transition Charge ("CTC"), of above-market generation costs should
the transfer of title to the Company's generating assets not occur before May 1,
1999. Should a CTC be required, the Company would be authorized to recover the
difference between its non-variable costs of generation, including 75% of fixed
production labor expenses and property taxes, and the revenues, net of fuel and
variable operating and maintenance expenses, derived from the operation of the
Company's generating assets in a deregulated competitive market. If title to the
generating assets has not transferred as of May 1, 2000, the CTC would be
modified so as to allow a maximum recovery of 65% of fixed production labor
expenses and property taxes. The modified CTC would remain effective until the
earlier of the date title to the generating assets is transferred or October 31,
2000. In the event title to the generating assets is not to be transferred by
October 31, 2000, the Company would be authorized to petition the NYPSC for
permission to continue a CTC until the date title to the generating assets is
transferred. The CTC does not allow for the recovery of inflationary increases
in non-fuel operating and maintenance production costs, property tax increases,
wage rate increases, or increased costs associated with capital additions or
changes in the costs of capital applicable to production costs.

The Restructuring Plan also provides that the Company and its utility
subsidiaries may apply to the appropriate regulatory authorities for permission
to form a new holding company, which would be a registered holding company under
the Public Utility Holding Company Act of 1935 (the "1935 Act"). The Company
currently is an exempt holding company under the 1935 Act. The new holding
company structure would provide for separate regulated electric distribution
companies in the New York, New Jersey and Pennsylvania service territories, as
well as an unregulated energy services company. The unregulated energy services
company would be able to market electricity and unbundled energy services (e.g.,
metering) to wholesale and retail customers on a competitive basis, using the
Company's name without a royalty payment.

The formation of the holding company is conditioned upon shareholder and
regulatory approval, including approval of the Securities and Exchange
Commission, the FERC, the NYPSC, the NJBPU and the PAPUC. The Company will
consider a filing for the formation of a holding company after the divestiture
process is complete.


                                     - 34 -
<PAGE>   38
The Restructuring Plan indicates that reciprocity would be required in order to
implement retail access. That is, if utility generators are allowed access to
the Company's retail customers, the Company shall be permitted equal access to
the customers of those utilities within New York State, if it so chooses.

In accordance with the settlement, the Company submitted an Unbundled Rates
Filing to the NYPSC. This filing, which was made on February 17, 1998, separated
the components of existing tariffs into production, transmission, distribution
and customer cost categories.

Additional information on the provisions of the Restructuring Plan is contained
below under "Regulatory Matters: Rate Activities - New York Electric."

New Jersey - Energy Master Plan. On April 30, 1997, the NJBPU issued an order
"Adopting and Releasing Final Report in its Energy Master Plan Phase II
Proceeding to Investigate the Future Structure of the Electric Power Industry
(Docket No. EX 94120585Y)." The Order required RECO and other New Jersey
investor owned electric utilities each to file unbundled rates, a stranded cost
proposal and a restructuring plan by July 15, 1997. As part of its stranded cost
proposal, the NJBPU has required that each utility provide a 5-10% rate
reduction.

RECO's filing was made on July 15, 1997. The filing includes a Restructuring
Plan, a Stranded Costs Filing and an Unbundled Rates Filing.

On December 8, 1997, RECO submitted an Amended and Restated Restructuring Plan
and Stranded Costs Filing with the NJBPU to reflect the fact that the Company
has committed to divest all its generating assets by auction.

The Restructuring Plan calls for RECO to remain a regulated transmission and
distribution company within a holding company structure. Standards of Conduct
and Affiliate Rules have been proposed in order to promote effective competition
and ensure that regulated operations do not subsidize unregulated operations.
RECO has proposed to implement full retail competition (energy and capacity) for
all customers by May 1, 1999, the same date approved for retail access in New
York. Under this schedule, full retail access will be achieved 13 months ahead
of the NJBPU's proposed phase-in schedule. With the implementation of retail
competition, RECO proposes to continue to serve as the "provider of last resort"
for those customers who do not choose an alternate provider or whose provider
defaults.

In its Stranded Costs Filing, RECO has identified two categories of potential
stranded costs: generation investment and power purchase


                                     - 35 -
<PAGE>   39
contracts with non-utility generators ("NUGS"). Divestiture of the Company's
generating assets will determine their market value and the related stranded
costs, if any. RECO proposes to recover its share of stranded generation
investment, if any, through regulated delivery rates by means of a Market
Transition Charge ("MTC"). The MTC would be in effect over a period of up to
eight years, commencing May 1, 1999. Stranded NUG contract payments are proposed
to be recovered over the remaining life of the contracts through a
non-bypassable wires charge also assessed by the regulated delivery company.
RECO has proposed to reduce its annual net revenue (revenue net of fuel,
purchased power and applicable taxes) by $4.3 million, or 5.1%, effective in
October 1998, to reflect identified cost reductions primarily related to the
removal from rates of NUG termination costs which were fully recovered.

RECO also made an Unbundled Rates Filing which separates the components of
existing tariffs into production, transmission, distribution and customer cost
categories. The Unbundled Rates Filing, which was updated on January 30, 1998,
would serve as the basis to segregate the costs of the generation function from
rates in order to facilitate customer choice. In addition, the MTC mechanism
would be added to the existing rate structure to allow for recovery of stranded
costs, and a non-bypassable societal benefits charge would be created as a
billing mechanism for mandated public policy programs.

Hearings with respect to RECO's filings are scheduled for the spring of 1998 and
the NJBPU has indicated that it will rule on these filings by October 1998.
RECO's filings may be accepted or significantly modified by the NJBPU before
becoming effective. It is not possible to predict the outcome of the NJBPU
proceeding or its effect, if any, on the Company's consolidated financial
position or results of operations.

Pennsylvania - Competition Legislation. On December 3, 1996, the "Electricity
Generation Customer Choice and Competition Act" ("Act") was signed into law by
the Governor of the Commonwealth of Pennsylvania. The Act provides for a
transition of the Pennsylvania electric industry from a vertically integrated
structure to a functionally separated model that permits direct access by
customers to a competitive electric generation market while retaining the
existing regulation and customer protections in the transmission and
distribution systems. The transition plan of the Act calls for a three year
phase-in of retail access with one-third of customers being phased in on each
January 1st beginning in 1999. The Act also provides for the opportunity for
recovery of prudent and verifiable costs resulting from the restructuring
through the implementation of a Competitive Transition Charge ("CTC") for a
period of up to nine years and the imposition of rate caps designed to prevent a
customer's total electric costs from increasing above current levels during the
transition period. In addition, the Act permits the refinancing of certain
approved transition costs through the issuance of bonds


                                     - 36 -
<PAGE>   40
secured by revenue streams guaranteed by the PAPUC. The savings associated with
this financing mechanism will be used to reduce strandable costs.

On September 30, 1997, in accordance with the requirements of the Act, Pike
submitted its electric restructuring filing to the PAPUC. On December 15, 1997,
Pike submitted an amended and restated electric restructuring filing with the
PAPUC to reflect the fact that the Company has committed to divest all of its
generating assets by auction. In this amended and restated filing, Pike proposed
that full retail competition be implemented for all customers by May 1, 1999,
the same date approved for retail access in New York. With the implementation of
retail competition, Pike proposes to continue to serve as the "provider of last
resort" for those consumers who do not choose an alternate provider, or whose
alternate provider defaults. Pike proposed to remain a regulated transmission
and distribution company within a holding company structure.

On September 30, 1997, Pike also submitted proposed unbundled rates which
separate the components of existing tariffs into production, transmission,
distribution and customer cost categories. This filing was updated on January
30, 1998.

It is expected that the PAPUC will rule on Pike's restructuring filing by July
1998. Pike's filing may be accepted or significantly modified by the PAPUC
before becoming effective. It is not possible to predict the outcome of the
PAPUC proceeding; however, it is not expected that this proceeding will have a
material effect on the Company's consolidated financial position or results of
operations.

         GAS

Federal Initiatives. At the Federal level, the FERC issued Order 636 in 1992,
which was aimed at increasing competition on interstate natural gas pipelines.
As a result of FERC Order 636, the Company was required to change the way it
secures gas supply and gas transportation and storage services. In addition,
FERC Order 636 imposed certain contract termination and transition charges on
Local Distribution Companies ("LDCs"), including the Company, while affording an
opportunity to market excess pipeline capacity.

Order 636 authorizes pipelines to recover certain transition costs from their
customers. The Company currently estimates that its obligations for order 636
transition costs will total approximately $28.6 million. Approximately $27.3
million of these transition costs have been billed to the Company. Pursuant to a
December 1994 order, the NYPSC provided a mechanism for the full recovery of
FERC Order 636 transition costs. The Company is in the process of recovering
these costs from its customers and believes that it will be allowed to recover
all such costs by the end of the year 2000.


                                     - 37 -
<PAGE>   41
New York. In 1996, the NYPSC approved utility restructuring plans designed to
open up the local natural gas market to competition. As part of the utility
restructuring, the NYPSC has required LDCs to provide firm transportation
service, thereby allowing residential and small commercial customers of LDCs the
ability to purchase, through aggregation groups, gas supplies from a variety of
sources, other than the LDC. The NYPSC order provided a transition into the
unbundled environment and allowed LDCs to require customers to take associated
upstream pipeline capacity for up to three years under specified conditions.
Prior to the start of the third year (by April 1, 1998) LDCs are required to
demonstrate to the NYPSC their efforts taken to relieve themselves of "excess"
capacity. At that time, the NYPSC is expected to address any issue of stranded
costs.

As the transition to a competitive retail market develops, the Company will
determine what supply, transportation and storage contracts it will maintain. As
the Company moves to a competitive market, traditional cost recovery may be
replaced by performance or market-based mechanisms.

On September 4, 1997, the NYPSC issued a "Notice Inviting Comments on Staff's
Report in Case 97-G-1380, in the Matter of Issues Associated with the Future of
the Natural Gas Industry and the Role of Local Gas Distribution Companies
("LDCs") ("Position Papers")." The Company is one such LDC. The primary
conclusion of the Staff's Position Paper, "The Future of the Natural Gas
Industry," is that over the next five years, LDCs in New York should transition
out of the business of selling gas in order to encourage competition and provide
gas customers with choice in the marketplace. In addition, the Position Paper
identifies, discusses and requests comments on the following three impediments
to LDCs terminating their gas merchant role: (1) upstream pipeline capacity held
by LDCs; (2) the LDCs' supplier of last resort and obligation to serve
responsibilities; and (3) system reliability and operational integrity issues.

The Company filed initial comments and reply comments on the Position Paper in
November and December 1997, respectively. The Company opposed the Staff's
proposal to require LDCs to auction upstream capacity since it could endanger
the Company's ability to maintain system reliability. The Company advocated that
LDCs be allowed to establish meaningful penalty provisions to prevent diversions
of gas to other markets during the winter months. Finally, the Company contended
that all stranded costs related to upstream pipeline capacity and long-term gas
supply contracts must be fully recoverable by LDCs. It is not possible to
predict the outcome of this proceeding or its effect on the Company's
consolidated financial position or results of operations.


                                     - 38 -
<PAGE>   42
RATE ACTIVITIES

         GAS

New York. On June 5, 1997, the NYPSC issued an Order Requiring the Filing of
Proposals to Ameliorate Gas Price Volatility and Requesting Comments in Case
97-G-0600, In the Matter of the Commission's Request for Gas Distribution
Companies to Reduce Gas Cost Volatility and Provide for Alternative Gas
Purchasing Mechanisms. Under the Order, gas utilities in New York were required
to submit proposals for fixed-price gas sales options to be available for use by
all customers during the 1997-1998 heating season.

The Company's proposal, as approved by the NYPSC in October 1997, provides a
fixed-price commodity cost option to firm sales customers for the 1997-1998
heating season. The option is limited to ten percent of customers in each
eligible customer class. The NYPSC order provided that costs associated with any
variations between gas utilized by customers electing the fixed-price option and
volumes locked in by the Company, to the extent prudently incurred, will be
recoverable. To date, approximately 2,500 customers are participating in this
program.

         ELECTRIC

New York. On April 19, 1995, the NYPSC approved the Company's compliance filing
regarding the operation of the Revenue Decoupling Mechanism ("RDM"). The filing
included a proposal to eliminate the RDM Adjustment Factor of $7.7 million
effective May 1, 1995, reflecting the completion of the recovery of an RDM
under-collection applicable to the year 1993. This equated to a 2.3% annual
reduction in revenues.

On August 1, 1995, the NYPSC approved a stipulation among the parties which
provided for the early implementation of the Company's proposed annual rate
reduction of $6.1 million. As a result, reduced rates became effective August 1,
1995, producing a revenue reduction of approximately $3.8 million for the period
August 1, 1995 to March 31, 1996. The revenue reduction was offset by the
recognition of deferred revenue for 1994 and 1995 related to sharing mechanisms
previously approved by the NYPSC.

On May 3, 1996, the NYPSC approved, subject to modifications required by the
NYPSC decision in the New York Competitive Opportunities Proceeding (as
previously discussed), a Settlement Agreement ("1996 Agreement") among the
Company, NYPSC Staff and other parties which resolved all remaining revenue
requirement issues in the proceeding for a three-year period commencing May 1,
1996, and concluding April 30, 1999. Under the 1996 Agreement, the Company
reduced its annual electric retail revenues in New York by an additional $7.75
million, or 2.3%, effective May 1, 1996. The settlement provides for several


                                     - 39 -
<PAGE>   43
performance mechanisms related to service reliability and customer service, and
the elimination of all revenue and most expense reconciliation provisions of the
RDM. The 1996 Agreement provides the Company with the opportunity to retain all
New York electric earnings up to a 10.9% return on equity annually for each of
the next three years. Earnings in excess of 10.9% would be shared equally
between customers and shareholders. The Restructuring Plan increased this
earnings threshold to 11.4%. Earnings in excess of 11.4% will be shared as
follows: 75% to be used to offset NYPSC-approved deferrals or otherwise inure to
the benefit of customers and 25% to be credited to the Company's shareholders.

The 1996 Agreement implements several competitive initiatives sought by the
Company. These include price reductions, the offering of service guarantees and
the introduction of PowerPick(TM) - an innovative retail access program that
allows participating customers to choose their electric energy supplier. The
PowerPick(TM) program was expanded as part of the Restructuring Plan.

On December 1, 1997, as part of the Restructuring Plan, the Company implemented
the first year of the electric rate reduction in the amount of $5.9 million.
Additional rate reductions of $8.8 million in each of the next three years will
be implemented as part of the Restructuring Plan.

Additional information on New York electric rate activities is contained in the
previous discussion of the New York Competitive Opportunities Proceeding.

New Jersey. The NJBPU on January 8, 1997 approved a stipulation among New Jersey
utilities, NJBPU Staff and NJ Division of Ratepayer Advocate which provides a
recovery plan for costs associated with the change in accounting required by
Statement of Financial Accounting Standards No. 106, "Employer Accounting for
Postretirement Benefits Other Than Pensions." The approved plan provides several
alternative recovery mechanisms. RECO received approval from the NJBPU on
December 17, 1997 to begin amortizing these costs effective January 1, 1998.

On January 23, 1997, a residential customer of RECO filed a petition with the
NJBPU requesting a lowering of RECO's rates by $21.2 million, or 16%, based on
financial data for the twelve months ended December 31, 1995 as adjusted. A
central issue raised by the petition is whether RECO's continued purchase of all
of its power supply requirement from the Company continues to be appropriate
when alleged lower cost energy is available from other sources. On January 23,
1998, the NJBPU issued an Order in this proceeding which required that this
petition be held in abeyance pending the outcome of RECO's unbundling, stranded
cost and restructuring filings. RECO believes that this petition is without
merit and intends to contest it vigorously.


                                     - 40 -
<PAGE>   44
FORWARD-LOOKING INFORMATION

The Company has made forward-looking statements in this document with respect to
the financial condition, results of operations and business of the Company in
the future, which involve certain risks and uncertainties. Forward-looking
statements are included in Item 1 under the captions "Supply, Transportation and
Storage," "Utility Industry Risk Factors and Competition" and "Franchises," and
in this Item 3 under the caption "Environmental Litigation and Administrative
Proceedings," as well as in statements about future performance or results,
including any statements using the words "believe," "expect," "anticipate" or
similar words. For all of those statements, the Company claims the protections
of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Factors that may cause actual results
to differ materially from those contemplated by such forward-looking statements
include, among others, the following possibilities: (1) there occurring
unforeseen effects of the restructuring of the Company's business pursuant to
the Restructuring Plan, including but not limited to, costs or difficulties
related to the sale of the Company's generating assets being greater then
expected; (2) regional competitive pressure in the electric utility industry
increasing significantly; (3) additional state and Federal regulatory
initiatives being implemented that further increase competition, threaten cost
and investment recovery or impact rate structure; and (4) the outcome of
litigation being materially unfavorable to the Company.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997.


                                     - 41 -
<PAGE>   45
                      EXECUTIVE OFFICERS OF THE REGISTRANT

All of the officers of the Company are appointed on an annual basis at the first
Board of Directors' meeting following the annual meeting. The following list
includes two Company employees who, due to the policy making functions they
perform for the Company, are considered executive officers under SEC criteria,
but who are not officers of the Company and who are not appointed on an annual
basis.

<TABLE>
<CAPTION>
OFFICERS, AGE, AND TITLE                           BUSINESS EXPERIENCE PAST FIVE YEARS
------------------------                           -----------------------------------

<S>                                                <C>
D. Louis Peoples, 57                               Vice Chairman of the Board and Chief
Vice Chairman of the                               Executive Officer since July 1994.
Board of Directors and                             Executive Vice President, and a member
Chief Executive Officer                            of the Board of Directors, Madison
                                                   Gas and Electric Company,
                                                   Madison, Wisconsin from 1992
                                                   to 1993. Senior Vice
                                                   President, RCG/Hagler, Bailly
                                                   Inc., San Francisco,
                                                   California from 1991 to 1992.

R. Lee Haney, 58                                   Senior Vice President and Chief
Senior Vice President and                          Financial Officer since April 1996.
Chief Financial Officer                            Vice President and Chief Financial
                                                   Officer from September 1994
                                                   to April 1996. Senior Vice
                                                   President - Marketing and
                                                   Customer Service from January
                                                   1993 until September 1994,
                                                   and Senior Vice President and
                                                   Chief Financial Officer from
                                                   1990 until January 1993, San
                                                   Diego Gas & Electric Company,
                                                   San Diego, California.

G. D. Caliendo, 57                                 Senior Vice President, General Counsel
Senior Vice President,                             and Secretary since April 1996.  Vice
General Counsel                                    President, General Counsel and
and Secretary                                      Secretary from March 1995 to April
                                                   1996.  Senior Vice President, General
                                                   Counsel and Secretary of Pennsylvania
                                                   Power and Light Company, Allentown,
                                                   Pennsylvania from 1989 to 1994.

Robert J. Biederman, Jr., 45                       Vice President since April 1990.
Vice President, Operations
</TABLE>


                                          - 42 -
<PAGE>   46
<TABLE>
<CAPTION>
OFFICERS, AGE, AND TITLE                           BUSINESS EXPERIENCE PAST FIVE YEARS
------------------------                           -----------------------------------

<S>                                                <C>
Nancy M. Jakobs, 57                                Vice President, Human Resources since
Vice President,                                    April 1995.  Partner, Jakobs and
Human Resources                                    Associates International, New City,
                                                   New York from 1991 to 1995.

Robert J. McBennett, 55                            Treasurer since 1984.  Treasurer and
Treasurer                                          Controller from May 1995 to May 1996.

Edward M. McKenna, 48                              Controller since May 1996.  Director,
Controller                                         Internal Audit from January 1995 to May
                                                   1996. Director, Internal Audit,
                                                   American Brands from 1994 to January
                                                   1995. Senior Manager, Finance/
                                                   Operational Audits, American Brands
                                                   from 1991 to 1994.

George V. Bubolo, Jr., 53                          Division Vice President - Engineering
Division Vice President,                           and System Operations since March 1996.
Engineering and System                             Director, Engineering and System
Operations                                         Operations from November 1994 until
                                                   March 1996. Director, Electric
                                                   Operations from 1983 until November
                                                   1994.

Vincent R. Tummarello, 47                          Division Vice President - Electric
Division Vice President,                           Production since November 1994.
Electric Production                                Director, Electric Production from April
                                                   1985 until November 1994.
</TABLE>


                                          - 43 -
<PAGE>   47
                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

The Company's Common Stock, par value $5.00 per share ("Common Stock"), is
listed on the New York Stock Exchange under the ticker symbol ORU.

At December 31, 1997, there were 19,682 holders of record of the Company's
Common Stock. During December 1997, the Company initiated a Common Stock
Repurchase Program, a description of which is included in the 1997 Annual Report
to Shareholders in the "Review of the Company's Results of Operations and
Financial Condition" under the caption "Liquidity and Capital Resources" on page
15 and in Note 6 of the Notes to Consolidated Financial Statements on page 24,
which information is incorporated by reference in this Form 10-K Annual Report.
During 1997, dividend payments were made to holders of the Company's Common
Stock on February 1, May 1, August 1 and November 1.

Quarterly market price and dividend information on the Company's Common Stock is
as follows:

<TABLE>
<CAPTION>
                           QUARTER           HIGH               LOW                  DIVIDEND
                           -------           ----               ---                  --------
<S>      <C>                  <C>           <C>               <C>                   <C>  
         1997                 1             $36 7/8            $35 3/8                $.645
                              2              35 5/8             30 1/8                 .645
                              3              37 5/16            32 5/16                .645
                              4              48 5/8             35                     .645

         1996                 1             $37 1/8            $34 7/8                $.645
                              2              36 3/4             33 3/8                 .645
                              3              37                 34 3/4                 .645
                              4              36 1/4             34 1/4                 .645
</TABLE>


Information regarding the restriction of retained earnings for dividend payments
is contained in Note 5 of the Notes to Consolidated Financial Statements on page
23 of the 1997 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.

ITEM 6.          SELECTED FINANCIAL DATA

The information required by this Item is contained under the captions "Financial
Statistics - Common Stock Data," and "Financial Statistics - Selected Financial
Data" on page 32 of the 1997 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.


                                     - 44 -
<PAGE>   48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The information required by this Item is contained under the caption "Review of
the Company's Results of Operations and Financial Condition" on pages 10 through
16 of the 1997 Annual Report to shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary financial information
required by this Item are contained on pages 17 through 30 of the 1997 Annual
Report to Shareholders, which material is incorporated by reference in this Form
10-K Annual Report. Such information is listed in Item l4(a)(1) "Financial
Statements" of this Form 10-K Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE


                 None.


                                    PART III

The information required by Item 10 - Directors and Executive Officers of the
Registrant is contained on page 42 of this Form 10-K Annual Report and in
Section 1, "Election of Directors," of the Company's definitive Proxy Statement
in connection with the 1998 Annual Meeting of Common Shareholders (the "Proxy
Statement"), which material is incorporated by reference in this Form 10-K
Annual Report. The information required by Item 11 Executive Compensation, Item
12 - Security Ownership of Certain Beneficial Owners and Management and Item 13
Certain Relationships and Related Transactions is contained in Section 1,
"Election of Directors," of the Proxy Statement which material is incorporated
by reference in this Form 10-K Annual Report. With the exception of this
information, the Proxy Statement is not deemed filed as part of this Form 10-K
Annual Report.



                                     - 45 -
<PAGE>   49
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)  FINANCIAL STATEMENTS

The following consolidated financial statements of the Company and its
subsidiaries appearing on pages 17 through 30 of the 1997 Annual Report to
Shareholders are incorporated by reference in this Form 10-K Annual Report. With
the exception of these consolidated financial statements and the information
incorporated in Items 1, 2, 3, 5, 6, 7 and 8, herein, the 1997 Annual Report to
shareholders is not deemed filed as part of this Form 10-K Annual Report.

                                                                           PAGE*
Consolidated Statements of Income for the years ended
    December 31, 1997, 1996 and 1995                                          17

Consolidated Balance Sheets as of December 31, 1997 and 1996                  18

Consolidated Cash Flow Statements for the years ended
    December 31, 1997, 1996 and 1995                                          20

Notes to Consolidated Financial Statements                                    21

Report of Independent Public Accountants                                      30

    *Page number reference is to the 1997 Annual Report
     to Shareholders


(a)(2)  FINANCIAL STATEMENT SCHEDULES                                     PAGE**

Valuation and Qualifying Accounts and Reserves for the years
    ended December 31, 1997, 1996 and 1995 (Schedule II).                     58


**Page number reference is to this Form 10-K Annual Report

All other schedules are omitted because they are not applicable.



                                     - 46 -
<PAGE>   50
(a)(3)  EXHIBITS

  * 3.2           By-Laws, as amended through June 29, 1995. (Exhibit 3.2 to
                  Form 10-Q for the period ended June 30, 1995, File No.
                  1-4315).

  * 3.4           Restated Certificate of Incorporation dated May 7, 1996.
                  (Exhibit 3.4 to Form 10-Q for the period ended March 31, 1996,
                  File No. 1-4315).

  * 4.3           Mortgage Trust Indenture of Rockland Electric Company, dated
                  as of July 1, 1954. (Exhibit 2.16 to Registration Statement
                  No. 2-14159).

  * 4.11          Mortgage Trust Indenture of Pike County Light & Power Company,
                  dated as of July 15, 1971. (Exhibit 4.31 to Registration
                  Statement No. 2-45632).

  * 4.25          Indenture between the Company and The Bank of New York as
                  Trustee regarding unsecured debt, dated March 1, 1990.
                  (Exhibit 4.25 to Form 10-K for the fiscal year ended December
                  31, 1990, File No. 1-4315).

  * 4.26          First Supplemental Indenture between the Company and The Bank
                  of New York as Trustee regarding unsecured debt, dated March
                  7, 1990. (Exhibit 4.26 to Form 10-K for the fiscal year ended
                  December 31, 1990, File No. 1-4315).

  * 4.27          Second Supplemental Indenture between the Company and the Bank
                  of New York as Trustee regarding unsecured debt, dated October
                  15, 1992. (Exhibit 4.27 to Form 10-K for the fiscal year ended
                  December 31, 1992, File No. 1-4315).

  * 4.29          Third Supplemental Indenture between the Company and The Bank
                  of New York as Trustee regarding unsecured debt, dated as of
                  March 1, 1993. (Exhibit 4.29 to Form 10-K for the fiscal year
                  ended December 31, 1992, File No. 1-4315).

  * 4.30          Ninth Supplemental Indenture of Rockland Electric Company,
                  dated as of March 1, 1993. (Exhibit 4.30 to Form 10-K for the
                  fiscal year ended December 31, 1992, File No. 1-4315).

  * 4.31          Fourth Supplemental Indenture between the Company and the Bank
                  of New York as Trustee regarding unsecured debt dated as of
                  December 1, 1997. (Exhibit 4.5 to Company's Registration
                  Statement on Form S-4, File No. 333-43953).



                                     - 47 -
<PAGE>   51
  *10.1           General Agreement: Bowline Point Generating Plant, dated as of
                  October 10, 1969. (Exhibit 5(b) to Registration Statement No.
                  2-42156).

  *10.1A          Amendment to the General Agreement: Bowline Point Generating
                  Plant, dated May 31, 1996. (Exhibit 10.1A to Form 10-K for the
                  fiscal year ended December 31, 1996, File No. 1-4315).

  *10.2           Financing Agreements, dated as of February 1, 1971. (Exhibit
                  5(a) to Registration Statement No. 2-42156).

  *10.2A          Amendment to Lease Agreement effective August 1, 1996.
                  (Exhibit 10.2A to Form 10-Q for the quarter ended March 31,
                  1997, File No. 1-4315).

   10.3           Orange and Rockland Utilities, Inc. Eligible Employees
                  Compensation Deferral Plan (formerly the Officers Salary
                  Deferral Plan), as amended and restated on June 5, 1997,
                  effective January 1, 1998.

  *10.7           New York Power Pool Agreement, dated July 16, 1985. (Exhibit
                  10.7 to Form 10-K for the fiscal year ended December 31, 1990,
                  File No. 1-4315).

  *10.8           Agreement governing the supply of residual fuel oil by Con
                  Edison to Bowline Point Generating Station dated August 31,
                  1983. (Exhibit 10.8 to Form 10-K for fiscal year ended
                  December 31, 1991, File No. 1-4315).

  *10.10          PJM Facilities Agreement, dated May 1, 1970, as amended
                  December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal
                  year ended December 31, 1992, File No. 1-4315).

 +*10.11          Officers' Supplemental Retirement Plan, as amended and
                  restated on June 5, 1997 effective July 1, 1997. (Exhibit
                  10.11 to Form 10-Q for the quarter ended June 30, 1997, File
                  No. 1-4315).

 +*10.12          Incentive Compensation Plan, amended January 3, 1991. (Exhibit
                  10.12 to Form 10-K for the fiscal year ended December 31,
                  1990, File No. 1-4315).

   10.13          Severance Pay Plan, as amended and restated on November 6,
                  1997.

  *10.14          Management Long-Term Disability Plan as amended January 1,
                  1996. (Exhibit 10.14 to Form 10-K for the fiscal year ended
                  December 31, 1995, File No. 1-4315).



                                     - 48 -
<PAGE>   52
  *10.17          Coal Purchase and Sale Agreement among Orange and Rockland
                  Utilities, Inc., Rawl Sales and Processing Company, and Massey
                  Coal Sales, Inc., dated March 9, 1984, as amended through July
                  1, 1991. (Exhibit 10.17 to Form 10-K for the fiscal year ended
                  December 31, 1991, File No. 1-4315).

  *10.17A         Seventh Amendment to the Coal Purchase and Sales Agreement
                  among Orange and Rockland Utilities, Inc., Rawl Sales and
                  Processing Company, and Massey Coal Sales, Inc., dated July 1,
                  1994. (Exhibit 10.17 to Form 10-K for the fiscal year ended
                  December 31, 1994, File No. 1-4315).

  *10.17B         Eighth Amendment to the Coal Purchase and Sales Agreement
                  among Orange and Rockland Utilities, Inc., Rawl Sales and
                  Processing Company, and Massey Coal Sales, Inc., dated July 1,
                  1996. (Exhibit 10.17B to Form 10-K for the fiscal year ended
                  December 31, 1996, File No. 1-4315).

 +*10.20          Orange and Rockland Utilities, Inc. Post Director Service
                  Retainer Continuation Program, as amended and restated on June
                  5, 1997, effective July 1, 1997. (Exhibit 10.20 to Form 10-Q
                  for the quarter ended June 30, 1997, File No. 1-4315).

  +10.22          Form of Severance Agreement entered into between Orange and
                  Rockland Utilities, Inc. and each of R. J. Biederman, Jr.,
                  effective October 29, 1997; N. M. Jakobs, effective October
                  27, 1997; R. J. McBennett, effective October 27, 1997; and E.
                  M. McKenna, effective October 31, 1997.

  +10.22A         Form of Agreement, amending Exhibit 10.22, entered into
                  between Orange and Rockland Utilities, Inc. and each of R. J.
                  Biederman, Jr., R. J. McBennett and E. M. McKenna, effective
                  January 27, 1998 and N. M. Jakobs, effective January 8, 1998.

 +*10.26          Letter agreement dated September 29, 1994 between Orange and
                  Rockland Utilities, Inc. and R. Lee Haney regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.26 to Form
                  10-Q for the period ended September 30, 1994, File No.
                  1-4315).

  +10.26A         Agreement between Orange and Rockland Utilities, Inc. and R.
                  Lee Haney effective July 1, 1997, amending Exhibit 10.26.



                                     - 49 -
<PAGE>   53



 +*10.27          Letter agreement dated September 29, 1994 between Orange and
                  Rockland Utilities, Inc. and D. Louis Peoples regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.27 to Form
                  10-Q for the period ended September 30, 1994, File No.
                  1-4315).

 +10.27A          Agreement between Orange and Rockland Utilities, Inc. and D.
                  Louis Peoples effective July 1, 1997, amending Exhibit 10.27.

  +10.29          Orange and Rockland Utilities, Inc. Deferred Compensation Plan
                  for Non-Employee Directors as amended and restated on February
                  5, 1998.

 +*10.30          Letter Agreement dated April 6, 1995 between Orange and
                  Rockland Utilities, Inc. and G. D. Caliendo regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.30 to Form
                  10-Q for the period ended June 30, 1995, File No. 1-4315).

  +10.30A         Agreement between Orange and Rockland Utilities, Inc. and G.
                  D. Caliendo effective July 1, 1997, amending Exhibit 10.30.

 +*10.31          Letter Agreement dated September 21, 1995 between Orange and
                  Rockland Utilities, Inc. and Nancy M. Jakobs regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.31 to Form
                  10-Q for the period ended September 30, 1995, File No.
                  1-4315).

  +10.31A         Agreement between Orange and Rockland Utilities, Inc. and
                  Nancy M. Jakobs effective July 1, 1997, amending Exhibit
                  10.31.

 +*10.36          Agreement dated January 22, 1996 between Orange and Rockland
                  Utilities, Inc. and D. L. Peoples regarding change in control
                  arrangements. (Exhibit 10.36 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

  +10.36A         Agreement between Orange and Rockland Utilities, Inc. and D.
                  L. Peoples dated July 23, 1997, amending Exhibit 10.36.

 +*10.37          Agreement dated January 21, 1996 between Orange and Rockland
                  Utilities, Inc. and G. D. Caliendo regarding change in control
                  arrangements. (Exhibit 10.37 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

                                     - 50 -
<PAGE>   54

  +10.37A         Agreement between Orange and Rockland Utilities, Inc. and G.
                  D. Caliendo dated July 23, 1997, amending Exhibit 10.37.

  +10.37B         Letter agreement between Orange and Rockland Utilities, Inc.
                  and G. D. Caliendo dated February 25, 1998, amending Exhibits
                  10.30 and 10.37.

 +*10.38          Agreement dated January 22, 1996 between Orange and Rockland
                  Utilities, Inc. and R. L. Haney regarding change in control
                  arrangements. (Exhibit 10.38 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

  +10.38A         Agreement between Orange and Rockland Utilities, Inc. and R.
                  L. Haney dated July 23, 1997, amending Exhibit 10.38.

  +10.38B         Letter agreement between Orange and Rockland Utilities, Inc.
                  and R. Lee Haney dated February 25, 1998, amending Exhibits
                  10.26 and 10.38.

 +*10.40          Long-Term Performance Share Unit Plan as amended, effective
                  July 1, 1997. (Exhibit 10.40 to Form 10-Q for the quarter
                  ended June 30, 1997, File No. 1-4315).

 +*10.41          Annual Team Incentive Plan effective January 1, 1995,
                  described on pages 9-10 of the Company's definitive proxy
                  statement filed with the Securities and Exchange Commission on
                  March 6, 1998 for its 1998 Annual Meeting of shareholders,
                  which description is hereby incorporated by reference (File
                  No. 1-4315).

 +*10.42          Letter Agreement dated February 16, 1995 between Orange and
                  Rockland Utilities, Inc. and G. D. Caliendo regarding
                  employment. (Exhibit 10.42 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

 +*10.43          Letter Agreement dated July 14, 1994 between Orange and
                  Rockland Utilities, Inc. and D. L. Peoples regarding
                  employment. (Exhibit 10.43 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

 +*10.44          Letter Agreement dated November 14, 1995 between Orange and
                  Rockland Utilities, Inc. and L. S. Brodsky regarding
                  employment. (Exhibit 10.44 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

  +10.44A         Agreement between Orange and Rockland Utilities, Inc. and L.
                  S. Brodsky effective July 1, 1997, amending Exhibit 10.44.




                                     - 51 -
<PAGE>   55



 +*10.45          Letter Agreement dated March 21, 1995 between Orange and
                  Rockland Utilities, Inc. and Nancy M. Jakobs regarding
                  employment. (Exhibit 10.45 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

 +*10.46          Letter Agreement dated September 2, 1994 between Orange and
                  Rockland Utilities, Inc. and R. L. Haney regarding employment.
                  (Exhibit 10.46 to Form 10-K for the fiscal year ended December
                  31, 1995, File No. 1-4315).

  *10.47          Eligible Employees' Insurance Program, effective July 1, 1997.
                  (Exhibit 10.48 to Form 10-Q for the quarter ended June 30,
                  1997, File No. 1-4315).

 +*10.48          Agreement and General Release dated August 27, 1997 between
                  Orange and Rockland Utilities, Inc. and Larry S. Brodsky.
                  (Exhibit 10.49 to Form 10-Q for the quarter ended September
                  30, 1997, File No. 1-4315).

   10.49          Management Employee Transition Program, as described in
                  correspondence to employees, dated December 11, 1997 and
                  January 9, 1998.

  *10.50          Settlement Agreement (Electric Rate and Restructuring Plan)
                  dated November 6, 1997 among the Registrant, the New York
                  State Department of Public Service, the New York State
                  Department of Economic Development, the National Association
                  of Energy Service Companies, the Joint Supporters, the
                  Industrial Energy Users Association, the Independent Power
                  Producers of New York, Inc. and Pace Energy Project in Case
                  96-E-0900 - In the Matter of Orange and Rockland Utilities,
                  Inc.'s Plans for Electric Rate/Restructuring Pursuant to
                  Opinion No. 96-12. (Exhibit 99.7 to Form 10-Q for the quarter
                  ended September 30, 1997, File No. 1-4315).

   13             The Company's 1997 Annual Report to Shareholders to the extent
                  incorporated by reference in this Form 10-K Annual Report for
                  the fiscal year ended December 31, 1997. [Note: Except for
                  those portions of such Annual Report expressly incorporated by
                  reference in this Form 10-K Annual Report, such Annual Report
                  is not deemed "filed" as part of the filing of this Form 10-K
                  Annual Report.]

  *21             Subsidiaries of the Company. (Exhibit 21 to Company's
                  Registration Statement on Form S-4, File No. 333-43953).

   24             Powers of Attorney.

   27             Financial Data Schedule.

                                     - 52 -
<PAGE>   56
  *99.1           Joint Cooperation Agreement between the Office of the Rockland
                  County District Attorney and Orange and Rockland Utilities,
                  Inc., dated November 3, 1993 (Exhibit 99.1 to Form 10-Q for
                  the quarter ended September 30, 1993, File No. 1-4315).

  *99.2           NYPSC Order Adopting Terms of Settlement, Issued and Effective
                  November 26, 1997, in Case 96-E-0900. (Exhibit 99.10 to Form
                  8-K dated November 25, 1997, File No. 1-4315).

   99.3           NYPSC Opinion (No. 97-20) and Order Adopting Terms of
                  Settlement, Issued and Effective December 31, 1997, in Case
                  96-E-0900.

  *99.5           Agreement Between Orange and Rockland Utilities, Inc. and
                  Kroll Associates, Inc. dated as of November 1, 1994. (Exhibit
                  99.5 to Form 10-Q for the period ended September 30, 1994,
                  File No. 1-4315).

          +       Denotes executive compensation plans and arrangements.

          *       Incorporated by reference to the indicated filings.

The securities issued relevant to each of the following agreements were not
registered with the Securities and Exchange Commission and the total amount of
securities authorized under each agreement does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following agreements are not
filed as exhibits. The Company agrees, however, to furnish to the Commission a
copy of each agreement upon request:

         -        First Supplemental Indenture, dated August 15, 1990, to the
                  Indenture of Mortgage and Deed of Trust of Pike County Light &
                  Power Company.

         -        Indenture of Trust between NYSERDA and the Bank of New York,
                  as Trustee, relating to the Pollution Control Revenue Bonds
                  (Orange and Rockland Utilities, Inc. Project) dated as of
                  August 15, 1994.

         -        Participation Agreement between NYSERDA and Orange and
                  Rockland Utilities, Inc., dated as of August 15, 1994.

         -        Indenture of Trust between NYSERDA and the Bank of New York,
                  as Trustee, relating to the Pollution Control Refunding
                  Revenue Bonds dated as of July 1, 1995.

         -        Participation Agreement between NYSERDA and Orange and
                  Rockland Utilities, Inc., dated as of July 1, 1995.


                                     - 53 -
<PAGE>   57

         -        Tenth Supplemental Indenture of Rockland Electric Company,
                  dated as of February 1, 1997.

(b)  REPORTS ON FORM 8-K

During the fourth quarter of the year ended December 31, 1997, the Company filed
the following reports on Form 8-K:

          -       Form 8-K dated December 11, 1998, reporting under Item 5,
                  "Other Events," the approval by the NYPSC of the Company's
                  Restructuring Plan; and under Item 7, "Financial Statements
                  and Exhibits," three Exhibits related to such approval.

          -       Form 8-K dated December 17, 1998, reporting under Item 5,
                  "Other Events," the approval by the NYPSC of the Company's
                  Common Stock Repurchase Program; and under Item 7 "Financial
                  Statements and Exhibits" an exhibit related to such approval.


                                     - 54 -
<PAGE>   58
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             ORANGE AND ROCKLAND UTILITIES, INC.
                                                      (Registrant)
                                             
                                             
                                             By   /s/ D. LOUIS PEOPLES
                                                      (D. Louis Peoples
                                                      Vice Chairman of the
                                                      Board of Directors and
                                                      Chief Executive Officer)

Date:  March 6, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE AND TITLE                                CAPACITY IN WHICH SIGNING


D. LOUIS PEOPLES*                                  Chief Executive
(D. Louis Peoples,                                 Officer, Director
Vice Chairman of the
Board of Directors and
Chief Executive Officer)

R. LEE HANEY*                                      Chief Financial Officer
(R. Lee Haney, Sr. Vice President
and Chief Financial Officer)

EDWARD M. McKENNA*                                 Principal Accounting Officer
(Edward M. McKenna, Controller)

MICHAEL J. DEL GIUDICE*                            Chairman of the
(Michael J. DelGiudice)                            Board of Directors

H. KENT VANDERHOEF*                                Director
(H. Kent Vanderhoef)

RALPH M. BARUCH*                                   Director
(Ralph M. Baruch)

J. FLETCHER CREAMER*                               Director
(J. Fletcher Creamer)




                                     - 55 -
<PAGE>   59
SIGNATURE AND TITLE                                    CAPACITY IN WHICH SIGNING



JON F. HANSON*                                         Director
(Jon F. Hanson)

KENNETH D. McPHERSON*                                  Director
(Kenneth D. McPherson)

ROBERT E. MULCAHY*                                     Director
(Robert E. Mulcahy)

JAMES F. O'GRADY, JR.*                                 Director
(James F. O'Grady, Jr.)

FREDERIC V. SALERNO*                                   Director
(Frederic V. Salerno)

LINDA C. TALIAFERRO*                                   Director
(Linda C. Taliaferro)

*By /s/ G. D. CALIENDO
(G. D. Caliendo,
Attorney-in-fact)


Date:  March 6, 1998



                                     - 56 -
<PAGE>   60

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                         ON FINANCIAL STATEMENT SCHEDULE


We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Orange and Rockland Utilities,
Inc.'s Annual Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 5, 1998. Our audit was
made for the purpose of forming an opinion on those consolidated financial
statements taken as a whole. Supplemental Schedule II, Valuation and Qualifying
Accounts and Reserves is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.


ARTHUR ANDERSEN LLP


New York, New York
February 5, 1998





                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the incorporation of our
reports included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (File Nos.
33-25358, 33-25359 and 33-22129) and on Form S-3 (File No. 333-26337).



ARTHUR ANDERSEN LLP


New York, New York
March 6, 1998



                                     - 57 -
<PAGE>   61
                                                                     SCHEDULE II



              ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (THOUSANDS OF DOLLARS)


<TABLE>
<CAPTION>
                                                                ADDITIONS
                                                                ---------
                                                           (1)               (2)                             BALANCE
                                         BALANCE AT     CHARGED TO         CHARGED                             AT
                                         BEGINNING      COSTS AND          TO OTHER                          END OF
             DESCRIPTION                 OF PERIOD      EXPENSES           ACCOUNTS        DEDUCTIONS        PERIOD
             -----------                 ---------      --------           --------        ----------        ------
December 31, 1997                                                     
   Allowance for Uncollect-                                           
    ible accounts:                                                    
<S>                                       <C>             <C>                <C>            <C>              <C>    
       Customer Accounts                  $ 2,391         $ 2,959            $   499        $ 3,319          $ 2,530
       Other Accounts                         258             259                 80            339              258
                                          -------         -------            -------        -------          -------
                                          $ 2,649         $ 3,218            $   579(A)     $ 3,658(B)       $ 2,788
                                          =======         =======            =======        =======          =======

   Reserve for Claims
    and Damages                           $ 3,843         $ 2,331            $    84        $ 1,667(C)       $ 4,591
                                          =======         =======            =======        =======          =======

   Gas Turbine Maint 
    Reserve                               $   (88)        $   366            $    --        $   382(C)       $  (104)
                                          =======         =======            =======        =======          =======


December 31, 1996
   Allowance for Uncollect-
    ible accounts:
       Customer Accounts                  $ 2,307         $ 2,508            $   616        $ 3,040          $ 2,391
       Other Accounts                         169             268                197            376              258
                                          -------         -------            -------        -------          -------
                                          $ 2,476         $ 2,776            $   813(A)     $ 3,416(B)       $ 2,649
                                          =======         =======            =======        =======          =======

   Reserve for Claims
    and Damages                           $ 3,848         $ 1,773            $   472        $ 2,250(C)       $ 3,843
                                          =======         =======            =======        =======          =======

   Gas Turbine Maint 
    Reserve                               $  (202)        $   453            $    --        $   339(C)       $   (88)
                                          =======         =======            =======        =======          =======
</TABLE>




                                     - 58 -
<PAGE>   62
                                                                     SCHEDULE II


              ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (THOUSANDS OF DOLLARS)


<TABLE>
<CAPTION>
                                                         ADDITIONS
                                                         ---------
                                                    (1)               (2)                                   BALANCE
                               BALANCE AT        CHARGED TO         CHARGED                                   AT
                               BEGINNING         COSTS AND          TO OTHER                                 END OF
             DESCRIPTION       OF PERIOD         EXPENSES           ACCOUNTS           DEDUCTIONS            PERIOD
             -----------       ---------         --------           --------           ----------            ------

December 31, 1995
   Allowance for Uncollect-
    ible accounts:
<S>                            <C>               <C>                 <C>                 <C>                 <C>    
    Customer Accounts          $ 2,200           $ 2,374             $   565             $ 2,832             $ 2,307
    Other Accounts                 209               825                  35                 900                 169
                               -------           -------             -------             -------             -------
                               $ 2,409           $ 3,199             $   600(A)          $ 3,732(B)          $ 2,476
                               =======           =======             =======             =======             =======

Reserve for Claims
 and Damages                   $ 4,713           $   720             $    52             $ 1,637(C)          $ 3,848
                               =======           =======             =======             =======             =======

Gas Turbine Maint
 Reserve                       $  (258)          $   622             $    --             $   566(C)          $  (202)
                               =======           =======             =======             =======             =======
</TABLE>



(A)      Includes collection of accounts previously written off of $579 in 1997,
         $813 in 1996, and $600 in 1995.

(B)      Accounts considered uncollectible and charged off of $3,658 in 1997,
         $3,416 in 1996 and $3,732 in 1995.

(C)      Payments of damage claims of $1,667 in 1997, $2,250 in 1996 and $1,637
         in 1995 and maintenance expenses of $382 in 1997, $339 in 1996 and $566
         in 1995.





                                     - 59 -
<PAGE>   63
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549





                                    FORM 10-K




                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                           THE SECURITIES ACT OF 1934







For Year Ended December 31, 1997                   Commission File Number 1-4315





                       ORANGE AND ROCKLAND UTILITIES, INC.
             (Exact name of registrant as specified in its charter)



                                    EXHIBITS



<PAGE>   64
                       ORANGE AND ROCKLAND UTILITIES, INC.
                                INDEX OF EXHIBITS
                                 1997 FORM 10-K

  * 3.2           By-Laws, as amended through June 29, 1995. (Exhibit 3.2 to
                  Form 10-Q for the period ended June 30, 1995, File No.
                  1-4315).

  * 3.4           Restated Certificate of Incorporation dated May 7, 1996.
                  (Exhibit 3.4 to Form 10-Q for the period ended March 31, 1996,
                  File No. 1-4315).

  * 4.3           Mortgage Trust Indenture of Rockland Electric Company, dated
                  as of July 1, 1954. (Exhibit 2.16 to Registration Statement
                  No. 2-14159).

  * 4.11          Mortgage Trust Indenture of Pike County Light & Power Company,
                  dated as of July 15, 1971. (Exhibit 4.31 to Registration
                  Statement No. 2-45632).

  * 4.25          Indenture between the Company and The Bank of New York as
                  Trustee regarding unsecured debt, dated March 1, 1990.
                  (Exhibit 4.25 to Form 10-K for the fiscal year ended December
                  31, 1990, File No. 1-4315).

  * 4.26          First Supplemental Indenture between the Company and The Bank
                  of New York as Trustee regarding unsecured debt, dated March
                  7, 1990. (Exhibit 4.26 to Form 10-K for the fiscal year ended
                  December 31, 1990, File No. 1-4315).

  * 4.27          Second Supplemental Indenture between the Company and the Bank
                  of New York as Trustee regarding unsecured debt, dated October
                  15, 1992. (Exhibit 4.27 to Form 10-K for the fiscal year ended
                  December 31, 1992, File No. 1-4315).

  * 4.29          Third Supplemental Indenture between the Company and The Bank
                  of New York as Trustee regarding unsecured debt, dated as of
                  March 1, 1993. (Exhibit 4.29 to Form 10-K for the fiscal year
                  ended December 31, 1992, File No. 1-4315).

  * 4.30          Ninth Supplemental Indenture of Rockland Electric Company,
                  dated as of March 1, 1993. (Exhibit 4.30 to Form 10-K for the
                  fiscal year ended December 31, 1992, File No. 1-4315).

  * 4.31          Fourth Supplemental Indenture between the Company and the Bank
                  of New York as Trustee regarding unsecured debt dated as of
                  December 1, 1997. (Exhibit 4.5 to Company's Registration
                  Statement on Form S-4, File No. 333-43953).



<PAGE>   65
  *10.1           General Agreement: Bowline Point Generating Plant, dated as of
                  October 10, 1969. (Exhibit 5(b) to Registration Statement No.
                  2-42156).

  *10.1A          Amendment to the General Agreement: Bowline Point Generating
                  Plant, dated May 31, 1996. (Exhibit 10.1A to Form 10-K for the
                  fiscal year ended December 31, 1996 File No. 1-4315).

  *10.2           Financing Agreements, dated as of February 1, 1971. (Exhibit
                  5(a) to Registration Statement No. 2-42156).

  *10.2A          Amendment to Lease Agreement effective August 1, 1996.
                  (Exhibit 10.2A to Form 10-Q for the quarter ended March 31,
                  1997, File No. 1-4315).

   10.3           Orange and Rockland Utilities, Inc. Eligible Employees
                  Compensation Deferral Plan (formerly the Officers Salary
                  Deferral Plan), as amended and restated on June 5, 1997,
                  effective January 1, 1998.

  *10.7           New York Power Pool Agreement, dated July 16, 1985. (Exhibit
                  10.7 to Form 10-K for the fiscal year ended December 31, 1990,
                  File No. 1-4315).

  *10.8           Agreement governing the supply of residual fuel oil by Con
                  Edison to Bowline Point Generating Station dated August 31,
                  1983. (Exhibit 10.8 to Form 10-K for fiscal year ended
                  December 31, 1991, File No. 1-4315).

  *10.10          PJM Facilities Agreement, dated May 1, 1970, as amended
                  December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal
                  year ended December 31, 1992, File No. 1-4315).

 +*10.11          Officers' Supplemental Retirement Plan, as amended and
                  restated on June 5, 1997 effective July 1, 1997. (Exhibit
                  10.11 to Form 10-Q for the quarter ended June 30, 1997, File
                  No. 1-4315).

 +*10.12          Incentive Compensation Plan, amended January 3, 1991. (Exhibit
                  10.12 to Form 10-K for the fiscal year ended December 31,
                  1990, File No. 1-4315).

   10.13          Severance Pay Plan, as amended and restated on November 6,
                  1997.

  *10.14          Management Long-Term Disability Plan as amended January 1,
                  1996. (Exhibit 10.14 to Form 10-K for the fiscal year ended
                  December 31, 1995, File No. 1-4315).



<PAGE>   66



  *10.17          Coal Purchase and Sale Agreement among Orange and Rockland
                  Utilities, Inc., Rawl Sales and Processing Company, and Massey
                  Coal Sales, Inc., dated March 9, 1984, as amended through July
                  1, 1991. (Exhibit 10.17 to Form 10-K for the fiscal year ended
                  December 31, 1991, File No. 1-4315).

  *10.17A         Seventh Amendment to the Coal Purchase and Sales Agreement
                  among Orange and Rockland Utilities, Inc., Rawl Sales and
                  Processing Company, and Massey Coal Sales, Inc., dated July 1,
                  1994. (Exhibit 10.17 to Form 10-K for the fiscal year ended
                  December 31, 1994, File No. 1-4315).

  *10.17B         Eighth Amendment to the Coal Purchase and Sales Agreement
                  among Orange and Rockland Utilities, Inc., Rawl Sales and
                  Processing Company, and Massey Coal Sales, Inc., dated July 1,
                  1996. (Exhibit 10.17B to Form 10-K for the fiscal year ended
                  December 31, 1996, File No. 1-4315).

 +*10.20          Orange and Rockland Utilities, Inc. Post Director Service
                  Retainer Continuation Program, as amended and restated on June
                  5, 1997, effective July 1, 1997. (Exhibit 10.20 to Form 10-Q
                  for the quarter ended June 30, 1997, File No. 1-4315).

  +10.22          Form of Severance Agreement entered into between Orange and
                  Rockland Utilities, Inc. and each of R. J. Biederman, Jr.,
                  effective October 29, 1997; N. M. Jakobs, effective October
                  27, 1997; R. J. McBennett, effective October 27, 1997; and E.
                  M. McKenna, effective October 31, 1997.

  +10.22A         Form of Agreement, amending Exhibit 10.22, entered into
                  between Orange and Rockland Utilities, Inc. and each of R. J.
                  Biederman, Jr., R. J. McBennett and E. M. McKenna, effective
                  January 27, 1998 and N. M. Jakobs, effective January 8, 1998.

 +*10.26          Letter agreement dated September 29, 1994 between Orange and
                  Rockland Utilities, Inc. and R. Lee Haney regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.26 to Form
                  10-Q for the period ended September 30, 1994, File No.
                  1-4315).

  +10.26A         Agreement between Orange and Rockland Utilities, Inc. and R.
                  Lee Haney effective July 1, 1997, amending Exhibit 10.26.



<PAGE>   67



 +*10.27          Letter agreement dated September 29, 1994 between Orange and
                  Rockland Utilities, Inc. and D. Louis Peoples regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.27 to Form
                  10-Q for the period ended September 30, 1994, File No.
                  1-4315).

  +10.27A         Agreement between Orange and Rockland Utilities, Inc. and D.
                  Louis Peoples effective July 1, 1997, amending Exhibit 10.27.

  +10.29          Orange and Rockland Utilities, Inc. Deferred Compensation Plan
                  for Non-Employee Directors as amended and restated on February
                  5, 1998.

 +*10.30          Letter Agreement dated April 6, 1995 between Orange and
                  Rockland Utilities, Inc. and G. D. Caliendo regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.30 to Form
                  10-Q for the period ended June 30, 1995, File No. 1-4315).

  +10.30A         Agreement between Orange and Rockland Utilities, Inc. and G.
                  D. Caliendo effective July 1, 1997, amending Exhibit 10.30.

 +*10.31          Letter Agreement dated September 21, 1995 between Orange and
                  Rockland Utilities, Inc. and Nancy M. Jakobs regarding
                  participation in the Officers' Supplemental Retirement Plan of
                  Orange and Rockland Utilities, Inc. (Exhibit 10.31 to Form
                  10-Q for the period ended September 30, 1995, File No.
                  1-4315).

  +10.31A         Agreement between Orange and Rockland Utilities, Inc. and
                  Nancy M. Jakobs effective July 1, 1997, amending Exhibit
                  10.31.

 +*10.36          Agreement dated January 22, 1996 between Orange and Rockland
                  Utilities, Inc. and D. L. Peoples regarding change in control
                  arrangements. (Exhibit 10.36 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

  +10.36A         Agreement between Orange and Rockland Utilities, Inc. and D.
                  L. Peoples dated July 23, 1997, amending Exhibit 10.36.

 +*10.37          Agreement dated January 21, 1996 between Orange and Rockland
                  Utilities, Inc. and G. D. Caliendo regarding change in control
                  arrangements. (Exhibit 10.37 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

<PAGE>   68

  +10.37A         Agreement between Orange and Rockland Utilities, Inc. and G.
                  D. Caliendo dated July 23, 1997, amending Exhibit 10.37.

  +10.37B         Letter agreement between Orange and Rockland Utilities, Inc.
                  and G. D. Caliendo dated February 25, 1998, amending Exhibits
                  10.30 and 10.37.

 +*10.38          Agreement dated January 22, 1996 between Orange and Rockland
                  Utilities, Inc. and R. L. Haney regarding change in control
                  arrangements. (Exhibit 10.38 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

  +10.38A         Agreement between Orange and Rockland Utilities, Inc. and R.
                  L. Haney dated July 23, 1997, amending Exhibit 10.38.

  +10.38B         Letter agreement between Orange and Rockland Utilities, Inc.
                  and R. Lee Haney dated February 25, 1998, amending Exhibits
                  10.26 and 10.38.

 +*10.40          Long-Term Performance Share Unit Plan as amended, effective
                  July 1, 1997. (Exhibit 10.40 to Form 10-Q for the quarter
                  ended June 30, 1997, File No. 1-4315).

 +*10.41          Annual Team Incentive Plan effective January 1, 1995,
                  described on pages 9-10 of the Company's definitive proxy
                  statement filed with the Securities and Exchange Commission on
                  March 6, 1998 for its 1998 Annual Meeting of shareholders,
                  which description is hereby incorporated by reference (File
                  No. 1-4315).

 +*10.42          Letter Agreement dated February 16, 1995 between Orange and
                  Rockland Utilities, Inc. and G. D. Caliendo regarding
                  employment. (Exhibit 10.42 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

 +*10.43          Letter Agreement dated July 14, 1994 between Orange and
                  Rockland Utilities, Inc. and D. L. Peoples regarding
                  employment. (Exhibit 10.43 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

 +*10.44          Letter Agreement dated November 14, 1995 between Orange and
                  Rockland Utilities, Inc. and L. S. Brodsky regarding
                  employment. (Exhibit 10.44 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

  +10.44A         Agreement between Orange and Rockland Utilities, Inc. and L.
                  S. Brodsky effective July 1, 1997, amending Exhibit 10.44.



<PAGE>   69
 +*10.45          Letter Agreement dated March 21, 1995 between Orange and
                  Rockland Utilities, Inc. and Nancy M. Jakobs regarding
                  employment. (Exhibit 10.45 to Form 10-K for the fiscal year
                  ended December 31, 1995, File No. 1-4315).

 +*10.46          Letter Agreement dated September 2, 1994 between Orange and
                  Rockland Utilities, Inc. and R. L. Haney regarding employment.
                  (Exhibit 10.46 to Form 10-K for the fiscal year ended December
                  31, 1995, File No. 1-4315).

  *10.47          Eligible Employees' Insurance Program, effective July 1, 1997.
                  (Exhibit 10.48 to Form 10-Q for the quarter ended June 30,
                  1997, File No. 1-4315).

 +*10.48          Agreement and General Release dated August 27, 1997 between
                  Orange and Rockland Utilities, Inc. and Larry S. Brodsky.
                  (Exhibit 10.49 to Form 10-Q for the quarter ended September
                  30, 1997, File No. 1-4315).

   10.49          Management Employee Transition Program, as described in
                  correspondence to employees, dated December 11, 1997 and
                  January 9, 1998.

  *10.50          Settlement Agreement (Electric Rate and Restructuring Plan)
                  dated November 6, 1997 among the Registrant, the New York
                  State Department of Public Service, the New York State
                  Department of Economic Development, the National Association
                  of Energy Service Companies, the Joint Supporters, the
                  Industrial Energy Users Association, the Independent Power
                  Producers of New York, Inc. and Pace Energy Project in Case
                  96-E-0900 - In the Matter of Orange and Rockland Utilities,
                  Inc.'s Plans for Electric Rate/Restructuring Pursuant to
                  Opinion No. 96-12. (Exhibit 99.7 to Form 10-Q for the quarter
                  ended September 30, 1997, File No. 1-4315).

   13             The Company's 1997 Annual Report to Shareholders to the extent
                  incorporated by reference in this Form 10-K Annual Report for
                  the fiscal year ended December 31, 1997. [Note: Except for
                  those portions of such Annual Report expressly incorporated by
                  reference in this Form 10-K Annual Report, such Annual Report
                  is not deemed "filed" as part of the filing of this Form 10-K
                  Annual Report.]

  *21             Subsidiaries of the Company. (Exhibit 21 to Company's
                  Registration Statement on Form S-4, File No. 333-43953).

   24             Powers of Attorney.

   27             Financial Data Schedule.

                  
<PAGE>   70

  *99.1           Joint Cooperation Agreement between the Office of the Rockland
                  County District Attorney and Orange and Rockland Utilities,
                  Inc., dated November 3, 1993 (Exhibit 99.1 to Form 10-Q for
                  the quarter ended September 30, 1993, File No. 1-4315).

  *99.2           NYPSC Order Adopting Terms of Settlement, Issued and Effective
                  November 26, 1997, in Case 96-E-0900. (Exhibit 99.10 to Form
                  8-K dated November 25, 1997, File No. 1-4315).

   99.3           NYPSC Opinion (No. 97-20) and Order Adopting Terms of
                  Settlement, Issued and Effective December 31, 1997, in Case
                  96-E-0900.

  *99.5           Agreement Between Orange and Rockland Utilities, Inc. and
                  Kroll Associates, Inc. dated as of November 1, 1994. (Exhibit
                  99.5 to Form 10-Q for the period ended September 30, 1994,
                  File No. 1-4315).

          +       Denotes executive compensation plans and arrangements.

          *       Incorporated by reference to the indicated filings.

The securities issued relevant to each of the following agreements were not
registered with the Securities and Exchange Commission and the total amount of
securities authorized under each agreement does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following agreements are not
filed as exhibits. The Company agrees, however, to furnish to the Commission a
copy of each agreement upon request:

         -        First Supplemental Indenture, dated August 15, 1990, to the
                  Indenture of Mortgage and Deed of Trust of Pike County Light &
                  Power Company.

         -        Indenture of Trust between NYSERDA and the Bank of New York,
                  as Trustee, relating to the Pollution Control Revenue Bonds
                  (Orange and Rockland Utilities, Inc. Project) dated as of
                  August 15, 1994.

         -        Participation Agreement between NYSERDA and Orange and
                  Rockland Utilities, Inc., dated as of August 15, 1994.

         -        Indenture of Trust between NYSERDA and the Bank of New York,
                  as Trustee, relating to the Pollution Control Refunding
                  Revenue Bonds dated as of July 1, 1995.

         -        Participation Agreement between NYSERDA and Orange and
                  Rockland Utilities, Inc., dated as of July 1, 1995.

                  
<PAGE>   71

         -        Tenth Supplemental Indenture of Rockland Electric Company,
                  dated as of February 1, 1997.