<PAGE>   1
                                                                   Exhibit 10.49

[ORANGE AND ROCKLAND LOGO]



                                                               December 11, 1997


Dear Management Colleague:

As you know, earlier today the Company submitted a Preliminary Divestiture
Plan. At the same time, we mailed a letter last evening to the New York Public
Service Commission declining the option to participate in the auction of our
generating plants.

We believe--as we have always believed--that our Electric Production Division
employees are among the best in the business. It is our expectation that the
successful bidder will recognize our plant employees' knowledge, experience and
dedication, and will want to retain these employees who add so much to the
value of the asset being purchased.

While we believe that any new owner would look favorably on retaining
management employees, we nonetheless recognize that there is no absolute
certainty in these uncertain times. As a result, we insisted upon--and received
approval by the PSC--the right to retain money from the sale of the plants
exclusively for the purpose of funding employee transition costs. We did that
because it's the right thing to do--for those employees who will be affected by
the divestiture and for the Company.

Accordingly, the Board of Directors has approved the Management Employee
Transition Program described on these pages. This document is intended to help
clarify some of the immediate questions that you may have. Of course, if you
are offered a position and decline, you would not be eligible for the benefits
described on these pages, with the exception of the retention bonus.

IT'S IMPORTANT TO NOTE TWO THINGS ABOUT THIS EMPLOYEE TRANSITION PROGRAM:

-- IT APPLIES TO ELECTRIC PRODUCTION DIVISION MANAGEMENT EMPLOYEES AS OUTLINED
   ON THE FOLLOWING PAGES;

-- EXCEPT FOR THE RETENTION BONUS, THE PROGRAM ALSO WILL APPLY TO THOSE
   MANAGEMENT EMPLOYEES WHO ARE NOT IN THE ELECTRIC PRODUCTION DIVISION BUT
   WHO MAY SUFFER A LOSS OF EMPLOYMENT AS A RESULT OF THE SALE OF THE PLANTS.
   IT IS FAR TOO EARLY TO ATTEMPT TO IDENTIFY WHO THOSE EMPLOYEES MAY BE. THIS
   INFORMATION IS BEING PROVIDED TO ALL MANAGEMENT EMPLOYEES TO TRY TO PROVIDE
   YOU WITH SOME MEASURE OF PROTECTION AND COMFORT IN LIGHT OF THE POTENTIAL
   EFFECTS OF THE SALE.

While the events unfolding at Orange and Rockland are similar to those
happening at other companies throughout our industry, I know that fact doesn't
make it any easier. That's why we intend to move forward through its process
both quickly and prudently.

Above all else, I want to emphasize that we'll provide you with accurate
information regarding the divestiture as it happens. As you would expect, the
rumor mill is operating overtime, and I am determined to help you sort out fact
from fiction. In addition to future written communications, we have established
a telephone Restructuring Plan Message Box, where you may record your questions
or concerns by calling (914) 577-2121. We'll respond to questions of a general
nature in Currents with frequent communication updates. Human Resources
personnel will also be available at the plants periodically to answer your
questions one-on-one. We'll announce when those visits will take place.

I'd like every management employee to understand that we're listening to your
concerns, we care very much about helping you with your career choices, and
we're working very hard to ensure that each of you is fully aware of the steps
the Company is taking during this significant transition period.

               Sincerely,

               /s/ Nancy

               Nancy Jakobs
               Vice President--Human Resources


<PAGE>   2
MANAGEMENT EMPLOYEE TRANSITION PROGRAM
--------------------------------------

     FOR ELECTRIC PRODUCTION DIVISION EMPLOYEES AND OTHERS
     WHO MAY BE AFFECTED BY THE SALE OF ORANGE AND ROCKLAND'S GENERATING ASSETS.

RETENTION PROGRAM
-----------------

In an effort to meet its obligation to maintain the value of O&R's generating
assets through the transfer of ownership, and to provide an incentive to remain
with the Company and help us through this transitional phase, the Company will
provide a retention bonus to certain management employees in the Electric
Production Division. The retention bonus for which you may be eligible is based
on pay grade, according to the following chart:

<TABLE>
<CAPTION>
     RETENTION BONUS PROGRAM
     ---------------------------------------------------------------------------
     GRADE LEVEL         PERCENTAGE OF ANNUAL BASE PAY
     ---------------------------------------------------------------------------
<S>                      <C>
     GRADE 8-10          12.5%
     ---------------------------------------------------------------------------
     GRADE 11-15         25%
     ---------------------------------------------------------------------------
     GRADE 16-18         50%
     ---------------------------------------------------------------------------
</TABLE>

     To be eligible to receive a retention bonus you MUST maintain your
     employment with the Company until the transfer of ownership to the
     purchaser. We believe this will likely occur in mid-1999. If you leave
     before ownership of O&R's generating assets is transferred to the
     purchaser, you do not receive any retention bonus.

CAREER MANAGEMENT SERVICES
--------------------------

Career Management Services will be provided. These services may include resume
preparation, interview training, job search strategies, personal marketing plan
development and outplacement services, as appropriate.

Starting in January 1998, Orange and Rockland will also offer Moving Forward
with Change Seminars to all Electric Production employees. The Moving Forward
with Change Seminars are designed to help employees understand how to manage
change in their work environment. The workshop also provides information about
the wide range of resources available to help respond to job/career changes.

SEVERANCE PAY PLAN
------------------

Orange and Rockland's Severance Pay Plan for Management Employees provides
post-termination salary continuation for employees with at least one year of
service with the Company who are involuntarily terminated for reasons other
than cause.

The level of benefit under the Plan depends on your pay grade and years of
service, in accordance with the following chart.

<TABLE>
<CAPTION>
     SEVERANCE PAY FORMULA
     --------------------------------------------------------------------------------------
     EMPLOYEE        WEEKS OF SEVERANCE PAY                   MINIMUM         MAXIMUM
     GRADE LEVEL     PER EACH YEAR OF EMPLOYMENT              ALLOWANCE       ALLOWANCE
     --------------------------------------------------------------------------------------
<S>                  <C>                                      <C>             <C>
     GRADE 1-10      1 1/2 WEEKS PAY FOR EACH YEAR WORKED     3 WEEKS PAY     26 WEEKS PAY
     --------------------------------------------------------------------------------------
     GRADE 11-17     2 1/2 WEEKS PAY FOR EACH YEAR WORKED     6 WEEKS PAY     40 WEEKS PAY
     --------------------------------------------------------------------------------------
     GRADE 18+       3 WEEKS PAY FOR EACH YEAR WORKED         8 WEEKS PAY     52 WEEKS PAY
     --------------------------------------------------------------------------------------
</TABLE>

     Medical, dental and group life insurance benefits will continue through the
     severance period.

     As an added measure of protection, if you are hired by the purchaser of
     the generating assets you will remain eligible, for a certain period of
     time, to receive a benefit under the Company's Severance Pay Plan should
     you be let go by the purchaser for reasons other than cause. The period
     during which you will remain eligible to receive severance from O&R depends
     on your pay grade, in accordance with the following chart.

<PAGE>   3
     CONTINUING ELIGIBILITY PERIOD

     EMPLOYEE GRADE LEVEL     MONTHS OF PROTECTION WITH THE PURCHASER 
                              (ELIGIBILITY PERIOD)
     GRADE 1-7                FIRST 6 MONTHS OF EMPLOYMENT
     GRADE 8-10               FIRST 9 MONTHS OF EMPLOYMENT
     GRADE 11-18              FIRST 12 MONTHS OF EMPLOYMENT

     Any amounts due from O&R will be offset by any amounts you may receive 
     from the purchaser in severance pay.

SOME THINGS YOU SHOULD KNOW:

-    If you are offered a job by the purchaser and refuse it, you are not
     entitled to severance from O&R.

-    If you are not offered employment by the purchaser, severance benefits 
     will cease at such time as you are subsequently employed elsewhere, even
     if your severance period has not lapsed.

-    Severance benefits are contingent upon your execution of a release and
     waiver of claims against the Company.


PENSION PROTECTION PROGRAM

The objective of the proposed Pension Protection Program (the program) is to
provide a retention and protection strategy for our Electric Production
Division and support employees who may suffer a loss of employment as a result
of the sale of the generating assets.

This program allows for a 5-Year Protection Period, beginning on the date of
the transfer of ownership of the plants and covers those who are at least age
50 with ten years credited service under the Employees Retirement Plan of
Orange and Rockland Utilities, Inc. (the "Plan") at that time. This program
provides pension protection in the event that you are not offered employment by
the new owner or are involuntarily terminated by the new owner within the five
years following the date of the transfer of ownership.

If you are not offered employment with the new owner or if you are terminated
by the new owner during your initial 60 months of work, in calculating the
early retirement reduction under the Plan, the Company will add five years to
your age and five years to your credited service. To determine how this may
affect your early retirement calculation, see the attached table.

TO SUMMARIZE, THE PENSION PROTECTION PROGRAM PROVIDES THE FOLLOWING:

-    Affected employees with less than 5 years service will be vested upon the
     sale of the plants.

-    Protection of retirement benefits under the Plan to employees who have a
     minimum of 10 years credited service and who are at least age 50 at the
     date of the close of the transfer of ownership.

-    A 5-Year Protection Period which will begin at the date of the transfer
     of ownership.

-    5 years toward service credit and 5 years toward age for the calculation of
     an early retirement reduction for employees who are at least age 50 with
     ten years of credited service.

-    An ability to elect an early retirement any time at or after age 55 with
     the early retirement reduction based on the protection program.

-    Affected employees age 50 or above will be eligible for retirement
     Healthcare and Life Insurance in accordance with the terms of the
     existing retiree benefit program.

-    If you voluntarily terminate your employment with the new owner during the
     5-year protection period, you will be credited only with service through 
     your separation date with the new owner.

THE PENSION PROTECTION PROGRAM DOES NOT PROVIDE THE FOLLOWING:

-    A change in minimum retirement age. You must actually attain the age of
     55 to receive benefits.

-    An increase in accrued benefit beyond the date of the transfer of
     ownership.

-    A $600 monthly supplement to employees who at retirement are not
     actually ages 60-62.

-    A 5-year pension protection benefit to employees who are under age 50 at
     the date of the transfer of ownership.

-    Any benefit if you are involuntarily terminated for cause.

THE PROGRAM IS SUBJECT TO THE REVIEW OF TAXATION AND GOVERNMENTAL AUTHORITIES.


<PAGE>   4
PENSION PROGRAM COMPARISON:
CURRENT VS. NEW PROGRAM
-----------------------

<TABLE>
<CAPTION>
                         CURRENT PENSION BENEFITS                PENSION PROTECTION PROGRAM (NEW)
AT THE DATE              ------------------------                -----------------------------------------
OF THE TRANSFER          (IF EMPLOYMENT TERMINATED               (IF EMPLOYEE WAS INVOLUNTARILY SEVERED FROM
OF OWNERSHIP             FROM O&R)                               O&R AS A RESULT OF ELECTRIC PRODUCTION DIVESTITURE
                                                                 OR FROM THE PURCHASER, WITHIN 60 MONTHS)
--------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                     <C>
AGE 60 AND ABOVE         - Commence benefit at any time          - May continue working with new employer and
10+ YEARS                  after age 60 with no early              commence pension benefits immediately.
CREDITED SERVICE           retirement reduction.                 - You can elect to commence your benefit at any time prior to
                         - Employees whose actual age at           age 65 without reduction.
                           commencement of benefits is           - Employees whose actual age at commencement of benefit
                           between 60-62 will collect a $600       is between 60-62 will collect a $600 a month supplement
                           a month supplement until age 62.        until age 62.
--------------------------------------------------------------------------------------------------------------------------------
AGE 55-59                - Commence benefit at age 55 or         - Commence benefit at age 55 or greater with no early
10+ YEARS                  greater.                                retirement reduction.
CREDITED SERVICE         - Early retirement reduction of 4%      - Employees whose actual age at commencement of benefits
                           per year prior to age 60.               is between 60-62 will collect a $600 a month supplement
                         - No early retirement reduction for       until age 62.
                           85 points.
--------------------------------------------------------------------------------------------------------------------------------
AGE 50-54                - Commence benefit at age 55 or         - Commence benefit at age 55 or greater with no early
75+ POINTS                 greater.                                retirement reduction.
                         - Early retirement reduction is 6%
                           per year from age 65.
--------------------------------------------------------------------------------------------------------------------------------
AGE 50-54                - Commence benefit at age 55 or         - Commence benefit at age 55 or greater.
LESS THAN 75 POINTS        greater.                              - Early retirement reduction is 4% per year from age 60.
10+ YEARS                - Early retirement reduction is 6%
CREDITED SERVICE           per year from age 65.
--------------------------------------------------------------------------------------------------------------------------------
ANY AGE WITH LESS        - Will not be vested in pension plan    - Will be vested in pension plan and be eligible for retirement
THAN 5 YEARS                                                       at age 65.
OF SERVICE
</TABLE>

<PAGE>   5
                                   MEMORANDUM

                                                                 January 9, 1998

FROM:     Nancy Jakobs

TO:       Electric Production Division Management Employees

SUBJECT:  PENSION PROTECTION PROGRAM EXPANSION


As you know, the Pension Protection Program announced last month was designed
to provide pension protection measures for certain management Electric
Production Division and support employees who may suffer a loss of employment
as a result of the sale of the Company's generating assets. Today, I am pleased
to report that we have expanded eligibility to include MANAGEMENT EMPLOYEES AGE
40 TO 49 WITH 20 OR MORE YEARS OF CREDITED SERVICE.

The decision to include these additional Electric Production and support
employees was made by senior management and approved by the Board of Directors
on January 6, 1998 to recognize the contribution of the employees who are not
as close to retirement age but who have devoted a major portion of their
professional careers to the Company. The table below compares the current plan
benefits and the protection enhancements.

A second important change in the new Pension Protection Program benefits all
covered employees. The years of credited service and age used to determine
participation eligibility will be calculated at the end of the year in which
the transfer of ownership takes place, rather than at the actual date of
transfer. Transfer is expected to occur in 1999.


PENSION PROGRAM COMPARISON:
CURRENT VS. NEW PROGRAM

<TABLE>
<CAPTION>

                           Current Pension Benefits        Pension Protection Program (New)
                           -------------------------       --------------------------------------------------------
                           (if employment terminated       (if employee was involuntarily severed from
At the End of the          from O&R)                       O&R as a result of electric production divestiture
Year of the Transfer                                       or from the purchaser, within 60 months, for
of Ownership                                               reasons other than for cause)
-------------------------------------------------------------------------------------------------------------------
<S>                        <C>                             <C>
Age 40-49                  - Commence benefit at age       - Commence benefit at age 55 or greater.
20+ years                    55 or greater.                - Early retirement reduction is 4% per year from age 60.
credited service           - Early retirement reduction    - Applies if:
                             is 6% per year from age 65.     - Employee is not offered employment with purchaser
                                                               at divestiture date.
                                                             - Employee is involuntarily terminated during five-
                                                               year protection period.*
                                                           NOTE: If employee remains employed with the purchaser
                                                                 beyond the protection period, his or her O&R
                                                                 pension reverts to the terms in the "Current
                                                                 Pension Benefits" column.
-------------------------------------------------------------------------------------------------------------------
</TABLE>

*As is the case with qualified employees 50 or older, these newly qualified
employees are also eligible for this enhanced pension protection if the
purchaser offers, and the employee rejects, a position that would require more
than a 10 percent reduction in total compensation (salary plus ATIP at target)
or would require travel to a new place of employment that is 50 miles or more
from his or her most recent reporting location.