<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, 1998

                                       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, 1999, the approximate aggregate market value of the voting stock
held by non-affiliates of the registrant was $757,714,000*.

At February 28, 1999, the registrant had 13,519,994 shares of Common Stock ($5
par value) outstanding.

Documents incorporated by reference:

      Annual Report to Shareholders for the year ended December 31, 1998
      incorporated in Part I, Part II and Part IV 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 OF CONTENTS
PART I.                                                                Page

ITEM 1.     Business
            General Development of Business                              1
            Merger with Consolidated Edison, Inc.                        1
            Divestiture of Electric Generating Assets                    3
            Financial Information about Industry Segments                4
            Narrative Description of Business:
               Principal Business                                        4
               Electric Operations                                       5
               Gas Operations                                           10
               Diversified Activities                                   11
               Construction Program and Financing                       13
               Regulatory Matters                                       14
               Utility Industry Risk Factors and Competition            15
               Environmental Matters                                    17
               Research and Development                                 20
               Franchises                                               20
               Employee Relations                                       21
ITEM 2.     Properties                                                  22
ITEM 3.     Legal Proceedings                                           24
ITEM 4.     Submission of Matters to a Vote of Security Holders         35

PART II.

ITEM 5.     Market for the Registrant's Common Equity and
               Related Stockholder Matters                              35
ITEM 6.     Selected Financial Data                                     36
ITEM 7.     Management's Discussion and Analysis of Financial
               Condition and Results of Operations                      36
ITEM 8.     Financial Statements and Supplementary Data                 37
ITEM 9.     Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                      37

PART III.

ITEM 10.    Directors and Executive Officers of the Registrant          37
ITEM 11.    Executive Compensation                                      42
ITEM 12.    Security Ownership of Certain Beneficial Owners
               and Management                                           55
ITEM 13.    Certain Relationships and Related Transactions              57

PART IV.

ITEM 14.    Exhibits, Financial Statement Schedules and
               Reports on Form 8-K                                      57

Signatures                                                              67
Report of Independent Public Accountants on Financial
  Statement Schedules                                                   69
Consent of Independent Public Accountants                               69
<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. NORSTAR
Holdings, Inc. ("NHI"), a Delaware corporation and wholly-owned non-utility
subsidiary of SRH, 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. EnServe has two wholly-owned non-utility
subsidiaries, Palisades Energy Services, Inc. ("Palisades") and Compass
Resources, Inc. ("Compass"), both of which are inactive Delaware corporations.
The businesses of the non-utility subsidiaries are described under the
subheading "Diversified Activities" in this Item 1.

Merger with Consolidated Edison, Inc.:

On May 10, 1998, the Company, Consolidated Edison, Inc., a New York corporation
("CEI"), and C Acquisition Corp., a New York corporation and a wholly-owned
subsidiary of CEI ("Merger Sub"), entered into an Agreement and Plan of Merger,
dated as of May 10, 1998 (the "Merger Agreement"), pursuant to which the Merger
Sub will merge with and into the Company (the "Merger") with the Company being
the surviving corporation and becoming a wholly-owned subsidiary of CEI (the
"Surviving Corporation"). The Merger, which was unanimously approved by the
board of directors of each of the Company, CEI and Merger Sub, is expected to
occur shortly after all of the conditions to the consummation of the Merger,
including the receipt of certain Federal and state regulatory approvals,
discussed below, are met or waived. The Merger Agreement was approved by the
Company's shareholders at a special meeting held on August 20, 1998.

Under the terms of the Merger Agreement, upon the effectiveness of the Merger
(the "Effective Time") each outstanding share of the Company's common stock,
$5.00 par value per share (the "Company Common Stock"), other than shares, if
any, owned by the Company, CEI or any of their wholly-owned subsidiaries, will
be converted into the right to receive $58.50 in cash (the "Merger
Consideration"). The Merger Consideration is expected to be taxed as capital
gain to the holders of the Company Common Stock. As of the Effective Time, 


                                     - 1 -
<PAGE>   5
each of the Directors of the Company will resign and the directors of the Merger
Sub will be the Directors of the Company.

Pursuant to the Merger Agreement, approximately $790 million in cash will be
paid to holders of shares of Company Common Stock. In addition, the Merger
Agreement requires the Company to call for redemption all outstanding shares of
the Company's cumulative preferred stock, par value $100.00 per share, and the
Company's cumulative preference stock, no par value, in each case at a
redemption price equal to the amount set forth in the Company's Restated
Certificate of Incorporation, together with all dividends accrued and unpaid to
the date of such redemption.

The Merger is subject to certain customary closing conditions, including,
without limitation, the approval of the New York Public Service Commission
("NYPSC"), the New Jersey Board of Public Utilities (the "NJBPU") and the
Pennsylvania Public Utility Commission (the "PAPUC"), the approval of the
Federal Energy Regulatory Commission ("FERC"), the approval of the Securities
and Exchange Commission (the "SEC") under the Public Utility Holding Company Act
of 1935, as amended, (the "Holding Company Act") and the filing of the requisite
notification with the Federal Trade Commission (the "FTC") and the Department of
Justice (the "DOJ") under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, (the "Hart-Scott-Rodino Act") and the expiration of the
applicable waiting period thereunder. All regulatory filings have been made. On
January 27, 1999, the FERC issued an order approving the Merger Agreement. The
PAPUC approved the Merger by an order dated March 11, 1999, which adopted the
settlement agreement dated January 14, 1999, among Pike, the Office of Consumer
Advocate and the Office of the Small Business Advocate. The settlement
agreement allows Pike to retain all merger savings, net of cost to achieve,
until its next electric and gas base rate case.

On March 5, 1998, the Company, CEI, the staff of the State of New York
Department of Public Service (the "NYPSC Staff") and several other parties
submitted a settlement agreement in the Merger proceeding to the NYPSC. The
settlement agreement provides for the approval of the Merger Agreement subject
to certain conditions, including the following: (1) On December 1, 1999, the
Company will reduce its electric base rates by $5.8 million, or 1.9%; (2) The
Company will not seek to effectuate an increase in its base electric rates prior
to January 1, 2003; (3) The Company's electric operations will no longer be
subject to an earnings sharing mechanism which currently requires sharing with
electric customers equity returns in excess of 11.4%; (4) The Company will
reduce its base gas rates by $1.0 million, or 0.7%, effective in the month
following consummation of the Merger; and (5) The Company will withdraw its
December 1998 gas rate filing upon consummation of the Merger and may not file
to increase its gas rates prior to December 1, 1999. 

The Company anticipates that the NYPSC will consider the settlement agreement
during April 1999 and that all other regulatory decisions will be
issued no later than the second quarter of 1999.

The Merger Agreement contains certain representations, warrants and covenants of
the parties including, without limitation, covenants of the Company regarding
operations of the Company pending the consummation of the Merger. Generally,
except for the divestiture of the Company's generation assets in accordance with
the settlement agreement and the final divestiture plan approved by the NYPSC,
the Company must carry on its business in the ordinary course consistent with
past practice and use all commercially reasonable efforts to preserve intact its
present business organization and goodwill. In addition, the Company may not
increase dividends on the Company Common Stock or issue any capital stock. The
Merger Agreement also contains certain restrictions and limitations on the
Company with respect to, among other things, amendments to the Company's
Restated Certificate of Incorporation and By-Laws, capital expenditures,
acquisitions, dispositions, incurrence of indebtedness, certain increases in
employee compensation and benefits, affiliate transactions, rate matters,
contracts and discharge of liabilities.


                                     - 2 -
<PAGE>   6

One current member of the Company's Board of Directors, selected by the
Nominating Committee of CEI's Board of Directors, will be appointed to the Board
of Directors of CEI. In addition, the Surviving Corporation will have an
advisory board, with equal numbers of members from CEI and the Company, that
will provide advice and input regarding the implementation of the Merger and the
ongoing operations of the Surviving Corporation.

The Merger Agreement may be terminated under certain circumstances, including by
mutual consent of the parties; by either CEI or the Company if the Merger is not
consummated by November 30, 1999 (the "Initial Termination Date"), subject to an
automatic extension of six months if the requisite statutory approvals have not
yet been obtained by the Initial Termination Date but all other conditions to
closing have been fulfilled or are capable of being fulfilled by such date; by
either CEI or the Company if the requisite approval of the Company's
shareholders had not been obtained at a duly held shareholders' meeting; by a
non-breaching party if there occurs a material breach of any representation,
warranty, covenant or agreement contained in the Merger Agreement which is not
cured within twenty business days; or by the Company, under certain
circumstances, in order to accept a Superior Proposal, subject to certain
limitations and procedures and to the payment of a termination fee.

Additional information regarding the proposed Merger is contained in the 1998
Annual Report to Shareholders in the "Review of the Company's Results of
Operations and Financial Condition" beginning on page 6 under the captions
"Major Developments - 1998 - Merger" and "Other Developments - Termination
Benefits Relating to the Merger" and in Note 4 of the Notes to Consolidated
Financial Statements, on page 21, which material is incorporated by reference in
this Form 10-K Annual Report.

Divestiture of Electric Generating Assets:

On November 24, 1998, the Company entered into definitive agreements with three
subsidiaries of Southern Energy, Inc. ("SEI"), an affiliate of The Southern
Company, to sell its generating assets, described in Item 2 under the caption
"Sale of Generating Assets", for approximately $480 million in cash. The
Company's share of the sales price is approximately $345 million, which excludes
the sales price attributable to the two-thirds share of the Bowline Point Plant
which is owned by Con Edison Company of New York, Inc. ("Con Ed"). SEI was the
successful bidder in an auction process that was established pursuant to the
Company's New York Electric Rate and Restructuring Plan, which was approved by
the NYPSC by Orders dated November 26 and December 31, 1997, and the subsequent
final Divestiture Plan, which was approved by the NYPSC by Orders dated April 16
and 26, 1998. The sale is subject to federal and state regulatory review and
approval. The closing of the sale has been tentatively scheduled for the end of
May 1999, subject to satisfaction of the conditions set forth in the agreements.
The closing date may be adjusted to a later date up to September 30, 1999,
except that if all conditions to the closing other than receipt of specified
regulatory approvals have been fulfilled by September 30, 1999, then up to the
day which is eighteen months from November 24, 1998. In addition, under the
terms of the agreements, if approval by the FERC of the establishment of the
Independent System Operator ("ISO"), as described in this Item 1 under the
caption "Electric Operations" has not been obtained, the parties have agreed to
defer the closing of the sale, but, if all other conditions to the consummation
of the sale have been met, in no event to a date later than August 31, 1999.

The sale of the generating assets is subject to certain customary closing
conditions, including, without limitation, the receipt of all necessary


                                     - 3 -
<PAGE>   7

governmental approvals and the making of all necessary governmental filings,
including the approval of the NYPSC, the NJBPU and the PAPUC, the approval of
the FERC, and the filing of the requisite notification with the FTC and the DOJ
under the Hart-Scott-Rodino Act and the expiration of the applicable waiting
period thereunder. On February 18, 1999, the DOJ granted early termination of
the waiting period applicable to the filings made by The Southern Company and
the Company relating to the sale of the Company's generating assets.

In addition to the agreements to sell its electric generating assets, the
Company and subsidiaries of SEI entered into a Transition Power Sales Agreement,
two Load Pocket Call Option Agreements and three Continuing Site/Interconnection
Agreements (the "Ancillary Agreements") in order to ensure reliable supply and
distribution of electricity to the Company's customers in the transition period
and into the future.

Additional information regarding the divestiture of the Company's electric
generating assets is contained in the 1998 Annual Report to Shareholders in the
"Review of the Company's Results of Operations and Financial Condition"
beginning on page 6 under the captions "Major Developments - 1998 - Divestiture"
and "Other Developments - Termination Benefits Relating to the Merger," and in
Note 5 of the Notes to Consolidated Financial Statements on page 22, which
information 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 under the
caption "New York Competitive Opportunities Proceeding."

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 14 of the Notes to Consolidated Financial Statements on page
29 of the 1998 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.

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, 1998, the Company and its utility subsidiaries furnished
electric service to approximately 274,000 customers in 96 communities with an
estimated population of 687,000 and gas service to approximately 117,000
customers in 57 communities with an estimated population of 485,000. There was a
modest increase in the population of the Company's service territory and in the
number of customers served in 1998. At December 31, 1997, electric service was
provided to approximately 269,000 customers in 96 communities with an estimated
population of 681,000 and gas service was provided to approximately 114,000
customers in 57 communities with an estimated population 


                                     - 4 -
<PAGE>   8

of 482,000. At December 31, 1998 and 1997, 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 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 to subsidiaries of SEI, an affiliate of The
Southern Company.

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, the sale of
the Company's electric generation assets to SEI, the continued operations of the
Company as an electric transmission and distribution company within the context
of the proposed merger with CEI and the anticipated effect that these
initiatives will have on the future operations of the Company and its utility
subsidiaries. Such disclosures are contained in this Item 1 under the captions
"Merger With Consolidated Edison, Inc." and "Divestitute of Electric Generating
Assets." Reference is also made to the 1998 Annual Report to Shareholders as
follows: the "Review of the Company's Results of Operations and Financial
Condition" beginning on page 6 under the captions "Major Developments - 1998 -
Merger," "- Divestiture," "- Competition," and "Other Developments - Termination
Benefits Related to Divestiture" and "- Termination Benefits Related to the
Merger"; and in the Notes to Consolidated Financial Statements beginning on page
19 in Note 4 and Note 5, which information is incorporated by reference in this
Form 10-K Annual Report, as well as Item III, Legal Proceedings of this Form
10-K under the heading "Regulatory Matters".

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 


                                     - 5 -
<PAGE>   9

maximum historical one-hour demand for the Company and its utility subsidiaries
occurred on July 15, 1997 and was 1,143 Mw and the maximum one-hour demand
during 1998 occurred on June 25, 1998 and was 1,122 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 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 FERC seeking to establish an 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 would provide enhanced operating efficiencies
with respect to 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 next
available for dispatch. Regional operating problems, such as load pockets and
transmission constraints, would be addressed through a locational marginal
pricing mechanism.

In an Order dated January 27, 1999, the FERC conditionally accepted the proposed
ISO Tariff and the proposed market rules of the ISO. The Order requires
substantial modifications to the proposed ISO Tariff including separation of the
transmission tariff from the rate schedules that govern non-transmission tariff
functions. The NYPP members must submit a revised monitoring program to identify
both the exercise of market power and market design flaws. The FERC also set a
hearing to consider certain rate issues and noted that an application pursuant
to Section 203 of the Federal Power Act requesting transfer of control of all
necessary facilities from the NYPP members to the ISO must be submitted to and
approved by the FERC. The NYPP members filed the Section 203 applications on
February 5, 1999. The Company is unable to predict when the ISO will become
operational.


                                     - 6 -
<PAGE>   10

During 1998, the Company had agreements in place for both capacity and energy
purchases. Capacity purchases included an agreement with PSE&G which provided
190 Mw of winter capacity and 350 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. The NAEC Agreement expired in October 1998.

With regard to energy, the Company purchased approximately 34% of its energy
requirements during 1998. 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 1998 summer capability period could have provided
over 88% 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 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.

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 


                                     - 7 -
<PAGE>   11

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.

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 1994 through 1998 are as follows:

<TABLE>
<CAPTION>
                           1994      1995       1996      1997       1998
                           ----      ----       ----      ----       ----
      <S>                  <C>        <C>        <C>       <C>       <C>
      Gas                   23%        23%        8%        14%       29%
      Coal                  36         27        33         34        28
      Oil                    6          7         1          2         7
      Hydro                  3          3         4          3         2
      Purchased Power       32         40        54         47        34
                           ---        ---       ---        ---        --

         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 natural gas
used in electric generation is acquired through spot market purchases. During
1998, natural 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 1999, whenever such gas is more economical than alternative fuels.
In 1998, the Company used 4.8 billion cubic feet ("Bcf") and 25.5 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 1998, coal was the predominant fuel burned at the
Lovett Plant and the Company expects to use coal in 1999 as long as it is more
economical than alternative fuels. Information regarding the Company's coal
supply contract is contained in Note 13 of the Notes to Consolidated Financial
Statements under the caption "Coal Supply Contracts" on page 27 of the 1998
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 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.

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 1998, the total amount of water used was 


                                     - 8 -
<PAGE>   12

12.7 Bcf. Of this total, 4.6 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 1998 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 11 and in Note 1 of the Notes to
Consolidated Financial Statements under the caption "Fuel Costs" on page 19,
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, however, 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 of the planned divestiture of the Company's generating assets, and
in the context of regulatory proceedings regarding competition in the electric
utility industry, it is expected that the Company and its utility subsidiaries
will implement full retail competition for all customers during mid-1999. The
Company will act as a provider of last resort for those customers who do not
contract with third party energy suppliers to meet their energy needs. As a
result, the future energy requirements of the Company as a provider of last
resort are expected to be substantially lower than in the past. Such
requirements will initially be satisfied through a Transitional Power Supply
Agreement between the Company and subsidiaries of SEI whereby, from the later of
May 1, 1999 or the closing of the sale of the Company's generating assets
through October 31, 2000, the Company will purchase specified amounts of
capacity and energy. In addition, the Company currently has two firm capacity
contracts in place; an agreement with the NYPA for the purchase of 25 Mw of
firm, year-round capacity from the Gilboa Facility and a firm capacity agreement
with PSE&G which 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. The
Company currently has no firm, long-term energy contracts in place, other than
the Transitional Power Sales Agreement cited above. Capacity and energy
requirements after this transition period are expected to be satisfied by the
Company within the operating policies of the ISO or through bilateral purchase
agreements.

Information regarding future payments under capacity purchase contracts is
contained in Note 13 of the Notes to Consolidated Financial Statements under the
caption "Power Purchase Agreements" on page 27 of the 1998 Annual Report to
Shareholders, which information is incorporated by reference in this Form 10-K
Annual Report.


                                     - 9 -
<PAGE>   13

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, 1998, the gas distribution system included 1,764 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 1998 occurred on December 30 and amounted to 151,577 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.
Information regarding the impact on the Company of FERC Order 636 is contained
in the 1998 Annual Report to Shareholders in the "Review of the Company's
Results of Operations and Financial Condition" on page 11 under the caption "Gas
Sales and Revenues," which information is incorporated by reference in this Form
10-K Annual Report. 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 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", as well as in
the 1998 Annual Report to Shareholders as follows: in the "Review of the
Company's Results of Operations and Financial Condition" beginning on page 6
under the caption "New York Competitive Opportunities Proceeding - Gas" and "Gas
Energy Costs" and in Note 13 of the Notes to Consolidated Financial Statements
under the caption "Gas Supply and Storage Contracts" on page 27, which
information is incorporated by reference in this Form 10-K Annual Report.
Accordingly, the following description of the Company's gas operations should be
read in conjunction with disclosures regarding regulatory competitive
initiatives contained elsewhere or incorporated by reference in this Form 10-K
Annual Report.

Supply, Transportation and Storage. The Company has both long-term and
short-term firm 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.
Four of these contracts are scheduled to expire in 1999. Replacement gas
supplies will be negotiated, consistent with the Company's firm gas
requirements. The remainder have expiration dates ranging between 2000 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 and short-term contracted supply sources, the
Company purchases spot gas from producers primarily for the Company's use in
electric generation. During 1998, the Company made spot purchases of
approximately 30.8 million Mcf of gas or 60% 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 


                                     - 10 -
<PAGE>   14

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 Tennessee 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 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 13 of the Notes to Consolidated Financial Statements under the
caption "Gas Supply and Storage Contracts" on page 27 of the 1998 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 1998, approximately 6.2 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 11 of the 1998 Annual Report to
Shareholders, which information is incorporated by reference in this Form 10-K
Annual Report.

Diversified Activities

Both the Company and RECO have certain non-utility subsidiaries which, at
December 31, 1998, were engaged in energy services ventures and land
development. The energy services ventures have now been suspended. The Company's
Consolidated Financial Statements, which are incorporated in this Form 10-K
Annual Report by reference to the Company's 1998 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." Neither the assets of the remaining non-regulated
businesses nor the continued operation of the remaining non-regulated business
lines are material to the operations 


                                     - 11 -
<PAGE>   15

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 relevant non-utility subsidiaries of RECO and the Company 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 the winding-up of the gas
marketing business is substantially complete. 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.  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
1998 Annual Report to Shareholders in the "Review of the Company's Results of
Operations and Financial Conditions" beginning on page 6 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 21 of the 1998 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 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. A third-party
sales agreement is pending which is subject to the receipt of satisfactory
subdivision approvals. The Company does not expect that the sale of the
Millbrook property will have a material effect on the Company's results of
operations or financial condition.

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 220 acre tract of land in Orange
County, New York, which is being marketed for sale.

Additional information regarding the non-utility subsidiaries of the Company and
of RECO is contained in the 1998 Annual Report to Shareholders, which


                                     - 12 -
<PAGE>   16

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 6 under the captions "Discontinued Operations,"
"Financial Performance," "Results of Operations" and "Diversified Activities";
and in the Notes to Consolidated Financial Statements beginning on page 19 in
Note 1 under the captions "Principles of Consolidation," in Note 3, and in Note
14.

Construction Program and Financing

Construction Program. The construction expenditures, excluding allowance for
funds used during construction, of the Company and its utility subsidiaries for
1999 are estimated at approximately $41 million, which consist primarily of
routine projects for capital replacements or system betterments, and does not
include any additions to generating capacity. This estimate includes
approximately four months of pre-divestiture spending related to the Company's
electric generating assets. If the sale of the generating assets is delayed, the
Company may incur additional capital expenditures related to generation assets.
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 13 of the Notes to Consolidated Financial
Statements on pages 13 and 27 respectively, of the 1998 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, 1998, the Company and its utility subsidiaries had unsecured
bank lines of credit totaling $160 million. Effective January 1, 1999, such
lines were reduced to $155 million. Commercial paper borrowings, which are
supported by such credit lines, amounted to $149.1 million at year end.

As a result of the planned divestiture of the Company's generating facilities,
it is expected that the Company will have approximately $225 million of net cash
proceeds from divestiture available at the close of the sale. Additional
information regarding the Company's short-term debt position is contained in
Note 9 of the Notes to Consolidated Financial Statements on page 24 of the 1998
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 1998
consisted of a debt refinancing by Pike, and the repurchase of Company common
stock. During 1999, the Company expects, as required by the Merger Agreement, to
call for redemption all of its Non-Redeemable Cumulative Preferred Stock and all
of its Non-Redeemable Preference Stock (the "Preferred and Preference Stock")
outstanding. The Non-Redeemable Preference Stock is convertible into shares of
Common Stock, prior to redemption, at a ratio of 


                                     - 13 -
<PAGE>   17

1.47 shares of Common Stock for each share of Preference Stock. In March 1999,
the Company issued $45 million in long-term debt to provide funds necessary to
call the Preferred and Preference 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 13 of the
1998 Annual Report to Shareholders as well as in Note 7, and Note 8 in the Notes
to Consolidated Financial Statements beginning on page 22 of the 1998 Annual
Report to Shareholders, which information is incorporated by reference in this
Form 10-K Annual Report.

Neither the Company nor its utility subsidiaries have any plans at the present
time for additional external financing other than the securities issued to
provide funds to call the Company's Preferred and Preference 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 1998 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+            A-
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 19 of the 1998 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 75% of consolidated utility energy sales. RECO is subject to the
jurisdiction of the NJBPU, which covers approximately 22% of consolidated
utility energy sales. Pike is subject to the jurisdiction of the PAPUC, which
covers approximately 1% of consolidated utility energy sales. Sales for resale,
which are subject to regulation by the FERC, accounted for approximately 2% of
consolidated utility energy sales.


                                     - 14 -
<PAGE>   18

Federal Regulation. The Company, pursuant to an order of the Securities and
Exchange Commission, has been exempted from all of the provisions of the Holding
Company Act, 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 have
implemented certain changes and are evaluating other changes in regulatory and
rate-making practices designed to promote increased competition consistent with
safety, reliability and affordability standards. For the Company, these changes
have included, among other things, the NYPSC directive to divest its generating
assets, the expected implementation of full electric retail access during
mid-1999 and the potential effects of the NYPSC Policy Statement regarding the
transition of gas utilities exiting the gas merchant function. As a result of
these initiatives, and 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 1998 Annual Report to Shareholders in the "Review of the
Company's Results of Operations and Financial Condition" beginning on page 6
under the captions "Competition" "Electric Sales and Revenue" and "Gas Energy
Costs" and in the Notes to Consolidated Financial Statements beginning on page
19 in Note 5 and in Note 13 under the caption "Gas Supply and Storage
Contracts", 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, including the gas base
rate increase petition filed by the Company with the NYPSC on December 30, 1998,
is contained in the 1998 Annual Report to Shareholders in the "Review of the
Company's Results of Operations and Financial Condition" on page 9 under the
caption "Rate Activities", which information is incorporated by reference to
this Form 10-K Annual Report. Reference is also made to Item 3, Legal
Proceedings of this Form 10-K under the caption "Rate Activities".

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 


                                     - 15 -
<PAGE>   19

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, which provides the framework for the transition to a competitive market
for the Company's electric operations, provided for the sale of the Company's
generation assets. On November 24, 1998, the Company entered into agreements
with three subsidiaries of SEI for the sale of the Company's generating assets.
The sales price of approximately $480 million, which includes Con Ed's share of
proceeds from the jointly-owned Bowline Point plant, will provide the Company
with a modest gain over book cost and expense of sale, thereby eliminating the
risk of stranded costs related to the sale price of generation assets. With the
sale of its generating assets, the Company has eliminated future risks related
to the ownership and operation of electric generating facilities. In addition,
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. This includes, among other things, a Competitive Transition
Charge ("CTC") which provides for the recovery of above-market generation costs
should the transfer of title to the Company's generation assets not occur before
May 1, 1999. A discussion of the CTC is contained under Item 3, Legal
Proceedings, of the Form 10-K Annual Report under the heading "New York
Competitive Opportunities Proceedings." Information regarding the competitive
initiatives undertaken at the Federal and state levels with regard to the
Company's electric and gas utility operations as well as information on the
provisions of the Company's Restructuring Plan and the divestiture of its
electric generating assets is contained in the 1998 Annual Shareholders Report
in the "Review of the Company's Results of Operations and Financial Condition"
beginning on page 6 under the captions "Major Developments - 1998 -
Divestiture," "Competition" and "Gas Energy Costs" and in the Notes to
Consolidated Financial Statements 


                                     - 16 -
<PAGE>   20

beginning on page 19 in Note 1 under the caption "Rate Regulation," Note 5, and
Note 13 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 continue to manage the risks which are present in
the changing utility environment. Included in this strategy are the maintenance
of low construction and operating budgets and minimizing external financing.
With regard to future power supply, and as provided in the Restructuring Plan,
this will involve maintaining, through prudent and competitive purchasing
policies, energy and capacity sufficient to act as the provider of last resort
for those customers who do not purchase electricity from other sources.

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 11 of the 1998 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 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 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 ("NYSDEC") issued a SPDES permit for the Company's
Lovett Coal Ash Management Facility, which expires July 1, 1999. A renewal
application was filed on October 8, 1998. 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 


                                     - 17 -
<PAGE>   21

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
1, 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.

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 dioxides, 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 Company and the NYSDEC entered into an Order and Consent, dated as of August
18, 1998, in DEC Index No. D3-9000-97-08, relating to the occurrence of excess
opacity exceedances in violation of 6 NYCRR Section 227 and ECL Section 19-0301
at the Company's Bowline Point and Lovett Generating Stations. Under the terms
of the Order on Consent, the Company paid $20,000 to settle excess opacity
exceedances for quarterly periods prior to the execution of the Order on Consent
and agreed to a stipulated schedule of penalties in the event of future excess
opacity exceedances.

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 $32.64 per ton of
air emissions. In 1998, the Company paid approximately $430,800 in such emission
fees, approximately $46,700 of which was recovered from Con Ed pursuant to the
Bowline Point Plant operating agreement. In 1999, this emission fee will be
based on 1998 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 


                                     - 18 -
<PAGE>   22

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 May 1999 and May 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.

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 $15.4 million in 1998.

Compliance with Federal, state and local laws and regulations which have been
enacted or adopted regulating the discharge of materials into the environment 


                                     - 19 -
<PAGE>   23

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 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 13 of the Notes to Consolidated
Financial Statements under the captions "Environmental Litigation" and
"Environmental" beginning on page 28 of the 1998 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 $2.1 million in 1998, $2.4 million in 1997 and $2.6 million in
1996.

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 the Empire State Electric Energy Research Corporation, the New
York State Energy Research and Development Authority and the New York Gas Group.

The Company's internal research and development program includes projects which
seek improvement of transmission and distribution systems 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, distributed resources/alternative planning tools, storm
planning, intranet technologies, on-line graphic circuit tool and order
generator and the automation of group operated air breaker switches. Additional
information regarding the Company's Year 2000 compliance strategy is contained
on page 13 of the 1998 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 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


                                     - 20 -
<PAGE>   24

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. 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, 1998, the Company had 1,396 full-time employees and 31 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") representing 844 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.

As a result of the planned sale of the Company's electric generating assets to
SEI, the Company will experience a reduction in its workforce relative to
electric production department personnel and related support personnel. SEI has
agreed to honor the current collective bargaining agreement between the Company
and the affected bargaining unit employees and it is expected that the Company's
affected bargaining unit employees will become employees of SEI. Some of the
Company's non-bargaining unit electric production department employees and
support personnel have been offered employment with SEI. The Company has agreed
to provide career management, outplacement services and certain benefits to
affected management employees not offered employment with SEI. Any changes
affecting bargaining unit employees must be negotiated with the IBEW. In
addition, the Merger Agreement between the Company and CEI provides that CEI
will honor the current collective bargaining agreement between the Company and
its affected bargaining unit employees. The Merger Agreement further provides
that subject to applicable law and obligations under applicable collective
bargaining agreements, for a period of three years following the Merger, any
reductions in workforce in respect of employees of the Company and its
subsidiaries will be made on a fair and equitable basis as 


                                     - 21 -
<PAGE>   25

determined by the Surviving Corporation, without regard to whether employment
was with the Company, CEI, or either company's subsidiaries, and with due
consideration to prior experience and skills. Generally, any employee whose
employment is terminated or job is eliminated during such period will be
entitled to participate in the job opportunity and employment placement programs
offered by CEI or the Company or any of their subsidiaries for which they are
eligible. Any workforce reductions carried out following the Merger by the
Company and its subsidiaries will be done in accordance with all applicable
collective bargaining agreements and all laws and regulations governing the
employment relationship and termination thereof including, without limitation,
the Worker Adjustment and Retraining Notification Act and regulations
promulgated thereunder, and any comparable state or local law. Information
regarding the separation of employees and the recovery of employee costs
associated with the divestiture and the merger is included in Item 3, Legal
Proceedings, of this Form 10-K under the caption "Regulatory Matters -
Competition," as well as in the 1998 Annual Report to Shareholders in the
"Review of the Company's Results of Operations and Financial Condition"
beginning on page 6 under the captions "Divestiture," "Termination Benefits
Relating to Divestiture" and "Termination Benefits Relating to the Merger,"
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, 1998, had 11 full-time employees and one part-time employee, 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. On November 24, 1998, the Company entered into
definitive transaction agreements for the sale of all of the Company's
generating assets to subsidiaries of Southern Energy, itself a subsidiary of The
Southern Company. The facilities to be sold to Southern Energy include the
Lovett Plant, the Bowline Point Plant, including Con Edison's two-thirds share
of the plant, the gas turbine generating units and all of the hyroelectric
generating units. The sale is subject, among other closing conditions, to
receipt of specified federal and state regulatory approvals. Additional
information regarding the planned divestiture of the Company's electric
generating facilities is contained in the 1998 Annual Report to Shareholders as
follows: in the "Review of the Company's Results of Operations and Financial
Condition" on page 7 under the caption "Divestiture" and in Note 5 of the Notes
to Consolidated Financial Statements on page 22, which information is
incorporated by reference in this Form 10-K Annual Report. Reference is also
made to Item 1 of this Form 10-K under the caption 


                                     - 22 -
<PAGE>   26

"Divestiture of Electric Generating Assets" and to Item 3, Legal Proceedings
under the caption "Regulatory Matters - Competition."

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 1998
------------------------------------------------------------------------------
<S>                   <C>    <C>                <C>         <C>      <C>   
Swinging Bridge,
 Mongaup & Rio        8      Hydroelectric       25.8        2.6%       47,754
Grahamsville          1      Hydroelectric       18.0        1.8        81,273
Hillburn              1      Jet Fuel/Gas        37.0        3.8         6,859
Shoemaker             1      Jet Fuel/Gas        37.0        3.8        17,373
Lovett                3      Coal/Oil/Gas       462.6       47.2     2,072,746
Bowline Point         2      Oil/Gas            400.6(1)    40.8     1,603,022
                                                -----      -----     ---------
                                                981.0      100.0%    3,829,027
                                                =====      =====     =========
</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, 87,416 in-service line transformers, 5,014
pole miles of overhead distribution lines and 2,398 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 within their gas franchise
territories in New York and Pennsylvania and include 1,764 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-


                                     - 23 -
<PAGE>   27

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
Bowline Point Plant which is jointly owned with Con Ed and operated by the
Company. The gas turbines at Hillburn and Shoemaker which were leased, were
purchased by the Company from the lessor, effective February 1, 1999 in
preparation for divestiture. 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 20 of the 1998 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.

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 of each company.

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 


                                     - 24 -
<PAGE>   28

Third Judicial Department from the Supreme Court's November 26, 1996 decision.
The Supreme Court of the State of New York, Appellate Division, Third
Department, has granted several motions by the petitioners for an extension of
time to perfect the appeal. By Decision and Order on Motion dated March 11,
1999, the Appellate Division has granted a motion to extend the time to perfect
appeals to June 9, 1999. 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"). On April 30, 1998 the Public Utility Law Project of New York, Inc.
("PULP") instituted litigation in New York State Supreme Court against the NYPSC
and the Company challenging the Company's Restructuring Plan. The NYPSC and the
Company each filed a Motion to Dismiss this litigation on May 26, 1998. The
Court denied these Motions on September 1, 1998 and ordered that PULP's action
be converted into an Article 78 proceeding. The Company is unable to predict the
final result of this litigation.

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. Polychlorinated biphenyls ("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. The RIFS was completed
and submitted to the EPA for determination of what remedial measures will be
required at the Cottman Avenue site. On February 10, 1998, the Company received
a letter from the EPA related to this site. The letter encloses, inter alia, the
Record of Decision ("ROD") executed by the EPA on December 31, 1997, 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 


                                     - 25 -
<PAGE>   29

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.

On July 6, 1998, the EPA issued an administrative order to the Company and the
members of the Metal Bank Group ordering them to commence remediation of the
site. On July 28, 1998, the Metal Bank Group and the Company notified the EPA of
their intent to proceed with the work required by the July 6, 1998 order. By
letter dated September 22, 1998, EPA selected the Metal Bank Group's consultant
to perform the remedial design for the site. The consultant has developed and
the Metal Bank Group has submitted a draft remedial design work plan to EPA for
comment.

On November 23, 1998 the Company executed a settlement agreement with the Metal
Bank Group wherein they agreed that the Company would become a member of the
Metal Bank Group and that the Company would pay the Metal Bank Group $350,000,
which represents the Company's share of costs incurred by the Metal Bank Group
at the Cottman Avenue site through July 20, 1998. On November 30, 1998 the
Company executed the Cottman Avenue PRP Group amended agreement, thereby
becoming a member of the Metal Bank Group. This agreement allocated to the
Company 4.57% of shared costs. The Company's share of costs to join the Metal
Bank Group, as well as a provision for the Company's share of the projected
liability, are included in the Company's Consolidated Financial Statements at
December 31, 1998.

On August 2, 1994, the Company entered into a Consent Order with the New York
State Department of Environmental Conservation ("NYSDEC") in which the Company
agreed to conduct a remedial investigation of certain property it owns in West
Nyack, New York. 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. The Company and the
NYSDEC have executed a second Consent Order to implement a ROD, dated October
20, 1997 issued by the NYSDEC. The ROD provides for the removal and off-site
disposal of soils contaminated with PCBs and other petroleum-related
contaminants and the post-remedial monitoring of groundwater. The Company
completed all remediation at the West Nyack site in April 1998 except for the
ongoing groundwater monitoring which will continue through March 2000. The
Company anticipates that the NYSDEC will determine whether any additional
groundwater remediation will be required once such monitoring is completed. The
Company does not believe that this matter will have a material effect on the
financial condition of the Company.

The Company has identified seven 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 NYSDEC have executed a Consent
Order, dated as of January 8, 1996, which provides for preliminary site
assessments of these seven MGP sites. Preliminary Site Assessment ("PSA")
reports for four sites were submitted to the NYSDEC on September 1, 1997. These
reports showed varying degrees of contamination at each of the sites which
necessitates further investigation. The Company entered into a Consent Order
dated September 29, 1998 to conduct an RIFS at each of these sites. Field
investigations began in October 1998 and are ongoing. The Company anticipates
that final reports will be submitted to NYSDEC in the third quarter of 1999. In
addition, the Company has completed PSAs at two of its other MGP sites and
submitted PSA reports to NYSDEC in September 1998. Since MGP contamination was
found at each of these two sites, the Company expects that an RIFS will need to
be performed at these sites. Due to difficulties in obtaining access, the
Company has not commenced a PSA for its MGP site located 


                                     - 26 -
<PAGE>   30

in Nyack, New York. The Company currently is negotiating a separate consent
order with NYSDEC for this MGP site, as well as an access agreement with the
current site owner. The Company is unable at this time to estimate the total
costs to be incurred at the seven 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 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 13 of the Notes to Consolidated
Financial Statements under the caption "Environmental" on page 28 of the 1998
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. 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
Appeals for the Third Circuit. On October 27, 1998, the United States Court of
Appeals for the Third Circuit issued its decision in this case. The Third
Circuit confirmed the trial court's dismissal with prejudice of Crossroads
Federal antitrust claims but rejected the trial court's determination that the
NYPSC's November 29, 1996 decision was determinative of Crossroads' state
contract claims. This case has been remanded to the United States District Court
for the District of New Jersey. The Company cannot predict the ultimate outcome
of this proceeding.


                                     - 27 -
<PAGE>   31

On March 9, 1998, three shareholders of the Company filed a purported derivative
action on behalf of the Company alleging various claims against its directors,
several current officers and one former officer, certain other defendants and
nominally against the Company. Plaintiffs filed the action, entitled Virgilio
Ciullo, et al. V. Orange and Rockland Utilities, Inc. et al, in the Supreme
Court of the State of New York, County of New York. The complaint was
subsequently amended several times to assert additional purported derivative and
class action claims. Plaintiffs were seeking various types of relief, including
compensatory damages in the approximate amount of $120 million. By order dated
January 8, 1999 and entered on January 12, 1999, the State Supreme Court granted
defendants' motion to dismiss the complaint and denied plantiffs' motion to
further amend their complaint to add additional causes of action. On February
10, 1999, plaintiffs filed a notice of appeal from the trial court's decision to
the Appellate Division, First Department.

Regulatory Matters:

Merger with Consolidated Edison, Inc.

On May 10, 1998, the Company, CEI, and Merger Sub, entered into the Merger
Agreement, providing for a merger transaction among the Company, CEI and the
Merger Sub. Certain Federal and state regulatory requirements must be complied
with before the Merger is consummated. For a discussion of the status of the
regulatory filings made by the Company regarding the Merger, see Item 1 of this
Form 10-K under the heading "Merger with Consolidated Edison, Inc."

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
ongoing 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 October 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. In an Order dated January 27, 1999, the FERC conditionally
accepted the proposed ISO Tariff and the proposed market rules 


                                     - 28 -
<PAGE>   32

of the ISO. The Order requires substantial modifications to the proposed ISO
Tariff including separation of the transmission tariff from the rate schedules
that govern non-transmission functions. The NYPP members must submit a revised
monitoring program to identify both the exercise of market power and market
design flaws. The FERC also set a hearing to consider certain rate issues and
noted that an application pursuant to Section 203 of the Federal Power Act
requesting transfer of control of all necessary facilities from the NYPP members
to the ISO must be submitted to and approved by the FERC. The NYPP members filed
such Section 203 applications with the FERC on February 5, 1999. The Company is
unable to predict when the ISO will become operational.

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.

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
NYPSC 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. In accordance with the
schedule in the Restructuring Plan, the Company filed its final divestiture plan
("Divestiture Plan") with the NYPSC on February 4, 1998. The Divestiture Plan,
which provides for a two phase auction process, was approved by the NYPSC in
orders issued April 16, 1998 and May 26, 1998. The Company retained Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") to act as its financial advisor
in connection with the divestiture of the generating assets.

Following the review of final bids and negotiations with the winning bidder, on
November 24, 1998, the Company entered into four separate Asset Sales Agreements
("ASAs") with subsidiaries of SEI, a subsidiary of The Southern Company. The
sales price for all generating facilities, including the two-thirds interest in
Bowline Point Generating Plant ("Bowline") owned by Con Edison, is approximately
$480 million, plus certain fuel inventory and other adjustments. The Company's
share of the sales price is approximately $345 million. The sale is subject to
federal and state regulatory review and approval. The ASAs provide for the
closing of the sale to occur on April 30, 1999, which date may be adjusted
depending on the receipt of regulatory approvals. Under the terms of the ASA, if
approval by FERC of the establishment of the ISO, as described above, has not
been obtained, the parties have agreed to defer the closing of the sale, but in
no event to a date later than August 31, 1999.

The Restructuring Plan provides that the New York share of any net book gains
from the divestiture of the generating assets will be shared between the
Company's New York customers and shareholders, with shareholders receiving 25
percent of the gain, up to $20 million.

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,


                                     - 29 -
<PAGE>   33

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 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, 1999. 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. Under the terms of the Restructing Plan, 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 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.

The Restructuring Plan also provides a schedule for the submission of comments
by the Company, the NYPSC Staff and other interested parties to the NYPSC on the
degree and timing of introducing competition in metering and billing services.
The NYPSC initiated proceedings in these areas during 1998. The Company cannot
predict at this time the ultimate outcome of the proceedings or their effect, if
any, on the Company's consolidated financial position or results of operations.

Settlement agreements, providing for the implementation of unbundled rates,
effective May 1, 1999, which separate the components of existing tariffs into
production, transmission, distribution and customer cost categories, were
reached on August 13 and September 18, 1998 between the Company, the NYPSC Staff
and other interested parties. The NYPSC approved these settlement agreements
with minor modification by Order dated February 4, 1999.


                                     - 30 -
<PAGE>   34

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. As discussed below, the recently approved New Jersey restructuring
legislation would delay the implementation of full retail access between June 1
and August 1, 1999. 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 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. Given the results of the sale of the Company's
generation facilities, it is likely that RECO's stranded costs will be limited
to uneconomic NUG contracts, which the proposed legislation provides for
recovery over the life of the contract.

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 were held in the spring of 1998 and a
decision is pending. The NJBPU has indicated that it will consider RECO's
filings in conjunction with its implementation of the recently enacted
legislation described in the next sentence. On January 28, 1999, the New 


                                     - 31 -
<PAGE>   35

Jersey Assembly and Senate approved restructuring legislation which provides for
the implementaton of full retail access by no earlier than June 1, 1999 and no
later than August 1, 1999. In addition, the legislation requires rate reductions
of at least 5% at the start of retail access from the level of aggregate rates
in effect on April 30, 1997 and of at least an additional 5% within thirty-six
months of the start of retail access. Further, these reductions must be
sustained for a total of four years from the start of retail access. In
addition, the proposed legislation authorizes the NJBPU to establish "shopping
credits" for those customers choosing an alternative supplier of electricity.
New Jersey's Governor signed this legislation into law on February 9, 1999. 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 with the
implementation of retail competition. Until a procedural schedule is established
by the NJBPU to address RECO-specific issues, the Company is unable to predict
the outcome of this 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 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.

On May 15, 1998, Pike reached a settlement agreement which resolved all issues
in the restructuring and rate unbundling proceeding. On July 23, 1998, the PAPUC
approved Pike's electric restructuring settlement agreement. The agreement calls
for implementation of full retail access by May 1, 1999, provides for unbundled
electric rates, including a CTC which allows full 


                                     - 32 -
<PAGE>   36

recovery of all stranded costs and a Basic Generation Service charge for
customers who remain with Pike for generation services. In addition, the
settlement allows shareholders to retain $55,000 of Pike's pro rata share of any
gain on the sale of the Company's generating facilities.

      Gas

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.

On November 3, 1998, the NYPSC issued a Policy Statement Concerning the Future
of the Natural Gas Industry in New York State and Order Terminating Capacity
Assignment (the "Policy Statement"). The Policy Statement envisions a three to
seven year transition for gas utilities to exit the gas merchant function. To
further this process and increase gas competition in the State, the NYPSC has
directed that gas utilities no longer require customers migrating from sales to
transportation service to continue utilizing upstream pipeline capacity
contracted for by the utility, except where specific operational or reliability
requirements warrant. According to the Policy Statement, utilities will be
provided a reasonable opportunity to recover strandable costs. The Company
ceased requiring transportation customers to utilize its upstream capacity as of
October 1, 1998. As of December 31, 1998, the Company has not incurred any
stranded costs related to its upstream pipeline capacity.

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.

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, provided a
fixed-price commodity cost option to firm sales customers for the 1997-1998
heating season. The option was 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. Approximately 2,500 customers participated in this program.

On December 30, 1998, the Company filed a gas base rate case with the NYPSC, the
Company's first such filing since 1991. The Company's rate year cost of service
justifies an increase in gas revenue of $13 million, or 8.2%. This increase is
due primarily to gas construction expenditures necessary to maintain a safe and
reliable infrastrcture, property tax increases and expenditures for
environmental investigation and remediation. In order to 


                                     - 33 -
<PAGE>   37

avoid a sudden and relatively large rate increase, the Company is limiting its
rate year request to an increase of $3.9 million, or 2.5%. The Company's
proposal to limit the increase to $3.9 million is conditioned on the approval of
the following provisions: the Company has requested that it be allowed to (1)
continue to defer environmental investigation and remediation costs associated
with its former manufactured gas plant sites and its West Nyack, New York
facility; (2) defer prospective increases in gas property tax expense; (3)
amortize deferred credits associated with pension and management audit costs
over a two-year period; and (4) amortize, over a two-year period, a $4 million
depreciation reserve credit which represents the difference between book and
theoretical reserve as well as the remaining balance from a previous
depreciation study.

The Company also has proposed a second stage adjustment to gas rates to take
effect October 1, 2000 and a third stage adjustment to take effect October 1,
2001. These adjustments would include the following: (1) inflation on all
operation and maintenance expenses other than fixed amortizations and taxes
other than income taxes; (2) recovery of any deferred property tax expense; (3)
recovery of carrying costs and depreciation on the forecasted increases in rate
base for the ensuing rate year due to increases in plant in service less
depreciation reserves and deferred income taxes related to gas plant and the gas
portion of common plant; and (4) recovery of previously deferred environmental
investigation or remediation costs.

As discussed in Item 1 of this Form 10-K under the heading "Merger with
Consolidated Edison, Inc.," under the terms of the proposed settlement agreement
submitted to the NYPSC, the Company has agreed to withdraw this gas base rate
case upon consummation of the Merger and may not file to increase its gas rates
prior to December 1, 1999.

By statute, the NYPSC has eleven months to issue a final decision on the
Company's filing. If the gas rate case is not withdrawn, an Administrative Law
Judge will establish the procedural schedule for the proceeding.

      Electric

New York. 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
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.


                                     - 34 -
<PAGE>   38

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. An
incremental rate reduction of $2.9 million was implemented, as part of the
Restructuring Plan, on December 1, 1998.

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.

Cautionary Statement Regarding Forward-Looking Information

This document contains forward-looking statements with respect to the financial
condition, results of operations and business of the Company in the future,
which involve certain risks and uncertainties. Actual results or developments
might differ materially from those included in the forward-looking statements
because of factors such as competition and industry restructuring, changes in
economic conditions, changes in laws, regulations or regulatory policies,
uncertainties relating to the ultimate outcome of the Merger and the sale of the
Company's generating assets, the outcome of certain assumptions made in regard
to Year 2000 (Y2K)issues, the outcome of litigation being materially unfavorable
to the Company and other uncertainties. For all of those statements, the Company
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.

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.

                                     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 


                                     - 35 -
<PAGE>   39

December 31, 1998, there were 17,650 holders of record of the Company's Common
Stock.

During December 1997, the Company initiated a Common Stock Repurchase Program
pursuant to which a total of 136,300 shares of the Company's Common Stock were
repurchased at an average price of $45.72 before the program was discontinued
during the second quarter of 1998.

As a result of the Merger Agreement, and contingent upon the receipt of
regulatory approval of the Merger Agreement, it is expected that the Company's
Common Stock will be purchased by CEI during the second quarter of 1999. The
purchase price, as stated in the Merger Agreement, will be $58.50 per share.

Additional information regarding the Common Stock Repurchase Program and the
Merger Agreement is contained in the 1998 Annual Report to Shareholders in the
"Review of the Company's Results of Operations and Financial Condition"
beginning on page 6 under the captions "Major Developments - 1998 - Merger" and
"Liquidity and Capital Resources" as well as in the Notes to Consolidated
Financial Statements beginning on page 19 in Note 4 and Note 7, which
information is incorporated by reference in this Form 10-K Annual Report.

During 1998, 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>  
      1998          1         $47 3/8        $42 13/16          $.645
                    2          54 1/2         40                 .645
                    3          55             53 5/16            .645
                    4          57 1/16        53 9/16            .645

      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
</TABLE>

Information regarding the restriction of retained earnings for dividend payments
is contained in Note 6 of the Notes to Consolidated Financial Statements on page
22 of the 1998 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 1998 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.

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 6 through
14 of the 1998 Annual Report to shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.


                                     - 36 -
<PAGE>   40

ITEM 8. Financial Statements and Supplementary Data

The financial statements and supplementary financial information required by
this Item are contained on pages 15 through 30 of the 1998 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

ITEM 10. Directors and Executive Officers of the Registrant

Directors

Under the Company's Certificate of Incorporation and By-Laws, the members of the
Board of Directors of the Company are classified into three classes, one of 
which is elected at each annual meeting of common shareholders to hold office 
for a three-year term until successors of such class are elected and qualified.
There are currently nine Directors. As of the Effective Time, each of the 
Directors of the Company will resign and the Directors of the Merger Sub at the
Effective Time will be the Directors of the Surviving Corporation.

Shown below as to each Director is the person's age as of March 1, 1999, term
of office as a Director, period of service as a Director, membership on 
committees of the Board of Directors, as applicable, and business experience 
for at least five years.

<TABLE>
<CAPTION>
                   
Name, Age, Term, and                                    
Period of Service                  Business Experience Past Five Years  
--------------------               -----------------------------------
<S>                               <C>                                   
Ralph M. Baruch, 56                Member, Compensation Committee       
Term expiring in 1999              and Executive Committee.
Director since 1983                Communications Consultant. Mr.
                                   Baruch was the founder of Viacom,
                                   International, Inc. ("Viacom"), New
                                   York, New York, a diversified
                                   communications and entertainment
                                   company and served as its Chief
                                   Executive Officer from 1971 to 1983
                                   and its Chairman of the Board of
                                   Directors from 1983 to 1987. Mr.
                                   Baruch was a Consultant to Viacom
                                   from 1987 until 1998 and was a
                                   Senior Fellow, Gannett Center for
                                   Media Studies at Columbia
                                   University from 1987 until 1988.
                                   Mr. Baruch was President of Ralph
                                   M. Baruch, Inc., a communications
                                   consulting firm, from 1987 to 1992.
</TABLE>


                                     - 37 -
<PAGE>   41

<TABLE>
<CAPTION>
                                          
Name, Age, Term, and                                    
Period of Service                  Business Experience Past Five Years      
--------------------               -----------------------------------
<S>                                <C>
J. Fletcher Creamer, 72            Member, Compensation Committee.
Term expiring in 2000              Chairman of the Board of Directors
Director since 1987                and Chief Executive Officer, J.
                                   Fletcher Creamer & Son, Inc.,
                                   Hackensack, New Jersey, a
                                   construction company, since 1982.
                                   Director, Commerce Bank/North.

Michael J. Del Giudice, 56         Chairman of the Board of             
Term expiring in 1999              Directors of the Company, Pearl
Director since 1988                River, New York, since February
                                   1998, and of RECO and Pike, utility
                                   subsidiaries of the Company, since
                                   April 1998. Member, Audit Committee
                                   and Executive Committee. Managing
                                   Director, Millennium Credit
                                   Markets, LLC, New York, New York,
                                   an investment banking firm, since
                                   November 1997 and of Millennium
                                   Capital Markets, LLC from 1995 to
                                   November 1997. Mr. Del Giudice was
                                   a Managing Director and Partner of
                                   Lazard Freres & Co., LLC, New York,
                                   New York, an investment banking
                                   firm, from 1985 to 1995, and Senior
                                   Vice President of Shearson Loeb
                                   Rhoades & Co. from 1981 to 1983.

Jon F. Hanson, 62                  Chairman, Audit Committee.           
Term expiring in 2000              Chairman, Hampshire Management
Director since 1995                Company, Hackensack, New Jersey, a
                                   real estate investment and
                                   management firm, since 1976.
                                   Director, Prudential Insurance
                                   Company of America, United Water
                                   Resources, Inc., Consolidated
                                   Delivery Logistics, Inc., Neuman
                                   Distributors, Inc. and Fleet Trust
                                   and Investment Services Company,
                                   N.A.

Kenneth D. McPherson, 64           Director, RECO since 1995.   
Term expiring in 2000              Chairman, Compensation Committee
Director since 1993                and Member, Executive Committee. 
                                   Senior Partner, Waters, McPherson,
                                   McNeill, P.C., Secaucus, New
                                   Jersey, a law firm, since 1963.
</TABLE>


                                - 38 -
<PAGE>   42

<TABLE>
<CAPTION>
                                
                                          
Name, Age, Term, and                                   
Period of Service                  Business Experience Past Five Years
--------------------               -----------------------------------
<S>                                <C>                              
Robert E. Mulcahy III, 62          Member, Audit Committee.         
Term expiring in 2001              Director of Athletics, Rutgers
Director since 1997                University, Piscataway, New Jersey
                                   since April 1998. President and
                                   Chief Executive Officer, New Jersey
                                   Sports and Exposition Authority,
                                   East Rutherford, New Jersey, a
                                   competitive sports and
                                   entertainment management
                                   organization, from 1979 until April
                                   1998. Director, Wickes Lumber
                                   Company.

James F. O'Grady, Jr., 71          Chairman, Executive Committee and 
Term expiring in 2001              Member, Compensation Committee.
Director since 1980                President, O'Grady and Associates,
                                   Vero Beach, Florida, a media
                                   brokerage and consulting firm,
                                   founded in 1986. President,
                                   International Communications
                                   Management Corp., a consulting and
                                   television and radio program
                                   production and syndication firm,
                                   since 1996. Vice President, Allcom
                                   Marketing Corp., Goshen, New York,
                                   from 1987 until 1996. Director, SFX
                                   Entertainment Corp., Video for
                                   Broadcast, Inc. and The Insurance
                                   Broadcast System, Inc. Mr. O'Grady,
                                   an attorney, has been Of Counsel to
                                   the law firm of Cahill & Cahill,
                                   Brooklyn, New York, since 1986.
</TABLE>


                                - 39 -
<PAGE>   43

<TABLE>
<CAPTION>
                                    
                                          
Name, Age, Term, and                        
Period of Service                  Business Experience Past Five Years
--------------------               -----------------------------------
<S>                                <C>                         
D. Louis Peoples, 58               Vice Chairman of the Board of  
Term expiring in 2001              Directors and Chief Executive
Director since 1994                Officer of the Company, Pearl
                                   River, New York, and of RECO and
                                   Pike since 1994. Member, Executive
                                   Committee. Mr. Peoples was
                                   Executive Vice President and a
                                   member of the Board of Directors of
                                   Madison Gas and Electric Company,
                                   Madison, Wisconsin, an
                                   investor-owned electric and gas
                                   utility, from 1992 to 1993. He was
                                   Senior Vice President of
                                   RCG/Hagler, Bailly, Inc., San
                                   Francisco, California, a management
                                   consulting firm specializing in
                                   energy and environmental affairs,
                                   from 1991 to 1992. Director, United
                                   Services Automobile Association, a
                                   unitary bank holding company and
                                   insurance company.

Linda C. Taliaferro, 51            Director, Pike since 1995.   
Term expiring in 2000              Member, Audit Committee. Member,
Director since 1990                Taliaferro & Associates,
                                   Harrisburg, Pennsylvania, a law
                                   firm, since 1991. President and
                                   founder, The Talin Group,
                                   Harrisburg, Pennsylvania, a
                                   management development and training
                                   firm, an independent affiliate of
                                   Resource Associates Corp., Mohntan,
                                   Pennsylvania since January 1999.
                                   Ms. Taliaferro was a partner in the
                                   law firm of Reed Smith Shaw &
                                   McClay, Harrisburg, Pennsylvania
                                   from 1988 to 1991. Ms. Taliaferro
                                   was a Commissioner of the PAPUC
                                   from 1979 until 1988, and served as
                                   its Chair from 1983 until 1987.
</TABLE>


                                - 40 -
<PAGE>   44

Executive Officers

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 one Company employee who, due to the policy making function he performs
for the Company, is considered an executive officer under SEC criteria, but who
is not an officer of the Company and who is not appointed on an annual basis.
Shown below as to each officer is the person's age as of March 1, 1999, title
and business experience for at least five years.

<TABLE>
<CAPTION>
Name, Age, and Title               Business Experience Past Five Years
--------------------               -----------------------------------
<S>                                <C>
D. Louis Peoples, 58               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.

R. Lee Haney, 59                   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, San Diego Gas & Electric Co., from
                                   January 1993 until September 1994.

G. D. Caliendo, 58                 Senior Vice President, General Counsel
Senior Vice President,             and Secretary since April 1996.  Vice
General Counsel                    President, General Counsel and Secretary 
and Secretary                      from March 1995 to April 1996. Senior Vice
                                   President, General Counsel and Secretary,
                                   Pennsylvania Power and Light Company,
                                   Allentown, Pennsylvania from 1989 to 1994.

Robert J. Biederman, Jr., 46       Vice President since April 1990.
Vice President, Operations

Nancy M. Jakobs, 58                Vice President since April 1995.
Vice President,                    Partner, Jakobs and Associates
Human Resources                    International, New City, New York from 1991
                                   to 1995.

Robert J. McBennett, 56            Treasurer since 1984.  Treasurer and
Treasurer                          Controller from May 1995 to May 1996.

Edward M. McKenna, 49              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.
</TABLE>


                                     - 41 -
<PAGE>   45

<TABLE>
<CAPTION>
Name, Age, and Title               Business Experience Past Five Years
--------------------               -----------------------------------
<S>                                <C>
George V. Bubolo, Jr., 54          Vice President since April 1998.
Vice President, Energy             Division Vice President - Engineering
Delivery Services                  and Systems Operations from March 1996 until
                                   April 1998. Director, Engineering and System
                                   Operations from November 1994 until March
                                   1996. Director, Electric Operations from 1983
                                   until November 1994.

Vincent R. Tummarello, 48          Division Vice President - Electric
Division Vice President,           Production since November 1994. Director, 
Electric Production                Electric Production from April 1985 until 
                                   November 1994.
</TABLE>

ITEM 11. Executive Compensation

Summary Compensation Table

The table below shows all compensation awarded to, earned by or paid to the
person serving as Chief Executive Officer in 1998 and the four other most highly
compensated executive officers of the Company for services rendered in all
capacities to the Company and its subsidiaries during the fiscal years ended
December 31, 1998, December 31, 1997 and December 31, 1996:

<TABLE>
<CAPTION>
                                                             LONG-TERM   
                                             ANNUAL        COMPENSATION  
                                          COMPENSATION        Payouts       All Other
                                       Salary     Bonus    LTIP Payouts   Compensation
Name & Principal Position       Year     ($)       ($)        ($)(1)         ($)(2)
-------------------------       ----     ---       ---        ------         ------
                                                                         
<S>                            <C>     <C>        <C>         <C>             <C>  
D. Louis Peoples               1998    410,000    218,264     710,298         4,055
Vice Chairman of the           1997    404,659     87,638      83,288        13,449
  Board and Chief              1996    394,583    162,900     130,073        27,735
  Executive Officer                                                      
                                                                         
R. Lee Haney                   1998    205,000     97,006     213,089         3,290
Senior Vice President          1997    205,000     49,200      28,707         6,606
  and Chief Financial          1996    205,000     76,260      46,246         7,933
  Officer                                                                
                                                                         
G. D. Caliendo                 1998    205,000     97,006     213,089         3,167
Senior Vice President,         1997    204,009     45,810      24,764         5,598
  General Counsel              1996    195,833     71,676      42,303        11,155
  and Secretary                                                          
                                                                         
Robert J. Biederman, Jr.       1998    165,000     67,972     177,575         2,677
Vice President,                1997    165,000     64,928      74,473         6,280
  Operations                   1996    160,000     53,040      49,638         4,155
                                                                         
George V. Bubolo, Jr.          1998    147,766     53,147     120,751 (3)     2,256
Vice President,                1997    137,130     40,974      44,987         3,347
  Energy Delivery Services     1996    137,130     37,985      26,238         3,347
</TABLE>

      (1) The LTIP payments shown include performance share units ("PSUs")
earned pursuant to the Long-Term Performance Share Unit Plan ("PSU Plan") in the
years 1996 and 1997 and PSU grants with respect to the 1996-98, 1997-99 and
1998-2000 performance periods which were deemed earned in full and which 


                                     - 42 -
<PAGE>   46

were paid in 1998 as a result of the execution of the Merger Agreement, which
constituted a potential change in control under the terms of the PSU Plan. The
dollar values of earned PSUs shown for 1996 were calculated based on the price
of the Company's Common Stock on December 31, 1996. The dollar values of PSUs
paid with respect to the 1995-1997 performance period and the DSUs paid for the
1995-1996 transitional performance period were based on the average price of the
Company's Common Stock during the fourth quarter of 1997. The dollar values of
PSUs paid in 1998 with respect to the 1996-98, 1997-99 and 1998-2000 performance
periods were based on the average of the high and low sales price ($42.625 per
share) of the Company's Common Stock on the date prior to the potential change
in control.

      (2) Included in All Other Compensation for 1998 for the named executive
officers were the following:

            (a) The Company's matching contribution to each individual's account
      under the Company's Management Employees' Savings Plan, as follows: Messrs
      Peoples, Caliendo, Haney and Biederman $2,400 each; and Mr. Bubolo $1,823.

            (b) A term life insurance premium for each individual, as follows:
      Mr. Peoples, $1,655; Mr. Haney, $890; Mr. Caliendo, $767; Mr. Biederman,
      $277; and Mr. Bubolo, $433.

      (3) Does not include the amount paid with respect to long-term incentive
plan compensation payable in prior periods but deferred at Mr. Bubolo's
election.

Long-Term Incentive Plans--Awards in Last Fiscal Year

<TABLE>
<CAPTION>
                                        Performance           Estimate Future
                          Number of      or Other         Share Unit Payments(2)
                        Shares, Units  Period Until   -------------------------------
                          or Other      Maturation    Threshold   Target      Maximum
          Name            Rights(1)      or Payout       (#)        (#)         (#)
          ----            ---------      ---------       ---        ---         ---
<S>                          <C>         <C>             <C>       <C>         <C>  
D. Louis Peoples             5,000       1998-2000       250       5,000       6,000
R. Lee Haney                 1,500       1998-2000        75       1,500       1,800
G. D. Caliendo               1,500       1998-2000        75       1,500       1,800
Robert J. Biederman, Jr.     1,250       1998-2000        63       1,250       1,500
George V. Bubolo, Jr.          850       1998-2000        43         850       1,020
</TABLE>

(1)   The numbers shown in this column reflect the PSUs awarded in 1998 to each
      named executive officer under the PSU Plan for the 1998-2000 performance
      period. The number of PSUs shown is exclusive of dividend equivalents
      which are credited during the performance period in additional PSUs.

(2)   The execution of the Merger Agreement constituted a potential change in
      control under the PSU Plan. Accordingly, under the terms of the PSU Plan
      the 1998-2000 PSUs (and associated dividend equivalent PSUs) were deemed
      earned in full as of the date of such potential change in control and were
      paid out to participants. The amounts paid out are included in the Summary
      Compensation Table in the column "LTIP Payouts" for 1998.


                                     - 43 -
<PAGE>   47

Pension Plans

The following table sets forth as of December 31, 1998 the estimated aggregate
annual dollar benefit payable under the Company's non-contributory Employees'
Retirement Plan ("Retirement Plan") as well as under the Officers' Supplemental
Retirement Plan ("Supplemental Plan") to participants in the Supplemental Plan
upon retirement at age 65 with the exception of Mr. Peoples, whose pension
benefits are addressed below:

                                 RETIREMENT AND
                             SUPPLEMENTAL PLAN TABLE

<TABLE>
<CAPTION>
                                       Years of Service
                                       ----------------
Remuneration      5        10       15        20       25        30        35
------------      -        --       --        --       --        --        --
<S>           <C>       <C>      <C>       <C>       <C>      <C>       <C>   
  100,000      20,000    40,000   50,000    60,000    62,500   65,000    67,500
  125,000      25,000    50,000   62,500    75,000    78,125   81,250    84,375
  150,000      30,000    60,000   75,000    90,000    93,750   97,500   101,250
  175,000      35,000    70,000   87,500   105,000   109,375  113,750   118,125
  200,000      40,000    80,000  100,000   120,000   125,000  130,000   135,000
  225,000      45,000    90,000  112,500   135,000   140,625  146,250   151,875
  250,000      50,000   100,000  125,000   150,000   156,250  162,500   168,750
  300,000      60,000   120,000  150,000   180,000   187,500  195,000   202,500
  400,000      80,000   160,000  200,000   240,000   250,000  260,000   270,000
  450,000      90,000   180,000  225,000   270,000   281,250  292,500   303,750
  500,000     100,000   200,000  250,000   300,000   312,500  325,000   337,500
</TABLE>

Compensation covered by the Retirement Plan consists of regular compensation
(which excludes any overtime or special pay) and incentive compensation earned
under the Company's Annual Team Incentive Plan, up to $160,000 annually (with
such limitation subject to cost of living adjustment). Under the terms of the
Supplemental Plan, covered compensation consists of regular compensation and an
amount equal to the targeted annual award (the "Targeted Annual Award") under
the Company's Annual Team Incentive Plan. With the exception of Mr. Peoples,
whose pension benefits are addressed below, the current compensation covered by
the Supplemental Plan for each of the named executive officers is as follows:
Mr. Haney, $287,000; Mr. Caliendo, $282,260; Mr. Biederman, $220,500; and Mr.
Bubolo, $194,350. The amounts shown in the Retirement and Supplemental Plan
Table are calculated on the basis of years of service as defined in the
Supplemental Plan. The years of service for each of the named executive officers
are as follows: Mr. Haney, 10 years; Mr. Caliendo, 8 years; Mr. Biederman, 25
years; and Mr. Bubolo, 21 years.

The Retirement Plan provides for benefits based on modified career-average
earnings. The benefit formula is (1) an amount equal to 2% of compensation for
each year of credited service after December 31, 1992 (including two additional
years of credited service at the final rate of compensation limited to $160,000)
and (2) an additional amount equal to 1 1/2% of the annual rate of compensation
as of January 1, 1993 multiplied by the number of years of credited service
prior to that date. The Retirement Plan also provides a pension supplement of
$600 per month to employees who retire at the age of 60 or 61. This supplement
becomes payable on the retirement date of the individual and will remain in
place until the first of the month on or before attaining their 62nd birthday. A
participant's benefits become vested upon completion of five years of eligible
service or on reaching age 65 while employed. A participant's benefits also
become vested upon a change in control. Shareholder approval of the Merger
Agreement constituted a change in control under the terms of the Retirement
Plan. Benefits payable under the Retirement Plan for retirements after age 55
and prior to age 60 are reduced 1/3 of 1% for each month the participant is
under 60 years of age at the time 


                                     - 44 -
<PAGE>   48

benefits commence. However, participants may receive an unreduced pension
benefit at age 60, or if the sum of the participant's age and years of service
totals at least 85 between ages 55 and 60. Benefits under the Retirement Plan
are not subject to Social Security or any other offset amounts. Benefits under
the Retirement Plan are subject to annual post-retirement adjustment once the
Consumer Price Index increases at least 20% since retirement. Directors who are
not employees of the Company are not covered by the Retirement Plan. Under the
terms of the Retirement Plan, upon a change in control of the Company, benefits
can be increased to the extent there are surplus funds (as defined in the
Retirement Plan) held under the Retirement Plan. Upon shareholder approval of
the Merger Agreement, which constituted a change in control under the terms of
the Retirement Plan, there were no such surplus funds (as defined in the
Retirement Plan) held under the Retirement Plan.

The Supplemental Plan is designed to provide additional retirement benefits to
officers of the Company who are participants in the Supplemental Plan and have
at least five years of service as officers. Directors who are not employees of
the Company are not covered by the Supplemental Plan. The Supplemental Plan
provides for benefits calculated by applying a percentage based on years of
service to average compensation (base salary and Targeted Annual Award) over the
three years of highest compensation during the 10 years immediately prior to
retirement, termination or cessation of officer status, reduced by the
participant's Retirement Plan benefit. Benefits payable under the Supplemental
Plan for retirements after age 55 and prior to age 60 are reduced 1/3 of 1% for
each month the participant is under 60 years of age at the time the benefits
commence. However, participants may receive an unreduced pension benefit at age
60, or if the sum of the participant's age and years of service totals at least
85 between ages 55 and 60. Benefits under the Supplemental Plan are subject to
annual post-retirement adjustment once the Consumer Price Index increases at
least 20% since retirement. For non-vested participants, benefits would vest
upon termination of employment following a change in control or potential change
in control of the Company, and the named officers could receive credit for
additional years of service in the calculation of their benefit. The Company has
established a trust for the payment of benefits under the Supplemental Plan.
Notwithstanding the creation of the trust, the Company continues to be primarily
liable for the benefits payable under the Supplemental Plan and will be
obligated to make such payments to the extent the trust does not.

Pursuant to agreements with the Company, Messrs. Peoples, Haney and Caliendo
became participants in the Supplemental Plan upon their appointment as officers
and are treated as having satisfied the five years of service as an officer
required for vesting in the Supplemental Plan. Under Mr. Peoples' agreement, on
the basis of his five years of service, his Supplemental Plan benefit percent is
currently 70% of an aggregate of his base salary and his Targeted Annual Award.
As of December 31, 1998, Mr. Peoples' estimated annual benefit payable under the
Supplemental Plan upon retirement at age 65 is $409,127. Under agreements with
Messrs. Haney and Caliendo, they receive credit under the Supplemental Plan for
two years of service for each of their first five years of service, and two and
one half years of service for the next six years of service, and their benefit
formula under the Supplemental Plan will be calculated accordingly.

Compensation of Directors

Under the former Board of Directors' compensation structure in effect through
March 31, 1998, Directors who were not current or former officers of the Company
or its subsidiaries each were paid an annual retainer of $20,000 and a fee of
$900 for each meeting of the Board of Directors such Director attended, except
that the Chairman of the Board of Directors was paid a fee of $1,800 


                                     - 45 -
<PAGE>   49

for each such meeting attended. Each such Director was also paid a fee for each
Committee meeting attended in the amount of $700 if the Committee meeting was
held on the same day as a meeting of the Board of Directors, or $800 if held on
a separate day, and was entitled to compensation of $900 per day for each full
day or major portion of a day spent on the business of the Board or a Committee
on days other than days of Board or Committee meetings, plus reimbursement for
out-of-pocket expenses.

Directors were permitted to defer receipt of their retainer and meeting fees
under the Deferred Compensation Plan for Non-Employee Directors (the "Directors'
Deferred Compensation Plan"). In addition, the Post-Director Service Retainer
Continuation Program (the "Directors' Pension Program") provided for the
continued payment of the annual retainer to an Eligible Director (as defined
under the Directors' Pension Program) for a period equal to the Eligible
Director's years of service on the Board. Upon the recommendation of the Board
of Directors' independent compensation consultant, on February 5, 1998 the Board
of Directors adopted a new compensation structure (the "Compensation Program"),
replacing the compensation structure described above. The Compensation Program
was designed by the Board's independent compensation consultant to meet industry
standards, and in recognition of the general trend to align Director
compensation with shareholder interests.

Under the Compensation Program, which became effective April 1, 1998, the annual
$20,000 retainer, all meeting fees, and the $900 per diem payment for each full
day or major portion of a day spent on Board business were eliminated, and the
Directors' Pension Program was discontinued. The Compensation Program provides
that Directors who are not current or former officers of the Company or its
subsidiaries each are to be paid an annual fee of $50,000, of which $25,000 is
payable in cash and $25,000 is to be deferred in phantom share units and
credited to a phantom share unit account under the Directors' Deferred
Compensation Plan until cessation of the Director's service on the Board. Under
the Compensation Program, the Chairperson of each committee of the Board of
Directors receives an additional annual cash fee of $1,600 for service as
Chairperson. The Chairman of the Board receives an annual cash fee of $20,000
for service in that capacity. These annual fees are paid in lieu of the enhanced
meeting fee paid to the Chairman of the Board under the discontinued
compensation structure. All cash fees are paid quarterly.

The Directors' Pension Program was discontinued effective April 1, 1998. Any
benefit due a former Director under the Directors' Pension Program will be paid
in accordance with the terms of the Directors' Pension Program in effect at the
time the Director left the Board. Upon the Board's adoption of the new
Compensation Program on February 5, 1998, the then present value of each
Director's accrued benefit under the Director's Pension Program, whether or not
vested, was calculated (by rounding Directors' years of service under the
Directors' Pension Program to the nearest complete year of service as of April
8, 1998) and converted to equivalent deferred phantom share units, based on the
fair market value (as defined in the Directors' Deferred Compensation Plan) of
the Company's Common Stock on February 5, 1998. These deferred phantom share
units were then credited to the Director's phantom share unit account under the
Directors' Deferred Compensation Plan, and became subject to the terms of that
Plan.

Pursuant to the Directors' Deferred Compensation Plan, a Director could elect to
defer receipt of all or part of his or her cash compensation for services as a
Director. Directors could elect to defer future cash compensation either into a
phantom share unit account or into an investment account, in which Directors'
deferred compensation would be credited with returns based on the 


                                     - 46 -
<PAGE>   50

performance of one or more available investment funds, as selected by the
Director.

Amounts deferred to a Directors' phantom share unit account under the Directors'
Deferred Compensation Plan, either at the election of the Director or pursuant
to the terms of the Compensation Program, were deemed to be invested in a number
of phantom share units equal to the dollar amount of such deferral divided by
the fair market value of the Company's Common Stock on the date the fees would
have been payable. Phantom share units varied in value with increases and
decreases in the fair market value of the Common Stock. Phantom share units were
also credited with dividend equivalents, with such dividend equivalents deemed
reinvested in additional phantom share units based upon the fair market value of
Common Stock on the dividend payment date.

The Directors' Deferred Compensation Plan provides that all amounts are to be
paid out automatically upon a change in control or potential change in control
of the Company (as defined in the Deferred Compensation Plan), with phantom
share units valued based on the average of the high and low sales price of the
Company's Common Stock on the day prior to the potential change in control. The
execution of the Merger Agreement constituted a potential change in control
under the Directors' Deferred Compensation Plan. As a result, the following
Directors received the following amounts: Mr. Baruch, $350,913; Mr. Creamer,
$691,853; Mr. Del Giudice, $204,770; Mr. Hanson, $152,193; Mr. McPherson,
$180,893; Mr. Mulcahy, $22,113; Mr. O'Grady, $365,729; and Ms. Taliaferro,
$95,223. As a result of the proposed Merger, from and after the potential change
in control, the non-employee Directors have been paid their annual fees entirely
in cash.

Employment and Severance Agreements

The Company has employment agreements with Messrs. Peoples, Haney and Caliendo
setting forth the terms of their employment, including position, base salary,
opportunity for incentive compensation, relocation allowance, retirement
arrangements, and other benefits. Mr. Peoples' agreement provides that he shall
serve as Vice Chairman of the Board and Chief Executive Officer of the Company,
at a minimum base salary of $325,000, with participation in the Company's
incentive plans. Mr. Haney's agreement provides that he shall serve as Vice
President and Chief Financial Officer of the Company, at a minimum base salary
of $195,000, with participation in the Company's incentive plans. Mr. Caliendo's
agreement provides that he shall serve as Vice President, General Counsel and
Secretary of the Company, at a minimum base salary of $185,000, with
participation in the Company's incentive plans. Their participation in the
Company's retirement plans is described above under "Pension Plans."

In addition, the Company has also entered into severance agreements with named
executive officers that provide for certain payments to be made and benefits to
be provided (as described below) in the event of an involuntary termination
other than for cause, or termination by the individual for good reason, in the
case of Messrs. Peoples, Haney and Caliendo, within 36 months following, and in
the case of Mr. Biederman and Mr. Bubolo, within 24 months following, a change
in control of the Company.

On May 10, 1998, the Company and Consolidated Edison, Inc. entered into
individual letter agreements (each, a "Letter Agreement"), with each of Mr.
Peoples, Mr. Caliendo, and Mr. Haney ("the Executive(s)"), each of which Letter
Agreement provides that, for purposes of the Executive's severance agreement (i)
the approval of the Merger Agreement by the shareholders of the Company
constitutes a change in control, (ii) at the Effective Time (as defined in the
Merger Agreement), the Executive will terminate his employment 


                                     - 47 -
<PAGE>   51

with the Company and (iii) such termination will be deemed to have been by the
Executive with Good Reason. Accordingly, pursuant to the Executive's severance
agreement, upon each Executive's termination of employment at the Effective
Time, each such Executive will be entitled to receive, in lieu of any other
payments due to the Executive: (1) a cash payment equal to three times the sum
of (a) the higher of (i) such Executive's annual base compensation in effect at
the time of termination and (ii) such Executive's annual base compensation in
effect immediately prior to the change in control and (b) the higher of (i) the
average of the annual bonuses earned or received by such Executive for the three
performance years ended prior to the date of termination and (ii) the average of
the annual bonuses awarded to such Executive for the three fiscal years ended
prior to the change in control, (2) a cash payment equal to a pro rata portion,
through the date of termination, of the aggregate value of all contingent
incentive compensation awards for all uncompleted periods under the incentive
compensation plans of the Company (other than the PSU Plan), assuming the
achievement of all target levels established with respect to such awards, (3)
benefits under the Supplemental Plan commencing immediately following the date
of termination, calculated (a) without reduction on account of the Executive's
age (in the case of Mr. Peoples) and (b) in the case of Messrs. Caliendo and
Haney, as if the Executive had been credited with an additional three years of
service (resulting in an increase by 15 percentage points in the Benefit Formula
Percentage (as defined in the Supplemental Plan)), (4) the continuation of
employee welfare benefits for three years following the date of termination,
reduced to the extent the executive receives such benefits from a subsequent
employer, (5) if the Executive would have otherwise been entitled to
post-retirement health care or life insurance had he continued to be employed
for three additional years, such post-retirement health care and life insurance
commencing on the later of (a) the date that such coverage would have first
become available to the Executive and (b) the date that the benefits described
in clause (4) above terminate, (6) the reimbursement of legal fees and expenses,
if any, incurred by the Executive in disputing any issue relating to the
termination of his employment following a change in control, (7) the right to
purchase the Executive's Company-provided automobile pursuant to Company policy
and (8) an additional cash payment to hold the Executive harmless from the
excise tax (the "Excise Tax") imposed by Section 4999 of the Code.

Pursuant to the terms of their severance agreements and the Letter Agreements,
it is presently estimated (based on available information) that each Executive
will be entitled to an aggregate lump sum cash payment at the Effective Time
approximately in the following amounts: Mr. Peoples, $2,710,000; Mr. Caliendo,
$1,330,000; and Mr. Haney, $1,351,000. After payment of all excise and income
taxes imposed on such lump sum cash payments, each Executive will retain a net
amount of approximately 35% of such lump sum cash payments.

The Company has a Severance Pay Plan ("Severance Plan") applicable to all
non-bargaining unit personnel with one or more years of service. The Severance
Plan provides eligible employees with specified severance pay upon a termination
of employment for the Company's convenience or following a change in control of
the Company. Upon a "Termination of Employment for the Company's Convenience"
(which is defined in the Severance Plan and which includes termination of
employment by the Company under specified circumstances other than for cause),
an employee is entitled to receive a severance payment calculated under formulas
based on years of service and salary grades. Upon an "Involuntary Termination"
(which is defined in the Severance Plan and which includes termination of
employment under specified circumstances within two years following a change in
control of the Company) an employee is entitled to receive a severance payment
based on grade. In either event, higher benefits are paid to employees in higher
salary grades. Aggregate severance payments, which cannot exceed an employee's
annual 


                                     - 48 -
<PAGE>   52

compensation, are payable monthly at the employee's final rate of compensation
or, in the event of a change in control of the Company, immediately. In
addition, life and health insurance benefits are continued for the severance
period for eligible employees following termination of employment.

Compensation Committee Report on Executive Compensation

The Company's compensation program for executive officers is established and
administered by the Compensation Committee of the Board of Directors. All
members of the Compensation Committee are independent, non-employee Directors
who are not eligible to participate in any part of the executive officer
compensation program.

As noted herein, the entering into of the Merger Agreement constituted a
potential change in control under various compensation plans and agreements
applicable to the Company's executive officers.

In 1995, the Compensation Committee, after extensive discussion and work with
independent compensation consultants retained by it, implemented an executive
officer compensation program designed to:

      o     Establish compensation which is competitive with the practices of
            utility industry peer groups (discussed below);

      o     Provide a strong and direct link between executive pay and Company
            performance on behalf of its shareholders and customers;

      o     Compensate executive officers for their successful long-term
            strategic management of the Company; and

      o     Base actual compensation on the achievement of the Company's annual
            goals, long-term strategic objectives and performance relative to
            utility industry peer groups (discussed below).

Compensation Philosophy

The executive compensation program was designed to strengthen the linkage
between executive officer compensation, shareholder value and customer service.
By placing greater emphasis on performance incentives than on salary increases,
the program enhances the alignment of management and shareholder interests.

Salary and Performance Incentives

The Company's executive compensation program has three principal components:

      o     Salary: Executive officer salaries are administered relative to the
            median of salary data for executive officers with comparable
            functional responsibilities in utilities included in utility
            industry peer groups (discussed below).

      o     Annual Team Incentive Plan ("Incentive Plan"): Incentive payments
            are based on various Company objectives that focus on shareholder
            interests and division-specific operating objectives, such as cost
            management, efficiency, productivity, safety and customer service.
            These objectives are established annually.

      o     Long-Term Performance Share Unit Plan (PSU Plan): Executive officers
            (and certain key employees) are provided with the opportunity to
            earn 


                                     - 49 -
<PAGE>   53

            cash payments and, subject to the receipt of necessary approvals,
            payments in stock at the end of a three-year performance period,
            based on the Company's earnings per share performance and its total
            shareholder return (stock price appreciation plus dividends) during
            such performance period, measured relative to a group of national
            comparison utilities ("National Comparison Utilities").

Under the executive officer compensation program, the competitiveness of salary
ranges and annual and long-term incentive award opportunities is evaluated
annually. Utility peer groups are used for comparison purposes to establish
total compensation as well as criteria for incentive payments to be awarded
under the Incentive Plan and PSU Plan.

Specifically, comparison is made to data included in the compensation survey
("EEI Survey") prepared by the Edison Electric Institute, an electric utility
industry trade group (which includes other combination gas and electric
companies). Compensation data in the EEI Survey is adjusted through regression
analysis to correlate utility company revenues with actual base salary and
incentives. Executive officer annual and long-term incentive opportunities are
configured so that total compensation approximates the 60th percentile of the
revenue-adjusted EEI Survey data when targeted results are achieved.

Salary Structure and Salary Increases

Salary ranges reflect a minimum amount and a position rate that approximates the
50th percentile of the distribution of salaries for executive officers with
comparable functional responsibilities in utilities included in the utility
industry peer group used for comparison purposes.

Annual Team Incentive Plan

Incentive Plan target award opportunities for executive officers are established
annually. The target award opportunity is considered to be 100% accomplishment
of stated objectives. Actual awards may range from 0% to 120% based on
performance.

For 1998, Incentive Plan target award opportunities ranged from 30% to 45% of
salary at December 31, 1998. Incentive Plan performance for 1998 was evaluated
using shareholder, management, customer satisfaction and division-specific
measures as follows:

      o     Shareholder Measure (weight 55%): Earnings per share measured
            against pre-established threshold, target and outstanding levels.
            The chief executive officer, chief financial officer and chief legal
            officer were evaluated on Company earnings per share results. All
            other executive officers were measured on utility earnings per share
            results.

      o     Management Measure (weight 15%): Operating and maintenance
            expenditures compared to pre-established standards.

      o     Customer Satisfaction Measure (weight 10%): Utility customer
            satisfaction was measured based on the Company's annual customer
            satisfaction survey results.

      o     Division-Specific Measure (weight 20%): Efficiency and productivity
            enhancements specific to each division within the Company. The chief
            executive officer, chief financial officer and chief legal officer


                                     - 50 -
<PAGE>   54

            were evaluated on the average results of the divisions (weighted by
            number of participants). All other executive officers were measured
            on results within their respective divisions.

The Compensation Committee may, at its discretion and in consultation with the
chief executive officer, adjust Incentive Plan awards plus or minus 25% to
reflect strategic and other factors affecting business operations and results.

During 1998, the shareholder measure was achieved at 66%, the management measure
was achieved at 18% and the customer satisfaction measure was achieved at 12%.
Division-specific measures were achieved at 14% to 24%. The average of these
factors combined to result in awards ranging from 110% to 120% of targeted
levels.

For 1999, Incentive Plan performance will be evaluated using three measures, an
earnings measure (weight 65%), a management measure (weight 20%) and a customer
satisfaction measure (weight 15%).

Long-Term Performance Share Unit Plan

Participation

The PSU Plan provides that the Compensation Committee can designate executive
officers (and certain key employees) to participate in the PSU Plan.
Participants are selected based on an evaluation of their position's long-term
strategic performance impact and influence on shareholder value -- i.e., future
stock price appreciation and annual dividend payments.

PSU Grants

The PSU Plan provides that the Compensation Committee can make grants of PSUs to
designated participants at the start of each year for a three-year performance
period. The size of these grants was based on the results of the annual
compensation program evaluation. (Participants whose participation in the PSU
Plan commenced in 1995 or 1996 also received PSU grants for one-year and
two-year transitional performance periods equal to one-third and two-thirds of
the corresponding three-year performance period.)

Under the PSU Plan, each PSU is given a value equal to one share of the
Company's Common Stock. The maximum number of PSUs that can be earned with
respect to a performance period is 120% of the number of PSUs granted. In
addition, the value of dividend equivalents that accumulate during a performance
period is deemed reinvested in additional PSUs. These dividend equivalent PSUs
are calculated by multiplying the number of PSUs granted by the dividend
payments made during the performance period on a share of Common Stock and
dividing the resultant amounts by the average of the high and low stock price on
the date the dividends were paid. Dividend equivalent PSUs are then also
credited with dividend equivalent PSUs on dividends declared subsequently during
the performance period.

As described below, the execution of the Merger Agreement constituted a
potential change in control under the PSU Plan and named executive officers
received payment for all outstanding PSUs and DSUs (defined below) during 1998.

Determinations Regarding Earning and Payment of PSUs

The PSU Plan provides that PSUs are earned based on performance criteria that
are determined annually for the three-year performance period then commencing.


                                     - 51 -
<PAGE>   55

For the 1996-98 performance period (and the related transitional periods) and
the 1997-99 performance periods, these performance criteria, which were weighted
75%/25%, respectively, were:

      o     Average annual total shareholder return (stock price appreciation
            plus dividends) compared to National Comparison Utilities using
            pre-established ranking criteria.

      o     Earnings per share compared to pre-established threshold, target and
            maximum levels.

The 1998-2000 performance period was based entirely on average annual total
shareholder return.

The PSU Plan provides that following the close of a performance period the
Company's performance is evaluated by the Compensation Committee in consultation
with its independent compensation consultant relative to applicable
pre-established performance criteria, and the number of PSUs (and associated
dividend equivalent PSUs) earned is determined for each participant.

The PSU Plan was designed to align management and shareholder financial
interests. The PSU Plan accordingly provides for payment of PSUs earned to be
made in cash or, subject to receipt of necessary shareholder and other
approvals, in shares of the Company's Common Stock; or in a combination of such
payment forms. (Transitional (i.e., one- and two-year) PSU awards that were
earned were deferred in the form of deferred performance share units ("DSUs")
and then were to be paid at the end of the applicable full three-year
performance period.) Under the PSU Plan, participants can also voluntarily elect
to defer payment of earned PSU awards that are otherwise payable. Such
deferrals, at the participant's election, are credited either (i) to the various
investment fund options in which participants may elect to place their deferred
compensation under the terms of the PSU Plan; or (ii) in DSUs until such future
post-service date or dates as the participant elects to begin receiving a
distribution. DSUs are credited with dividend equivalents that are deemed
reinvested in additional DSUs.

The PSU Plan provides that upon a change in control or potential change in
control during a performance period, all PSUs (and associated dividend
equivalent PSUs) are deemed earned in full as of the date of such change in
control or potential change in control. As soon as practicable following such
change in control or potential change in control, the Company is to pay to each
participant a lump sum cash payment equal to the sum of (i) the product of (A)
and (B), where (A) equals the aggregate number of PSUs (and associated dividend
equivalent PSUs) deemed earned in full or deferred, as described above, and (B)
equals the average of the high and low sales price of the Company's Common Stock
on the date immediately preceding the change in control or potential change in
control; and (ii) the value of amounts deferred in various investment vehicles
as of the date immediately preceding the change in control or potential change
in control. The execution of the Merger Agreement constituted a potential change
in control under the PSU Plan.

Chief Executive Officer Compensation

Mr. Peoples' 1998 salary, as Vice Chairman of the Board of Directors and Chief
Executive Officer of the Company, was based on a position rate that approximates
the 50th percentile for chief executive officer positions included in the EEI
Survey. Mr. Peoples' actual 1998 salary was at the position rate.


                                     - 52 -
<PAGE>   56

Mr. Peoples' Incentive Plan award for 1998 was based, as described above, on the
Company's 1998 performance at 118% of target.

Policy with Respect to Section 162(m)

Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, unless an appropriate exemption applies, a tax deduction for the
Company for compensation of certain executive officers named in the Summary
Compensation Table will not be allowed to the extent such compensation in any
taxable year exceeds $1 million. Generally, no amounts paid by the Company in
1997 and prior years have failed to be deductible by virtue of Section 162(m) of
the Code. However, as a result of the interaction between Section 162(m) and
Section 280G of the Code, some of the amounts that were paid in 1998 and that
may be paid in the future in connection with the Merger may be rendered
non-deductible by virtue of Section 162(m).

                             COMPENSATION COMMITTEE

Kenneth D. McPherson, Chairman            J. Fletcher Creamer
Ralph M. Baruch                           James F. O'Grady, Jr.

March 4, 1999


                                     - 53 -
<PAGE>   57

Stock Performance Graph

                Comparison of Five-Year Cumulative Total Return*

 Orange and Rockland Utilities, Inc. Common Stock, Standard & Poor's 500 Index
           and Edison Electric Institute Combination Gas and Electric
                            Investor-Owned Utilities

            DOLLARS

                                [GRAPHIC OMITTED]

                            Cumulative Total Return

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
         Legend                           1993     1994     1995     1996     1997     1998
--------------------------------------------------------------------------------------------
<S>                                      <C>       <C>     <C>      <C>      <C>      <C>   
Orange and Rockland   [OBJECT OMITTED]   100.00    86.23   102.50   110.70   154.82   199.93
--------------------------------------------------------------------------------------------
S&P 500 Index         [OBJECT OMITTED]   100.00   101.32   139.40   171.40   228.57   293.87
--------------------------------------------------------------------------------------------
EEI Index             [OBJECT OMITTED]   100.00    87.12   110.96   110.27   142.54   165.62
--------------------------------------------------------------------------------------------
</TABLE>

*Assumes $100 invested on December 31, 1993 and reinvestment of dividends.


                                     - 54 -
<PAGE>   58

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

The following table sets forth, as of March 1, 1999, certain information
regarding persons known by the Company to be the beneficial owner(s) of more
than 5% of the outstanding shares of the Company's Common Stock.

<TABLE>
<CAPTION>
                                    Amount and Nature
Name and Address of                   of Beneficial
 Beneficial Owner                      Ownership(1)             Percent of Class
-------------------                 -----------------           ----------------
<S>                                     <C>                           <C>  
Gabelli Funds, Inc.                     169,000 (2)                   1.25%
One Corporate Center
Rye, NY  10580

GAMCO Investors, Inc.                   422,600 (3)                   3.13%
One Corporate Center
Rye, NY  10580

Gabelli Associates Fund                  73,000                       0.54%
One Corporate Center
Rye, NY  10580

Gabelli Fund, LDC                           500                       0.00%
c/o Tremont (Bermuda) Limited
Tremont House
4 Park Road
Hamilton HM II, Bermuda

Gabelli & Company, Inc. Profit            3,000                       0.02%
Sharing Plan
Gabelli Funds
One Corporate Center
Rye, NY  10580

Gabelli Foundation, Inc.                 10,500                       0.08%
165 West Liberty Street
Reno, Nevada  89501

Marc J. Gabelli                               0                       0.00%
One Corporate Center
Rye, NY  10580

Mario J. Gabelli                              0 (4)                   0.00%
One Corporate Center
Rye, NY  10580
</TABLE>

      (1) All information contained in this table and the notes thereto is based
on information furnished to the Company on a Schedule 13D dated November 30,
1998, filed by Mario J. Gabelli and Marc J. Gabelli and various entities which
either one directly or indirectly controls or for which either one acts as chief
investment officer. Each person has sole voting and investment power with
respect to the shares listed, unless otherwise indicated. Beneficial ownership
includes shares over which the indicated beneficial owner exercises direct or
indirect voting and/or investment power.

      (2) Gabelli Funds, Inc. is deemed to have beneficial ownership of the
securities owned beneficially by each of the persons listed in the table other
than Mario Gabelli, Marc Gabelli and Gabelli Foundation, Inc.


                                     - 55 -
<PAGE>   59

      (3) Includes 43,500 shares over which GAMCO Investors, Inc. does not have
authority to vote, but has sole dispositive power.

      (4) Mario Gabelli is deemed to have beneficial ownership of the securities
owned beneficially by each of the foregoing persons other than Marc Gabelli.

Security Ownership of Management

The following table shows, as of March 1, 1999, all of the Company's Common
Stock owned beneficially by each Director and each executive officer named in
the Summary Compensation Table as well as Common Stock holdings of all Directors
and executive officers as a group.

<TABLE>
<CAPTION>
                                            Shares of
                                        Common Stock Owned
Name                                    Beneficially (1)(2)
----                                    -------------------
<S>                                          <C>
Ralph M. Baruch                                   0
Robert J. Biederman, Jr.                          0
George V. Bubolo, Jr.                            26
G. D. Caliendo                                  208
J. Fletcher Creamer                           8,983
Michael J. Del Giudice                        1,167
R. Lee Haney                                    889
Jon F. Hanson                                 3,045
Kenneth D. McPherson                          1,000
Robert E. Mulcahy III                           248
James F. O'Grady, Jr.                         1,000
D. Louis Peoples                              1,875
Linda C. Taliaferro                             569
17 Directors and executive                   19,527
  officers as a group
</TABLE>

      (1) Based on information furnished to the Company by the Directors and
executive officers. Includes shares of Common Stock owned beneficially pursuant
to the Company's Management Employees' Savings Plan through February 26, 1999,
the latest date for which such information is available.

      (2) As of March 1, 1999, no Director owned beneficially more than .066% of
the outstanding shares of Common Stock, no named executive officer owned more
than .014% of such shares and Directors and executive officers as a group owned
 .1445% of such shares.

Changes in Control

Pursuant to the Merger Agreement, at the Effective Time the outstanding shares
of Common Stock will be converted into the right to receive $58.50 in cash and
the Common Stock will no longer be publicly traded. At the Effective Time all of
the capital stock of the Company (which will be the Surviving Corporation) will
be owned by CEI. As of the Effective Time, each of the Directors of the Company
will resign and the directors of the Merger Sub at the Effective Time will be
the directors of the Surviving Corporation.


                                     - 56 -
<PAGE>   60

Item 13. Certain Relationships and Related Transactions

None.

                                     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 15 through 30 of the 1998 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 1998 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, 1998, 1997 and 1996.                                      15

Consolidated Balance Sheets as of December 31, 1998 and 1997.             16

Consolidated Cash Flow Statements for the years ended
   December 31, 1998, 1997 and 1996.                                      18

Notes to Consolidated Financial Statements.                               19

Report of Independent Public Accountants.                                 30

   *Page number reference is to the 1998 Annual Report
    to Shareholders

(a)(2)  Financial Statement Schedules                                   Page**
                                                                        ------
Valuation and Qualifying Accounts and Reserves for the years
   ended December 31, 1998, 1997 and 1996 (Schedule II).                  70

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

All other schedules are omitted because they are not applicable.


                                     - 57 -
<PAGE>   61

(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).
         
  *4.32     Form of Fifth Supplemental Indenture between the Company and The
            Bank of New York as Trustee regarding unsecured debt dated as of
            March 1, 1999. (Exhibit 4.7 to the Company's Registration Statement
            No. 333-72289 on Form S-3, File No. 1-4315).

  *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).


                                     - 58 -
<PAGE>   62

  *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.
            (Exhibit 10.3 to Form 10-K for the fiscal year ended December 31,
            1997, File No. 1-4315).

  *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.
            (Exhibit 10.13 to Form 10-K for the fiscal year ended December 31,
            1997, File No. 1-4315).

  *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).

  *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).


                                     - 59 -
<PAGE>   63

  +*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. (Exhibit 10.22 to Form 10-K for the fiscal year ended December
            31, 1997, File No. 1-4315).

  +*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. (Exhibit 10.22A to Form
            10-K for the fiscal year ended December 31, 1997, File No. 1-4315).

  +*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. (Exhibit
            10.26A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit
            10.27A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*10.29   Orange and Rockland Utilities, Inc. Deferred Compensation Plan for
            Non-Employee Directors as amended and restated on February 5, 1998.
            (Exhibit 10.29 to Form 10-K for the fiscal year ended December 31,
            1997, File No. 1-4315).

  +*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. (Exhibit
            10.30A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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).


                                     - 60 -
<PAGE>   64

  +*10.31A  Agreement between Orange and Rockland Utilities, Inc. and Nancy M.
            Jakobs effective July 1, 1997, amending Exhibit 10.31. (Exhibit
            10.31A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit 10.36A
            to Form 10-K for the fiscal year ended December 31, 1997, File No.
            1-4315).

  +*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).

  +*10.37A  Agreement between Orange and Rockland Utilities, Inc. and G. D.
            Caliendo dated July 23, 1997, amending Exhibit 10.37. (Exhibit
            10.37A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit 10.37B to Form 10-K for the fiscal year ended
            December 31, 1997, File No. 1-4315).

  +*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. (Exhibit 10.38A
            to Form 10-K for the fiscal year ended December 31, 1997, File No.
            1-4315).

  +*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. (Exhibit 10.38B to Form 10-K for the fiscal year ended
            December 31, 1997, File No. 1-4315).

  +*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).


                                     - 61 -
<PAGE>   65

  +*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. (Exhibit
            10.44A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit 10.49 to Form 10K for the fiscal year ended December
            31, 1997, File No. 1-4315).

  *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).

  *10.51    Agreement and Plan of Merger, dated as of May 10, 1998, among the
            Company, CEI and Merger Sub. (Exhibit 10.51 to Form 8-K dated May
            10, 1998, File No. 1-4315).


                                     - 62 -
<PAGE>   66

  +*10.52   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and G. D. Caliendo, dated May 10, 1998, providing
            for the termination of Mr. Caliendo's employment with the Company at
            the effective time of the Merger and the payment of certain amounts
            in accordance with the severance agreement between the Company and
            G. D. Caliendo dated January 21, 1996. (Exhibit 10.52 to Form 10-Q
            for the quarter ended March 31, 1998, File No. 1-4315).

  +*10.53   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and R. Lee Haney, dated May 10, 1998, providing
            for the termination of Mr. Haney's employment with the Company at
            the effective time of the Merger and the payment of certain amounts
            in accordance with the severance agreement between the Company and
            R. Lee Haney dated January 22, 1996. (Exhibit 10.53 to Form 10-Q for
            the quarter ended March 31, 1998, File No. 4315).

  +*10.54   Agreement among the Company, Consolidated Edison, Inc. C Acquisition
            Corp. and Robert McBennett, dated March 10, 1998, providing for the
            termination of Mr. McBennett's employment with the Company at the
            latter of the effective time of the Merger or July 1, 1999 and the
            payment of certain amounts in accordance with the severance
            agreement between the Company and Robert McBennett dated October 27,
            1997. (Exhibit 10.54 to Form 10-Q for the quarter ended March 31,
            1998, File No. 1-4315).

  +*10.55   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and D. Louis Peoples, dated May 10, 1998,
            providing for the termination of Mr. People's employment with the
            Company at the effective time of the Merger and the payment of
            certain amounts in accordance with the severance agreement between
            the Company and D. Louis Peoples dated January 22, 1996. (Exhibit
            10.55 to Form 10-Q for the quarter ended March 31, 1998, File No.
            1-4315).

  +*10.56   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and N. M. Jakobs dated July 15, 1998, providing
            for the termination of Ms. Jakobs employment with the Company at the
            effective time of the Merger and the payment of certain amounts in
            accordance with the severance agreement between the Company and N.
            M. Jakobs dated October 27, 1997 as amended January 8, 1998.
            (Exhibit 10.56 to Form 10-Q for the quarter ended June 30, 1998,
            File No. 1-4315).

  +*10.57   Severance Agreement entered into between Orange and Rockland
            Utilities, Inc. and G. V. Bubolo, Jr. effective April 10, 1998.
            (Exhibit 10.57 to Form 10-Q for the quarter ended June 30, 1998,
            File No. 1-4315).

  *10.58    Bowline Point Generating Station Sales Agreement by and between
            Orange and Rockland Utilities, Inc., Consolidated Edison Company of
            New York, Inc. and Southern Energy Bowline, L.L.C., dated as of
            November 24, 1998. (Exhibit 10.58 to Form 8-K dated November 24,
            1998, File No. 1-4315).

  *10.59    Lovett Generating Station Sales Agreement between Orange and
            Rockland Utilities, Inc. and Southern Energy Lovett, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.59 to Form 8-K dated November
            24, 1998, File No. 1-4315).


                                     - 63 -
<PAGE>   67

  *10.60    Gas Turbine and Hydroelectric Generating Stations Sales Agreement
            between Orange and Rockland Utilities, Inc. and Southern Energy
            NY-Gen, L.L.C., dated as of November 24, 1998. (Exhibit 10.60 to
            Form 8-K dated November 24, 1998, File No. 1-4315).

  *10.61    Bowline Adjacent Property Sales Agreement by and between Orange and
            Rockland Utilities, Inc. and Southern Energy Bowline, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.61 to Form 8-K dated November
            24, 1998, File No. 1-4315).

  *10.62    Transition Power Sales Agreement by and between Orange and Rockland
            Utilities, Inc., Southern Energy Bowline, L.L.C., Southern Energy
            Lovett, L.L.C. and Southern Energy NY - Gen., L.L.C., dated as of
            November 24, 1998. (Exhibit 10.62 to Form 8-K dated November 24,
            1998, File No. 1-4315).

  *10.63    Eastern Loan Pocket Call Option Agreement between Orange and
            Rockland Utilities, Inc. and Southern Energy Lovett, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.63 to Form 8-K dated November
            24, 1998, File No. 1-4315).

  *10.64    Western Loan Pocket Call Option Agreement between Orange and
            Rockland Utilities, Inc. and Southern Energy NY-Gen, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.64 to Form 8-K dated November
            24, 1998, File No. 1-4315).

  *10.65    Bowline Guaranty, dated as of November 24, 1998, given by Southern
            Energy, Inc. in favor of Orange and Rockland Utilities, Inc. and
            Consolidated Edison Company of New York, Inc. (Exhibit 10.65 to Form
            8-K dated November 24, 1998, File No. 1-4315).

  *10.66    Lovett, Gas Turbine and Hydroelectric Generating Facilities
            Guaranty, dated as of November 24, 1998, given by Southern Energy,
            Inc. in favor of Orange and Rockland Utilities, Inc. (Exhibit 10.66
            to Form 8-K dated November 24, 1998, File No. 1-4315).

  13        The Company's 1998 Annual Report to Shareholders to the extent
            incorporated by reference in this Form 10-K Annual Report for the
            fiscal year ended December 31, 1998. [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.

  *99       Press Release of the Company dated February 5, 1998. (Exhibit 99 to
            Form 8-K dated February 5, 1998, File No. 1-4315).

  *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).


                                     - 64 -
<PAGE>   68

  *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. (Exhibit
            99.3 to Form 10-K for the fiscal year ended December 31, 1997, File
            No. 1-4315).

  *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).

  *99.12    Press Release of the Company dated April 8, 1998. (Exhibit 99.12 to
            Form 8-K dated April 8, 1998, File No. 1-4315).

  *99.13    Joint Press Released the Company and CEI issued May 11, 1998.
            (Exhibit 99.13 to Form 8-K dated May 10, 1998, File No. 1-4315).

  *99.14    The Company's Final Divestiture Plan as approved by the NYPSC on
            April 8, 1998. (Exhibit 99.14 to Form 10-Q for the quarter ended
            March 31, 1998, File No. 1-4315).

  *99.14A   Press Release of the Company dated August 20, 1998. (Exhibit 99.14
            to Form 8-K dated August 20, 1998, File No. 1-4315).

  *99.15    Press Release of the Company dated August 20, 1998. (Exhibit 99.15
            to Form 8-K dated August 20, 1998, File No. 1-4315).

  *99.16    Orange and Rockland Utilities, Inc. Press Release issued November
            24, 1998. (Exhibit 99.16 to Form 8-K dated November 24, 1998, File
            No. 1-4315).

   99.18    Communication mailed on March 11, 1999 to Common Shareholders of
            the Company.

       +    Denotes executive compensation plans and arrangements.

       *    Incorporated by reference to the indicated filings.

The securities issued in connection with 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.

       -    Second Supplemental Indenture, dated October 1, 1998, 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.


                                     - 65 -
<PAGE>   69

       -    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.

       -    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, 1998, the Company filed
the following report on Form 8-K:

       -    Form 8-K dated November 24, 1998, reporting under Item 5, "Other
            Events," that the Company had signed definitive agreements with
            three subsidiaries of Southern Energy, Inc., an affiliate of
            Southern Company to sell its generating assets.


                                     - 66 -
<PAGE>   70

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

Date: March 22, 1999

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
      ------------------------------------  Officer, Director
      (D. Louis Peoples,                    
      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
      ------------------------------------  Board of Directors
      (Michael J. Del Giudice)              


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


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


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


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


                                     - 67 -
<PAGE>   71

      Signature and Title                   Capacity in Which Signing
      -------------------                   -------------------------


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


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


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


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

Date: March 22, 1999


                                     - 68 -
<PAGE>   72

                    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 4, 1999. 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 4, 1999

                   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 22, 1999


                                     - 69 -
<PAGE>   73

                                                                     SCHEDULE II

              ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
                 Valuation and Qualifying Accounts and Reserves
                  Years Ended December 31, 1998, 1997 and 1996
                             (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
       -----------             ---------   --------   --------   ----------   ------
<S>                              <C>        <C>         <C>       <C>         <C>   
December 31, 1998
  Allowance for Uncollect-
   ible accounts:
     Customer Accounts           $2,530     $4,001      $423      $3,268      $3,686
     Other Accounts                 258        465        75         513         285
                                 ------     ------      ----      ------      ------
                                 $2,788     $4,466      $498(A)   $3,781(B)   $3,971
                                 ======     ======      ====      ======      ======

  Reserve for Claims
   and Damages                   $4,591     $2,635      $187      $3,335(C)   $4,078
                                 ======     ======      ====      ======      ======

  Gas Turbine Maint.
   Reserve                       $ (104)    $  368      $ --      $  275(C)  $ (11)
                                 ======     ======      ====      ======      ======

December 31, 1997
  Allowance for Uncollect-
   ible accounts:
     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)
                                 ======     ======      ====      ======      ======
</TABLE>

(Schedule II continued on next page)


                                     - 70 -
<PAGE>   74

                                                                     SCHEDULE II

              ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
                 Valuation and Qualifying Accounts and Reserves
                  Years Ended December 31, 1998, 1997 and 1996
                             (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
       -----------             ---------   --------   --------   ----------   ------
<S>                              <C>        <C>         <C>       <C>         <C>   
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>

(A)   Includes collection of accounts previously written off of $498 in 1998,
      $579 in 1997, and $813 in 1996.
(B)   Accounts considered uncollectible and charged off of $3,781 in 1998,
      $3,658 in 1997 and $3,416 in 1996.
(C)   Payments of damage claims of $2,635 in 1998, $1,667 in 1997 and $2,250 in
      1996 and maintenance expenses of $275 in 1998, $382 in 1997 and $339 in
      1996.


                                     - 71 -
<PAGE>   75

                       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, 1998             Commission File Number 1-4315

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

                                    EXHIBITS
<PAGE>   76

                       Orange and Rockland Utilities, Inc.
                                Index of Exhibits
                                 1998 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).
         
  *4.32     Form of Fifth Supplemental Indenture between the Company and The
            Bank of New York as Trustee regarding unsecured debt dated as of
            March 1, 1999. (Exhibit 4.7 to the Company's Registration Statement
            No. 333-72289 on Form S-3, File No. 1-4315).

  *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).
<PAGE>   77

  *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.
            (Exhibit 10.3 to Form 10-K for the fiscal year ended December 31,
            1997, File No. 1-4315).

  *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.
            (Exhibit 10.13 to Form 10-K for the fiscal year ended December 31,
            1997, File No. 1-4315).

  *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).

  *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).
<PAGE>   78

  +*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. (Exhibit 10.22 to Form 10-K for the fiscal year ended December
            31, 1997, File No. 1-4315).

  +*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. (Exhibit 10.22A to Form
            10-K for the fiscal year ended December 31, 1997, File No. 1-4315).

  +*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. (Exhibit
            10.26A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit
            10.27A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*10.29   Orange and Rockland Utilities, Inc. Deferred Compensation Plan for
            Non-Employee Directors as amended and restated on February 5, 1998.
            (Exhibit 10.29 to Form 10-K for the fiscal year ended December 31,
            1997, File No. 1-4315).

  +*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. (Exhibit
            10.30A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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).
<PAGE>   79

  +*10.31A  Agreement between Orange and Rockland Utilities, Inc. and Nancy M.
            Jakobs effective July 1, 1997, amending Exhibit 10.31. (Exhibit
            10.31A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit 10.36A
            to Form 10-K for the fiscal year ended December 31, 1997, File No.
            1-4315).

 +*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).

  +*10.37A  Agreement between Orange and Rockland Utilities, Inc. and G. D.
            Caliendo dated July 23, 1997, amending Exhibit 10.37. (Exhibit
            10.37A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit 10.37B to Form 10-K for the fiscal year ended
            December 31, 1997, File No. 1-4315).

  +*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. (Exhibit 10.38A
            to Form 10-K for the fiscal year ended December 31, 1997, File No.
            1-4315).

  +*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. (Exhibit 10.38B to Form 10-K for the fiscal year ended
            December 31, 1997, File No. 1-4315).

  +*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).
<PAGE>   80

  +*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. (Exhibit
            10.44A to Form 10-K for the fiscal year ended December 31, 1997,
            File No. 1-4315).

  +*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. (Exhibit 10.49 to Form 10K for the fiscal year ended December
            31, 1997, File No. 1-4315).

  *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).

  *10.51    Agreement and Plan of Merger, dated as of May 10, 1998, among the
            Company, CEI and Merger Sub. (Exhibit 10.51 to Form 8-K dated May
            10, 1998, File No. 1-4315).
<PAGE>   81

  +*10.52   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and G. D. Caliendo, dated May 10, 1998, providing
            for the termination of Mr. Caliendo's employment with the Company at
            the effective time of the Merger and the payment of certain amounts
            in accordance with the severance agreement between the Company and
            G. D. Caliendo dated January 21, 1996. (Exhibit 10.52 to Form 10-Q
            for the quarter ended March 31, 1998, File No. 1-4315).

  +*10.53   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and R. Lee Haney, dated May 10, 1998, providing
            for the termination of Mr. Haney's employment with the Company at
            the effective time of the Merger and the payment of certain amounts
            in accordance with the severance agreement between the Company and
            R. Lee Haney dated January 22, 1996. (Exhibit 10.53 to Form 10-Q for
            the quarter ended March 31, 1998, File No. 4315).

  +*10.54   Agreement among the Company, Consolidated Edison, Inc. C Acquisition
            Corp. and Robert McBennett, dated March 10, 1998, providing for the
            termination of Mr. McBennett's employment with the Company at the
            latter of the effective time of the Merger or July 1, 1999 and the
            payment of certain amounts in accordance with the severance
            agreement between the Company and Robert McBennett dated October 27,
            1997. (Exhibit 10.54 to Form 10-Q for the quarter ended March 31,
            1998, File No. 1-4315).

  +*10.55   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and D. Louis Peoples, dated May 10, 1998,
            providing for the termination of Mr. People's employment with the
            Company at the effective time of the Merger and the payment of
            certain amounts in accordance with the severance agreement between
            the Company and D. Louis Peoples dated January 22, 1996. (Exhibit
            10.55 to Form 10-Q for the quarter ended March 31, 1998, File No.
            1-4315).

  +*10.56   Agreement among the Company, Consolidated Edison, Inc., C
            Acquisition Corp. and N. M. Jakobs dated July 15, 1998, providing
            for the termination of Ms. Jakobs employment with the Company at the
            effective time of the Merger and the payment of certain amounts in
            accordance with the severance agreement between the Company and N.
            M. Jakobs dated October 27, 1997 as amended January 8, 1998.
            (Exhibit 10.56 to Form 10-Q for the quarter ended June 30, 1998,
            File No. 1-4315).

  +*10.57   Severance Agreement entered into between Orange and Rockland
            Utilities, Inc. and G. V. Bubolo, Jr. effective April 10, 1998.
            (Exhibit 10.57 to Form 10-Q for the quarter ended June 30, 1998,
            File No. 1-4315).

  *10.58    Bowline Point Generating Station Sales Agreement by and between
            Orange and Rockland Utilities, Inc., Consolidated Edison Company of
            New York, Inc. and Southern Energy Bowline, L.L.C., dated as of
            November 24, 1998. (Exhibit 10.58 to Form 8-K dated November 24,
            1998, File No. 1-4315).

  *10.59    Lovett Generating Station Sales Agreement between Orange and
            Rockland Utilities, Inc. and Southern Energy Lovett, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.59 to Form 8-K dated November
            24, 1998, File No. 1-4315).
<PAGE>   82

  *10.60    Gas Turbine and Hydroelectric Generating Stations Sales Agreement
            between Orange and Rockland Utilities, Inc. and Southern Energy
            NY-Gen, L.L.C., dated as of November 24, 1998. (Exhibit 10.60 to
            Form 8-K dated November 24, 1998, File No. 1-4315).

  *10.61    Bowline Adjacent Property Sales Agreement by and between Orange and
            Rockland Utilities, Inc. and Southern Energy Bowline, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.61 to Form 8-K dated November
            24, 1998, File No. 1-4315).

  *10.62    Transition Power Sales Agreement by and between Orange and Rockland
            Utilities, Inc., Southern Energy Bowline, L.L.C., Southern Energy
            Lovett, L.L.C. and Southern Energy NY - Gen., L.L.C., dated as of
            November 24, 1998. (Exhibit 10.62 to Form 8-K dated November 24,
            1998, File No. 1-4315).

  *10.63    Eastern Loan Pocket Call Option Agreement between Orange and
            Rockland Utilities, Inc. and Southern Energy Lovett, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.63 to Form 8-K dated November
            24, 1998, File No. 1-4315).

  *10.64    Western Loan Pocket Call Option Agreement between Orange and
            Rockland Utilities, Inc. and Southern Energy NY-Gen, L.L.C., dated
            as of November 24, 1998. (Exhibit 10.64 to Form 8-K dated November
            24, 1998, File No. 1-4315).

  *10.65    Bowline Guaranty, dated as of November 24, 1998, given by Southern
            Energy, Inc. in favor of Orange and Rockland Utilities, Inc. and
            Consolidated Edison Company of New York, Inc. (Exhibit 10.65 to Form
            8-K dated November 24, 1998, File No. 1-4315).

  *10.66    Lovett, Gas Turbine and Hydroelectric Generating Facilities
            Guaranty, dated as of November 24, 1998, given by Southern Energy,
            Inc. in favor of Orange and Rockland Utilities, Inc. (Exhibit 10.66
            to Form 8-K dated November 24, 1998, File No. 1-4315).

  13        The Company's 1998 Annual Report to Shareholders to the extent
            incorporated by reference in this Form 10-K Annual Report for the
            fiscal year ended December 31, 1998. [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.

  *99       Press Release of the Company dated February 5, 1998. (Exhibit 99 to
            Form 8-K dated February 5, 1998, File No. 1-4315).

  *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).
<PAGE>   83

  *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. (Exhibit
            99.3 to Form 10-K for the fiscal year ended December 31, 1997, File
            No. 1-4315).

  *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).

  *99.12    Press Release of the Company dated April 8, 1998. (Exhibit 99.12 to
            Form 8-K dated April 8, 1998, File No. 1-4315).

  *99.13    Joint Press Released the Company and CEI issued May 11, 1998.
            (Exhibit 99.13 to Form 8-K dated May 10, 1998, File No. 1-4315).

  *99.14    The Company's Final Divestiture Plan as approved by the NYPSC on
            April 8, 1998. (Exhibit 99.14 to Form 10-Q for the quarter ended
            March 31, 1998, File No. 1-4315).

  *99.14A   Press Release of the Company dated August 20, 1998. (Exhibit 99.14
            to Form 8-K dated August 20, 1998, File No. 1-4315).

  *99.15    Press Release of the Company dated August 20, 1998. (Exhibit 99.15
            to Form 8-K dated August 20, 1998, File No. 1-4315).

  *99.16    Orange and Rockland Utilities, Inc. Press Release issued November
            24, 1998. (Exhibit 99.16 to Form 8-K dated November 24, 1998, File
            No. 1-4315).

   99.18    Communication mailed on March 11, 1999 to Common Shareholders of
            the Company.

       +    Denotes executive compensation plans and arrangements.

       *    Incorporated by reference to the indicated filings.

The securities issued in connection with 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.

       -    Second Supplemental Indenture, dated October 1, 1998, 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.
<PAGE>   84

       -    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.

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