SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 30, 1994
For the quarterly period ended. . . . . . . .. . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . .to. . . . . . . . .
1-3103-2
Commission file number. . . . . . . . . . . .. . . . . . . . . .
New York State Electric & Gas Corporation
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Exact name of registrant as specified in its charter)
New York 15-0398550
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 3287, Ithaca, New York 14852-3287
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Address of principal executive offices) (Zip Code)
607 347-4131
Registrant's telephone number, including area code . . . . . . .
N/A
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Former name, former address and former fiscal year, if changed
since last report.
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 [ ]
The number of shares of common stock (par value $6.66 2/3
per share) outstanding as of October 31, 1994 was 71,502,827.
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Financial Statements . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(a) Results of Operations . . . . . . . . . . 9
(b) Liquidity and Capital Resources . . . . . 13
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 20
(b) Reports on Form 8-K . . . . . . . . . . . 20
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 22
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
New York State Electric & Gas Corporation
Consolidated Statements of Income - (Unaudited)
(Thousands, except per share amounts)
Periods Ended September 30 Three Months Nine Months
1994 1993 1994 1993
Operating Revenues
Electric . . . . . . . . . . . . . . $408,805 $371,303 $1,174,224 $1,124,537
Natural gas. . . . . . . . . . . . . 23,646 25,107 212,033 182,857
------- ------- --------- ---------
Total Operating Revenues. . . . 432,451 396,410 1,386,257 1,307,394
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 59,500 63,944 176,720 184,124
Electricity purchased. . . . . . . . 72,675 36,988 167,996 118,554
Natural gas purchased. . . . . . . . 10,842 9,524 118,972 95,242
Other operating expenses . . . . . . 82,918 81,102 240,617 245,642
Maintenance. . . . . . . . . . . . . 27,107 27,205 79,714 81,274
Depreciation and amortization. . . . 43,961 41,413 131,015 122,728
Federal income taxes . . . . . . . . 21,438 20,763 81,926 75,461
Other taxes. . . . . . . . . . . . . 50,659 49,363 158,172 151,719
------- ------- --------- ---------
Total Operating Expenses. . . . 369,100 330,302 1,155,132 1,074,744
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 63,351 66,108 231,125 232,650
Other Income and Deductions . . . . . 728 1,417 713 1,546
------- ------- --------- ---------
Income Before Interest Charges. . . . 64,079 67,525 231,838 234,196
------- ------- --------- ---------
Interest Charges
Interest on long-term debt . . . . . 30,221 33,365 96,402 101,632
Other interest . . . . . . . . . . . 3,418 2,703 9,283 8,157
Allowance for borrowed funds
used during construction . . . . . (513) (1,084) (1,888) (3,673)
------- ------- --------- ---------
Interest Charges - Net. . . . . 33,126 34,984 103,797 106,116
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 30,953 32,541 128,041 128,080
Preferred Stock Dividends . . . . . . 4,702 5,201 14,211 15,603
------- ------- --------- ---------
Earnings Available for Common Stock . $26,251 $27,340 $113,830 $112,477
======= ======= ========= =========
Earnings Per Share. . . . . . . . . . $.37 $.39 $1.60 $1.61
Dividends Per Share . . . . . . . . . $.55 $.55 $1.65 $1.63
Average Shares Outstanding. . . . . . 71,490 70,119 71,171 69,841
The notes on pages 6 through 8 are an integral part of the financial
statements.
<PAGE>
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
(Thousands)
Sept. 30, Dec. 31,
1994 1993
Assets
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . .$4,876,276 $4,777,368
Natural gas. . . . . . . . . . . . . . . . . . . . . . 402,624 381,389
Common . . . . . . . . . . . . . . . . . . . . . . . . 142,768 158,986
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,421,668 5,317,743
Less accumulated depreciation. . . . . . . . . . . . . 1,625,433 1,535,307
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 3,796,235 3,782,436
Construction work in progress. . . . . . . . . . . . . 161,964 143,859
---------- ----------
Total Utility Plant. . . . . . . . . . . . . . . . . 3,958,199 3,926,295
Other Property and Investments, net . . . . . . . . . . 102,827 73,537
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . 8,644 4,264
Special deposits . . . . . . . . . . . . . . . . . . . 14,185 145,335
Accounts receivable, net . . . . . . . . . . . . . . . 132,816 181,586
Fuel, at average cost. . . . . . . . . . . . . . . . . 50,676 54,791
Materials and supplies, at average cost. . . . . . . . 48,321 48,910
Prepayments. . . . . . . . . . . . . . . . . . . . . . 18,761 30,092
Accumulated deferred federal income
tax benefits. . . . . . . . . . . . . . . . . . . . 23,183 -
---------- ----------
Total Current Assets . . . . . . . . . . . . . . . . 296,586 464,978
Deferred Charges
Unfunded future federal income taxes . . . . . . . . . 376,465 380,056
Unamortized debt expense . . . . . . . . . . . . . . . 115,021 112,059
Demand-side management program costs . . . . . . . . . 70,425 73,113
Other. . . . . . . . . . . . . . . . . . . . . . . . . 247,066 257,920
---------- ----------
Total Deferred Charges . . . . . . . . . . . . . . . 808,977 823,148
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . .$5,166,589 $5,287,958
========== ==========
The notes on pages 6 through 8 are an integral part of the financial
statements.
<PAGE>
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
(Thousands)
Sept. 30, Dec. 31,
1994 1993
Capitalization and Liabilities
Capitalization
Common stock equity
Common stock . . . . . . . . . . . . . . . . . . $476,686 $470,640
Capital in excess of par value. . . . . . . . . . 841,599 824,943
Retained earnings . . . . . . . . . . . . . . . . 316,705 320,114
---------- ----------
Total common stock equity. . . . . . . . . . . . . . . 1,634,990 1,615,697
Preferred stock redeemable solely at the
option of the Company . . . . . . . . . . . . . . . 140,500 140,500
Preferred stock subject to mandatory
redemption requirements . . . . . . . . . . . . . . 125,000 125,000
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,573,450 1,630,629
---------- ----------
Total Capitalization. . . . . . . . . . . . . . . 3,473,940 3,511,826
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . 117,205 237,709
Current portion of preferred stock . . . . . . . . . . - 95,000
Notes payable. . . . . . . . . . . . . . . . . . . . . 134,500 50,200
Accounts payable and accrued liabilities . . . . . . . 87,541 111,481
Interest accrued . . . . . . . . . . . . . . . . . . . 38,818 31,348
Accumulated deferred federal income taxes. . . . . . . - 1,132
Other. . . . . . . . . . . . . . . . . . . . . . . . . 102,755 89,443
---------- ----------
Total Current Liabilities . . . . . . . . . . . . 480,819 616,313
Deferred Credits and Other Liabilities
Accumulated deferred investment tax credit . . . . . . 134,067 138,478
Excess deferred federal income taxes . . . . . . . . . 34,161 36,378
Other postretirement benefits. . . . . . . . . . . . . 49,713 28,074
Other. . . . . . . . . . . . . . . . . . . . . . . . . 139,663 133,488
---------- ----------
Total Deferred Credits and Other Liabilities. . . 357,604 336,418
Accumulated Deferred Federal Income Taxes
Unfunded future federal income taxes . . . . . . . . . 376,465 380,056
Other. . . . . . . . . . . . . . . . . . . . . . . . . 449,971 416,545
---------- ----------
Total Accumulated Deferred Federal
Income Taxes . . . . . . . . . . . . . . . . . . 826,436 796,601
Commitments and Contingencies (Note 3)
Liability for environmental restoration. . . . . . . . 27,790 26,800
---------- ----------
Total Capitalization and Liabilities. . . . . . .$5,166,589 $5,287,958
========== ==========
The notes on pages 6 through 8 are an integral part of the financial
statements.
<PAGE>
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Cash Flows - (Unaudited)
(Thousands)
Periods Ended September 30 Nine Months
1994 1993
Operating Activities
Net Income . . . . . . . . . . . . . . . . . . . . $128,041 $128,080
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . 131,015 122,728
Deferred fuel and purchased gas. . . . . . . . . (1,510) (11,891)
Federal income taxes and investment tax credits
deferred - net . . . . . . . . . . . . . . . . (6,092) 27,364
Unbilled revenue amortization. . . . . . . . . . (3,358) (4,313)
Changes in current operating assets and liabilities:
Special deposits . . . . . . . . . . . . . . . . 36,150 (1,045)
Accounts receivable excluding accounts
receivable sold. . . . . . . . . . . . . . . . 48,770 31,664
Accounts receivable sold . . . . . . . . . . . . - 13,800
Prepayments. . . . . . . . . . . . . . . . . . . 11,331 4,745
Inventory. . . . . . . . . . . . . . . . . . . . 4,704 11,319
Accounts payable and accrued liabilities . . . . (23,940) (11,318)
Taxes accrued. . . . . . . . . . . . . . . . . . 12,510 13,670
Other-net . . . . . . . . . . . . . . . . . . . . 20,071 (537)
------- -------
Net Cash Provided by Operating Activities . . . 357,692 324,266
------- -------
Investing Activities
Utility plant construction expenditures,
net of allowance for other funds
used during construction . . . . . . . . . . . . (174,449) (191,594)
Proceeds received from governmental and
other sources . . . . . . . . . . . . . . . . . 18,928 7,388
Expenditures for other property and investments. . (32,904) (11,461)
Funds restricted for construction expenditures . . 33,960 -
------- -------
Net Cash Used in Investing Activities . . . . . (154,465) (195,667)
------- -------
Financing Activities
Issuance of pollution control notes and
first mortgage bonds. . . . . . . . . . . . . . 201,000 147,362
Sale of common stock . . . . . . . . . . . . . . . 23,407 27,837
Pollution control notes, first mortgage bonds
and preferred stock repayments,
including premiums. . . . . . . . . . . . . . . (419,000) (266,810)
Revolving credit agreement repayment . . . . . . . (50,000) -
Changes in funds set aside for preferred stock
and first mortgage bond repayments. . . . . . . 95,000 86,096
Long-term notes - net. . . . . . . . . . . . . . . (1,605) 8,693
Notes payable - net. . . . . . . . . . . . . . . . 84,300 8,000
Dividends on common and preferred stock. . . . . . (131,949) (129,263)
------- -------
Net Cash Used in Financing Activities . . . . . (198,847) (118,085)
------- -------
Net Increase in Cash and Cash Equivalents . . . . . 4,380 10,514
Cash and Cash Equivalents, Beginning of Period. . . 4,264 3,968
------- -------
Cash and Cash Equivalents, End of Period. . . . . . $8,644 $14,482
======= =======
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $88,228 $95,200
Income taxes. . . . . . . . . . . . . . . . . . . $52,700 $21,435
The notes on pages 6 through 8 are an integral part of the financial
statements.
4
<PAGE>
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Retained Earnings - (Unaudited)
(Thousands)
Periods ended September 30 Nine Months
1994 1993
Balance, beginning of period. . . . . . . . . . $320,114 $327,040
Add net income. . . . . . . . . . . . . . . . . 128,041 128,080
-------- --------
448,155 455,120
Deduct dividends on capital stock:
Preferred. . . . . . . . . . . . . . . . . . . 14,211 15,603
Common . . . . . . . . . . . . . . . . . . . . 117,239 113,660
-------- --------
131,450 129,263
-------- --------
Balance, end of period. . . . . . . . . . . . . $316,705 $325,857
======== ========
The notes on pages 6 through 8 are an integral part of the financial
statements.
<PAGE>
Item 1. Financial Statements (Cont'd)
Note 1. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of New York State Electric &
Gas Corporation's (Company) consolidated results for the interim
periods. All such adjustments are of a normal recurring nature.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
contained in the Company's annual report for the year ended
December 31, 1993. Due to the seasonal nature of the Company's
operations, financial results for interim periods are not neces-
sarily indicative of trends for a twelve-month period.
Note 2. Reclassification
Certain amounts have been reclassified on the consolidated
financial statements to conform to the 1994 presentation.
Note 3. Contingencies
Environmental Matters
The Company continually assesses actions that may need to be
taken to ensure compliance with changing environmental laws and
regulations. Compliance programs will increase the cost of
electric and natural gas service by requiring changes to the
Company's operations and facilities. Historically, rate recovery
has been authorized for the cost incurred for compliance with
environmental laws and regulations.
Due to existing and proposed legislation and regulations,
and legal proceedings commenced by governmental bodies and
others, the Company may also incur costs from the past disposal
of hazardous substances produced during the Company's operations
or those of its predecessors. The Company has been notified by
the U.S. Environmental Protection Agency (EPA) and the New York
State Department of Environmental Conservation (NYSDEC) that the
Company is among the potentially responsible parties (PRPs) who
may be liable to pay for costs incurred to remediate certain
hazardous substances at eight waste sites, not including the
Company's inactive gas manufacturing sites, which are discussed
below. With respect to the eight sites, five sites are included
in the New York State Registry of Inactive Hazardous Waste Sites
(New York State Registry), and one site is included on both the
National Priorities list and the New York State Registry.
Any liability may be joint and several for certain of these
sites. The ultimate cost to remediate these sites will be
dependent on such factors as the remedial action plan selected,
the extent of site contamination, and the portion attributed to
the Company. The Company has recorded a liability related to
four of these eight sites, which is reflected in the Company's
Consolidated Balance Sheets at September 30, 1994 and December
31, 1993, in the amount of $1.1 million and $1.8 million,
respectively. The Company has notified the EPA and the NYSDEC,
as appropriate, that it believes it has no responsibility at
three sites and has already incurred expenditures related to the
remediation at the remaining site. A deferred asset has also
been recorded in the amount of $2.0 million, of which $.9 million
relates to costs that have already been incurred. The Company
believes it will recover these costs, since the Public Service
Commission of the State of New York (PSC) has allowed other
utilities to recover these types of remediation costs and has
allowed the Company to recover similar costs in rates, such as
investigation and cleanup costs relating to inactive gas
manufacturing sites. The estimated liability of $1.1 million was
derived by multiplying the total estimated cost to clean up a
particular site by the related Company contribution factor.
Estimates of the total cleanup costs were determined by using
information related to a particular site, such as investigations
performed to date at a site or from the data released by a
regulatory agency. In addition, this estimate was based upon
currently available facts, existing technology, and presently
enacted laws and regulations. The contribution factor is
calculated using either the Company's percentage share of the
total PRPs named, which assumes all PRPs will contribute equally,
or the Company's estimated percentage share of the total
hazardous wastes disposed of at a particular site, or by using a
1% contribution factor for those sites at which it believes that
it has contributed a minimal amount of hazardous wastes. The
Company has notified its former and current insurance carriers
that it seeks to recover from them certain of these cleanup
costs. However, the Company is unable to predict the amount of
insurance recoveries, if any, that it may obtain.
A number of the Company's inactive gas manufacturing sites
have been listed in the New York State Registry. In late March
1994, the Company entered into an Order on Consent with the
NYSDEC requiring the Company to investigate and, where necessary,
remediate 33 of the Company's 38 known inactive gas manufacturing
sites. The schedule for investigating and remediating these 33
sites will be determined through further negotiations with the
NYSDEC. The Company has a program to investigate and initiate
remediation at its 38 known inactive gas manufacturing sites
through the year 2000. Expenditures over this time period are
estimated at $26.7 million, including the impact of the Order on
Consent. This estimate was determined by using the Company's
experience and knowledge related to these sites as a result of
the investigation and remediation that the Company has performed
to date. It is based upon currently available facts, existing
technology, and presently enacted laws and regulations. This
liability to investigate and initiate remediation, as necessary,
at the known inactive gas manufacturing sites is reflected in the
Company's Consolidated Balance Sheets at September 30, 1994, and
December 31, 1993, in the amount of $26.7 million and $25
million, respectively. The Company also has recorded a
corresponding deferred asset, since it expects to recover such
expenditures in rates, as the Company has previously been allowed
by the PSC to recover such costs in rates. The Company has
notified its former and current insurance carriers that it seeks
to recover from them certain of these cleanup costs. However,
the Company is unable to predict the amount of insurance
recoveries, if any, that it may obtain.
Note 4. Restructuring
In the fourth quarter of 1993, the Company recorded a $26
million restructuring charge. The corporate restructuring
reorganized the way the Company delivers services to its electric
and natural gas customers beginning in March 1994. The
restructuring reduced 1993 earnings available for common stock by
approximately $17.2 million or 25 cents per share.
During the first quarter of 1994, the restructuring resulted
in a work force reduction totaling 642 persons throughout the
organization, the elimination of customer walk-in services at 28
locations, and the closing of seven electric and natural gas
operations facilities. The closing of additional electric and
natural gas operations facilities will continue to be evaluated.
The work force reduction of 642 employees, which was greater
than the Company's target of 600, was accomplished through a
voluntary early retirement program and an involuntary severance
program. Of the 642 employees, 384 employees accepted the early
retirement program and 258 employees were involuntarily severed.
The Company estimates the savings, excluding fringe benefits,
related to the work force reduction to be approximately $31.5
million, on an annual basis. As the work force decreased, the
Company experienced savings in line with this estimate for the
first, second, and third quarters of 1994. Most of these savings
were used to minimize the Company's price increases in the three-
year rate settlement agreement (See Form 10-K for fiscal year
ended December 31, 1993, Item 1., Rates and regulatory matters-
Rate Matters).
<PAGE>
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Results of Operations
Three months ended September 30, 1994 compared with three months
ended September 30, 1993:
1994 1993 % Change
(Thousands, except Per Share Amounts)
Operating revenues $432,451 $396,410 9%
Earnings available for
common stock $26,251 $27,340 (4%)
Average shares outstanding 71,490 70,119 2%
Earnings per share $.37 $.39 (5%)
Dividends per share $.55 $.55 -%
Operating revenues increased by $36 million, or 9%, for the
third quarter of 1994 compared to the third quarter of 1993 due
to the following items:
Electric Gas Total
(Millions)
Rate Increases $23 $23
Retail sales 10 (2) 8
Recovery of increases in
non-utility generator
(NUG) power through the
fuel adjustment clause 8 8
Natural gas price increases 1 1
Demand-side management(DSM)
incentives (8) (8)
Other 4 4
---- ---- ----
Total Increase $37 (1) $36
==== ==== ====
Earnings per share decreased 2 cents, or 5%, for the third
quarter of this year because of the decrease of $8 million in the
demand-side management (DSM) incentives earned this year, which
reduced earnings 8 cents per share. This decrease was offset by
lower maintenance costs of 3 cents per share, primarily the
result of cost controls and the work force reduction program, and
3 cents per share from higher interchange sales profit and fuel
supply incentives.
<PAGE>
Nine months ended September 30, 1994 compared with nine months
ended September 30, 1993:
1994 1993 % Change
(Thousands, except Per Share Amounts)
Operating revenues $1,386,257 $1,307,394 6%
Earnings available for
common stock $113,830 $112,477 1%
Average shares outstanding 71,171 69,841 2%
Earnings per share $1.60 $1.61 (1%)
Dividends per share $1.65 $1.63 1%
Operating revenues for the first nine months of 1994
increased $79 million, or 6%, compared to the same period last
year due to the following items:
Electric Gas Total
(Millions)
Rate Increases $44 6 $50
Retail sales 23 11 34
Recovery of increases in
non-utility generator
(NUG) power through the
fuel adjustment clause 11 11
Natural gas price increases 14 14
Demand-side management(DSM)
incentives (14) (14)
Production cost penalty (13) (13)
Other ( 1) (2) ( 3)
---- ---- ----
Total Increase $50 $29 $79
==== ==== ====
Earnings per share decreased 1 cent, or 1%, for the first
nine months of this year as compared to last year. The
production cost penalty for 1993 which was recorded in the second
quarter of 1994 decreased earnings this year by 12 cents per
share. A reduction in the amount of DSM incentives earned this
year decreased earnings by 14 cents per share. Those decreases
were partially offset by electric retail sales that on a
comparative basis, increased earnings by 10 cents per share. The
10 cent per share increase is because last year, electric sales
were below the levels forecasted in the Company's rate case.
Because the Company has a modified revenue decoupling mechanism
(RDM) this year (See Form 10-K for fiscal year ended December 31,
1993, Item 1., Rates and regulatory matters-Rate Matters) most of
the differences between forecasted and actual sales do not affect
earnings. In addition, lower maintenance and customer service
costs, primarily the result of cost controls and the work force
reduction program, increased 1994 earnings by 12 cents per share.
The Company does not expect to earn its allowed return on
common equity in 1994, primarily as a result of the 1993
production cost penalty and the short-term impact of its start-up
diversification efforts (See (b) Liquidity and Capital Resources-
Diversification).
Operating Results by Business Unit
Electric Three Months ended September 30,
1994 1993 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 3,216,385 3,119,627 3%
Operating revenues $408,805 $371,303 10%
Operating expenses $340,427 $302,313 13%
Electric retail sales increased 3% for the three months
ended September 30, 1994 as a result of higher sales to weather-
sensitive customers early in the quarter.
Electric operating revenues increased $37 million, or 10%,
for the third quarter of 1994 (see the table on page 9 for the
reasons for the increase).
Electric operating expenses for the quarter ended September
30, 1994 increased $38 million, or 13%, compared to the same
quarter last year. The total cost of electricity purchased
increased $36 million primarily due to purchases from NUGs. In
addition, depreciation increased $2 million and postretirement
benefits other than pensions and data processing expenses
increased administrative and general costs $3 million. Those
increases were partially offset by a $4 million decrease in fuel
used in electric generation. Also, cost controls and savings
related to the work force reduction program reduced operating
expenses.
Nine Months ended September 30,
1994 1993 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 9,950,630 9,721,676 2%
Operating revenues $1,174,224 $1,124,537 4%
Operating expenses $961,316 $907,050 6%
Electric retail sales increased 2% for the first nine months
of 1994 compared to the first nine months of 1993 primarily as a
result of the colder weather during the first quarter of this
year.<PAGE>
Electric operating revenues increased $50 million, or 4%,
for the nine months ended September 30, 1994 (see table on page
10 for the reasons for the increase).
An increase of $54 million, or 6%, in electric operating
expenses for the nine months is primarily attributable to an
increase of $49 million in electricity purchased, primarily due
to purchases from NUGs and an increase of $8 million in
depreciation. In addition, federal income taxes increased $5
million, the result of higher pre-tax book income, and gross
receipts taxes and local taxes increased $6 million. Those
increases in operating expenses were partially offset by
decreases of $7 million in fuel used in electric generation and
$6 million in customer service expenses. The decrease in
customer service expenses is substantially due to a reduction in
the amortization of DSM program costs. Savings related to cost
controls and the work force reduction also reduced operating
expenses.
Natural Gas Three Months ended September 30,
1994 1993 % Change
(Thousands)
Deliveries-
dekatherms(dth) 6,582 6,279 5%
Retail sales-(dth) 2,563 2,762 (7%)
Operating revenues $23,646 $25,107 (6%)
Operating expenses $28,673 $27,989 2%
Natural gas operating revenues declined $1 million, or 6%,
for the quarter ended September 30, 1994, compared to the same
quarter in 1993 (see table on page 9 for the reasons for the
decrease).
The increase in natural gas operating expenses of almost $1
million, or 2%, is primarily due to higher prices for natural
gas purchased.
<PAGE>
Nine Months ended September 30,
1994 1993 % Change
(Thousands)
Deliveries-
dekatherms(dth) 42,090 40,308 4%
Retail sales-(dth) 28,240 26,446 7%
Operating revenues $212,033 $182,857 16%
Operating expenses $193,816 $167,694 16%
Natural gas deliveries increased 4% and natural gas retail
sales increased 7% for the first nine months of 1994 compared to
the first nine months of 1993. The 1994 increase in deliveries,
as well as in retail sales, was largely because of the colder
weather in the first quarter of this year.
Natural gas operating revenues rose $29 million, or 16%, for
the nine months ended September 30, 1994 (see table on page 10
for the reasons for the increase).
The increase in natural gas operating expenses of $26
million, or 16%, is primarily due to an increase in natural gas
purchased of $24 million, which is attributable to higher prices
for natural gas purchased and an increase in the volume of
natural gas sold. Higher federal income taxes, the result of
higher pre-tax book income, increased operating expenses by $2
million.
(b) Liquidity and Capital Resources (See Item 1. Financial
Statements- Note 4. Restructuring)
Regulatory Matters
Rate Matters (See Form 10-K for fiscal year ended December 31,
1993, Item 1., Rates and regulatory matters-Rate Matters.)
On May 1, 1994, the Company filed with the PSC for
adjustments to the second year electric and natural gas rates in
accordance with the terms of the three-year rate settlement
agreement (Agreement)(See Form 10-Q for quarter ended March 31,
1994, Item 2., Regulatory Matters - Rate Matters). On June 14,
1994, the Company revised its filing to include updated estimates
of revenues, costs, and incentives for the first rate year. In
addition, the Company took certain voluntary actions to lower the
estimated total electric price increase to 7.8% and the natural
gas base rate increase to 1.9%. On August 15, 1994, the PSC
issued an Opinion and Order that approved those increases, which
were effective August 1, 1994. In addition, the PSC directed the
Company and staff of the PSC to begin discussions regarding
modification of the Agreement to mitigate the projected third-
year increase and bring rate predictability and stability to
future years. Those discussions began in October 1994.
The total electric price increase effective August 1, 1994,
was primarily due to increases in mandated purchases of
electricity from NUGs, increases in taxes, and sales shortfalls
related to mandated conservation programs and the weak economy in
New York State. Actual fuel, purchased power, and other costs
recovered through the fuel adjustment clause could vary from
estimates causing the total electric price increase to change.
The natural gas base rate increase of 1.9% does not include
changes in the cost of natural gas from suppliers, which are
collected through the gas adjustment clause.
The Agreement provides incentives (rewards or penalties) to
the Company for controlling production costs, improving customer
service, and DSM programs. Those incentives could increase the
Company's allowed return to 12.3% or decrease it to 9.95% in year
one, increase it to 13.05% or decrease it to 10.4% in year two,
and increase it to 13.25% or decrease it to 10.2% in year three.
In June 1994, the Company estimated and recorded a $13 million,
or 12 cents per share, production cost penalty for 1993, which is
the maximum provided by the Agreement. The Company recorded a
$.8 million customer service penalty for the first rate year and
through the first nine months of this year, the Company recorded
$1.4 million of DSM incentives.
The production cost penalty is based on a comparison of the
relative changes in the Company's production costs per megawatt-
hour of retail sales from a base period (1989-1992) to 1993
versus the same comparison for a 19-company peer group, which
includes the Company. The Company calculated the penalty based
on data that was reported in the peer group's Federal Energy
Regulatory Commission (FERC) Form 1 Reports, which were received
in May 1994. The Company's production cost penalty for 1993 was
primarily due to a significant increase in retail sales for the
peer group as compared to the Company's retail sales. This
penalty also resulted from higher electric production cost
increases for the Company as compared to the peer group.
The Company has completed a review of its expected
performance under the production cost incentive (PCI) for 1994.
Based on this review, the Company estimates that it will not have
a significant reward or a significant penalty for its PCI
performance in 1994 primarily as a result of the Company's recent
cost reduction efforts and improved sales. The Company's actual
PCI for 1994 cannot be calculated until the peer group's FERC
Form 1 Reports become available in May 1995. The maximum PCI
allowed by the Agreement for 1994 is a reward or penalty of $17.5
million.
<PAGE>
Flexible, Negotiable Rate Tariffs (See Form 10-K for fiscal year
ended December 31, 1993, Item 1., Rates and regulatory matters-
Rate Matters)
In July 1994, the PSC issued an opinion in its generic
proceeding to study the broad subject of flexible, competitive
rates (Generic Proceeding). This opinion approved flexible rate
discounts for non-residential electric customers having
competitive alternatives. In conjunction with approving the
offering of discounts, the PSC adopted several guidelines. These
guidelines reaffirm most of the flexible pricing program the
Company has been implementing.
Future Regulation in a Competitive Marketplace
In August 1994, the PSC issued an order in the Generic
Proceeding that instituted Phase II to address competitive
opportunities available to customers of electric service and to
develop criteria for utility responses. Phase II will
investigate issues related to the future regulation of electric
service in light of competitive opportunities. The overall
objective is to identify regulatory and ratemaking practices that
will assist in the transition to a more competitive electric
industry, including efficient wholesale electricity markets.
Proposed principles to guide the transition to a more competitive
market are expected to be presented to the PSC before the end of
1994.
Diversification
Diversification will play an important role in the Company's
future. In April 1992, the PSC issued an order allowing the
Company to invest up to 5% of its consolidated capitalization
($174 million at September 30, 1994) in one or more subsidiaries
that may engage or invest in energy-related or environmental
services businesses and provide related services.
In May 1993, NGE Enterprises, Inc. (NGE), a wholly-owned
subsidiary of the Company, formed a computer software company,
EnerSoft Corporation (EnerSoft), to produce and market software
applications for the natural gas industry in the post-FERC Order
636 environment. Progress at EnerSoft has been slower than
anticipated as it is taking longer than expected to bring the
software products and services to market. As a result, NGE has
invested a greater amount in EnerSoft than originally projected
and, like most start-up companies, EnerSoft has been incurring
operating losses. It is anticipated that EnerSoft will continue
to incur operating losses in the near term.
In June 1994, NGE acquired all of the outstanding stock of
Xenergy, Inc., an energy services, information systems and
consulting company, that specializes in energy management,
conservation engineering and demand-side management.
As of November 9, 1994, the Company has invested
approximately $46 million in NGE in order to finance the
acquisition of Xenergy and for the investment in EnerSoft. For
the nine months ended September 30, 1994, NGE has incurred a net
loss of $3.6 million. The Company estimates that NGE's net loss
for the year 1994 will be approximately $6 million.
A natural gas storage project which NGE and ANR Storage,
Inc. planned to develop at a cost of approximately $44 million,
has been cancelled because NGE and ANR Storage were unable to
come to mutually acceptable terms with the owners of the caverns.
NGE continues to investigate other gas storage opportunities with
ANR Storage.
Common Stock Dividend Policy
In October 1994, the Board of Directors reduced the
quarterly common stock dividend from 55 cents per share to 35
cents per share.
The Company expects the pace of change in the utility
industry to continue to accelerate. Financial flexibility will
be essential in a competitive environment, and stronger utilities
will command higher stock valuations. This dividend reduction
will allow the Company to further improve its financial integrity
and offer improved stockholder value over the long term. There
are no assurances of future dividend levels. Future dividends
will be dependent on the Company's earnings, financial
requirements, applicable governmental regulations, developments
in the utility industry, and other factors. The Company's long-
term goal is a dividend payout ratio of 60% to 65% of earnings.
The Board of Directors will continue to review the common stock
dividend on a quarterly basis to ensure that the dividend level
is consistent with the Company's best long-term interests.
Financing Activities
The Company believes that maintaining a high degree of
financial integrity and flexibility is critical to success in an
increasingly competitive environment. The dividend reduction
allows future cash flows to provide all of the Company's
operating and capital needs. The Company plans to use its cash
flow in excess of operating and capital needs primarily to reduce
debt in preparation for competition. In addition, the Company
may, subject to obtaining PSC approval and depending upon market
conditions, repurchase some of its common stock. The Company
will also continue to invest in both regulated and unregulated
business opportunities that provide growth prospects and have the
potential to add value for its stockholders.
In October 1994, the Company issued a $74 million multi-mode
pollution control note to secure a like amount of tax-exempt
multi-mode pollution control refunding revenue bonds (Revenue
Bonds) issued by a governmental authority. The Revenue Bonds
mature on October 1, 2029, and have a structure which enables the
Company to optimize the use of short-term rates by allowing for
the interest rate to be based on a commercial paper rate, a daily
rate, a weekly rate, or an auction rate. The structure also
provides flexibility to convert the interest rate to a term rate
or a fixed rate, in the event that it is in the Company's best
interest to do so. The pollution control note bears interest at
the same rate as the Revenue Bonds. The Revenue Bonds currently
bear interest at an average rate slightly over 3% for various
periods ending between October 31, 1994 and January 8, 1995. The
Revenue Bonds are backed by an irrevocable letter of credit.
Proceeds from the Revenue Bonds will be used to refund on
December 1, 1994, $74 million of one-year adjustable rate
pollution control revenue bonds which were issued in 1984. The
maturity date of the Revenue Bonds can be extended, subject to
certain conditions, to a date not later than April 1, 2034. This
is similar to a $63.5 million multi-mode pollution control note
issued in the second quarter of 1994 and a $37.5 million multi-
mode pollution control note issued in the first quarter of this
year to refund like amounts of one-year adjustable rate pollution
control revenue bonds (See Form 10-Q for quarter ended June 30,
1994 and Form 10-Q for quarter ended March 31, 1994, Item 2.,
Financing Activities).
In February 1993, the Company priced $100 million of 6.05%
tax-exempt pollution control bonds, due April 1, 2034. Proceeds
from the sale were delivered in April 1994, and $60 million was
used in connection with the redemption on May 1, 1994, of $60
million of 12% pollution control bonds, due May 1, 2014. The
balance was used in connection with the redemption on July 1,
1994, of $40 million of 12.3% pollution control bonds, due July
1, 2014. The refunding of those bonds will save approximately
$5.3 million annually in interest costs.
In June 1994, the ratings on the Company's first mortgage
bonds, unsecured pollution control notes, and preferred stock
were lowered by Standard & Poor's (S&P). In June 1993, S&P had
upgraded those ratings. Subsequently, in October 1993, S&P
concluded that more stringent financial benchmarks were necessary
in their ratings evaluation of utilities to reflect increasing
competition and mounting business risk. As a result, S&P lowered
the ratings outlook for about one-third of the utility industry,
including the Company. Since then, the Company and the majority
of utilities with lowered outlooks who have gone through their
annual review by S&P have had their ratings lowered.
S&P stated that their ratings downgrade reflects concerns
about the Company's ability to achieve adequate financial
improvement in view of a deteriorating competitive position,
minimal sales growth potential, and difficulty in achieving
earnings incentive targets. Despite those concerns, S&P noted
that financial improvement is anticipated, driven by rate relief,
significant cost cutting and debt reductions tied to lower
construction spending.
Labor Agreement
On November 8, 1994, members of the International
Brotherhood of Electrical Workers approved an agreement that
extends the current labor agreement with the Company through June
30, 1997. This agreement provides for, among other things, wage
increases of 3.5% effective July 2, 1995, and 3.0% effective June
30, 1996.
Capital Expenditures
Construction expenditures for the first nine months of 1994
were approximately $174 million and have been primarily for the
extension of service, improvements at existing facilities,
compliance with the Clean Air Act Amendments of 1990, and other
environmental requirements. The Company received $18.9 million
from governmental and other sources to partially offset
expenditures for compliance with the Clean Air Act Amendments of
1990. The Company increased its estimate of construction
expenditures in 1994 for an improvement at an existing facility
and to accelerate the completion of an innovative flue gas
desulfurization system and a nitrogen oxide reduction system at
its Milliken Generating Station. The Company estimates that it
will spend $224 million for construction expenditures in 1994.
The Company plans to develop a natural gas storage project.
This project, which will be regulated by the PSC, is expected to
cost approximately $59 million and will be used to supplement the
Company's natural gas supply. The project will consist of a
natural gas storage facility, a 20-mile pipeline and a 35-mile
pipeline. Construction of this project is now scheduled to begin
in 1995 and it is expected to be operating for the 1996-97
heating season.
<PAGE>
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(a) On June 14, 1994, the Company was served with a summons
and complaint joining the Company as a defendant in an action
that was filed in the United States District Court for the
Northern District of New York. The plaintiffs are five companies
which have been required by the U.S. Environmental Protection
Agency (EPA) to conduct remedial activities at the Rosen Brothers
Site (Site) in the City of Cortland, New York. The Site was the
location of a scrap metal processing operation and industrial
waste disposal site between approximately 1971 and 1985, and it
is now allegedly contaminated with hazardous substances including
heavy metals, solvents and PCBs. The Site is listed on the
National Priorities List and the New York State Registry of
Inactive Hazardous Waste Sites. Among other claims, the
plaintiffs seek contribution under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
as amended (CERCLA), from the Company and sixteen other
defendants for the costs of complying with the EPA order to
remediate the Site. The plaintiffs allege that the Company was a
contributor to the Site of transformers which may have contained
PCBs. Liability under CERCLA may be joint and several. No
remedy has yet been selected by EPA for the Site and, therefore,
the total amount of remedial costs eventually to be incurred by
the plaintiffs is currently unknown.
By letter dated August 16, 1994, the EPA notified the
Company that the EPA had reason to believe that the Company was a
potentially responsible party for the Site. The EPA has
requested that the Company participate in the Remedial
Investigation/Feasibility Study currently being prepared for the
Site by the other named potentially responsible parties. By
letter dated October 20, 1994, the Company declined to
participate in this study because it believes that no facts have
been established showing that it was responsible for any
contamination at the Site.
The Company is unable to predict the ultimate disposition of
this matter. However, since the PSC has allowed other utilities
to recover these types of remediation costs and has previously
allowed the Company to recover similar costs in rates, such as
investigation and clean-up costs relating to coal tar sites, the
Company expects to recover in rates any remediation costs that it
may incur. Therefore, the Company believes that the ultimate
disposition of this matter will not have a material adverse
effect on its results of operations or financial position.
(b) By complaint dated October 31, 1991, General Motors
Corporation (GM) commenced a lawsuit against the Company in the
U. S. District Court for the Western District of New York
(District Court). GM alleges, among other claims, that the
Company violated various federal antitrust laws in connection
with billings for electric service provided by the Company at
GM's Harrison Radiator Plant at Lockport, New York. GM's claims
are for damages incurred and to be incurred. The Company
estimates that GM is claiming approximately $8 million, after
trebling. The Company believes that it has not violated the
federal antitrust laws and that this lawsuit is without merit.
On October 5, 1993, the Magistrate to whom the case had been
referred issued a decision recommending that GM's complaint be
dismissed. On July 12, 1994, the District Judge responsible for
the case, after reviewing GM's exceptions to the decision and the
Company's reply, decided to adopt the Magistrate's recommended
decision in its entirety. On August 9, 1994, GM filed an appeal
of that decision. On October 10, 1994, the Company and GM
stipulated that GM would withdraw its appeal while the parties
attempt to resolve their differences. The stipulation preserves
GM's right to appeal the District Court's decision until January
2, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
A report on Form 8-K dated October 11, 1994, was filed to
report certain information under Item 5, "Other Events."
<PAGE>
Signature
Pursuant to the requirements 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.
NEW YORK STATE ELECTRIC & GAS CORPORATION
(Registrant)
By EVERETT A. ROBINSON
EVERETT A. ROBINSON
Vice President and Controller
(Chief Accounting Officer)
Date: November 9, 1994
<PAGE>
EXHIBIT INDEX
27 --Financial Data Schedule
The Company agrees to furnish to the Commission, upon
request, a copy of the Participation Agreement dated as of
October 1, 1994, between the Company and New York State Energy
Research and Development Authority relating to Pollution Control
Refunding Revenue Bonds (1994 Series D). The total amount of
securities authorized under such agreement does not exceed 10% of
the total assets of the Company and its subsidiaries on a
consolidated basis.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,958,199
<OTHER-PROPERTY-AND-INVEST> 102,827
<TOTAL-CURRENT-ASSETS> 296,586
<TOTAL-DEFERRED-CHARGES> 808,977
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,166,589
<COMMON> 476,686
<CAPITAL-SURPLUS-PAID-IN> 841,599
<RETAINED-EARNINGS> 316,705
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,634,990
125,000
140,500
<LONG-TERM-DEBT-NET> 1,573,450
<SHORT-TERM-NOTES> 134,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 117,205
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,440,944
<TOT-CAPITALIZATION-AND-LIAB> 5,166,589
<GROSS-OPERATING-REVENUE> 1,386,257
<INCOME-TAX-EXPENSE> 81,926
<OTHER-OPERATING-EXPENSES> 1,073,206
<TOTAL-OPERATING-EXPENSES> 1,155,132
<OPERATING-INCOME-LOSS> 231,125
<OTHER-INCOME-NET> 713
<INCOME-BEFORE-INTEREST-EXPEN> 231,838
<TOTAL-INTEREST-EXPENSE> 103,797
<NET-INCOME> 128,041
14,211
<EARNINGS-AVAILABLE-FOR-COMM> 113,830
<COMMON-STOCK-DIVIDENDS> 117,239
<TOTAL-INTEREST-ON-BONDS> 96,402
<CASH-FLOW-OPERATIONS> 357,692
<EPS-PRIMARY> 1.60
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</TABLE>
