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, 1995
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, 1995 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) Liquidity and Capital Resources . . . . . 6
(b) Results of Operations . . . . . . . . . . 12
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 17
(b) Reports on Form 8-K . . . . . . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 19
<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
1995 1994 1995 1994
Operating Revenues
Electric . . . . . . . . . . . . . . $439,357 $408,805 $1,277,917 $1,174,224
Natural gas. . . . . . . . . . . . . 25,337 23,646 198,603 212,033
------- ------- --------- ---------
Total Operating Revenues. . . . 464,694 432,451 1,476,520 1,386,257
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 62,993 59,500 177,929 176,720
Electricity purchased. . . . . . . . 78,880 72,675 235,871 167,996
Natural gas purchased. . . . . . . . 11,330 10,842 105,103 118,972
Other operating expenses . . . . . . 78,638 82,918 235,747 240,617
Maintenance. . . . . . . . . . . . . 29,018 27,107 82,416 79,714
Depreciation and amortization. . . . 46,305 43,961 138,341 131,015
Federal income taxes . . . . . . . . 30,038 21,438 96,747 81,926
Other taxes. . . . . . . . . . . . . 50,892 50,659 156,117 158,172
------- ------- --------- ---------
Total Operating Expenses. . . . 388,094 369,100 1,228,271 1,155,132
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 76,600 63,351 248,249 231,125
Other Income and Deductions . . . . . (1,658) 728 (6,842) 713
------- ------- --------- ---------
Income Before Interest Charges. . . . 74,942 64,079 241,407 231,838
------- ------- --------- ---------
Interest Charges
Interest on long-term debt . . . . . 28,581 30,221 87,094 96,402
Other interest . . . . . . . . . . . 3,374 3,418 11,578 9,283
Allowance for borrowed funds
used during construction . . . . . (516) (513) (982) (1,888)
------- ------- --------- ---------
Interest Charges, Net . . . . . 31,439 33,126 97,690 103,797
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 43,503 30,953 143,717 128,041
Preferred Stock Dividends . . . . . . 4,625 4,702 14,100 14,211
------- ------- --------- ---------
Earnings Available for Common Stock . $38,878 $26,251 $129,617 $113,830
======= ======= ========= =========
Earnings Per Share. . . . . . . . . . $.54 $.37 $1.81 $1.60
Dividends Per Share . . . . . . . . . $.35 $.55 $1.05 $1.65
Average Shares Outstanding. . . . . . 71,503 71,490 71,503 71,171
The notes on page 6 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,
1995 1994
Assets
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . .$5,060,270 $4,916,960
Natural gas. . . . . . . . . . . . . . . . . . . . . . 436,126 414,929
Common . . . . . . . . . . . . . . . . . . . . . . . . 129,802 143,366
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,626,198 5,475,255
Less accumulated depreciation. . . . . . . . . . . . . 1,752,337 1,642,653
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 3,873,861 3,832,602
Construction work in progress. . . . . . . . . . . . . 99,378 154,723
---------- ----------
Total Utility Plant. . . . . . . . . . . . . . . . . 3,973,239 3,987,325
Other Property and Investments, net . . . . . . . . . . 101,389 103,920
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . 6,633 22,322
Special deposits . . . . . . . . . . . . . . . . . . . 5,407 7,591
Accounts receivable, net . . . . . . . . . . . . . . . 106,618 155,665
Fuel, at average cost. . . . . . . . . . . . . . . . . 36,927 49,934
Materials and supplies, at average cost. . . . . . . . 47,409 47,843
Prepayments. . . . . . . . . . . . . . . . . . . . . . 19,270 30,441
Accumulated deferred federal income
tax benefits. . . . . . . . . . . . . . . . . . . . 26,724 11,457
---------- ----------
Total Current Assets . . . . . . . . . . . . . . . . 248,988 325,253
Deferred Charges
Unfunded future federal income taxes . . . . . . . . . 360,345 363,151
Unamortized debt expense . . . . . . . . . . . . . . . 112,123 114,444
Demand-side management program costs . . . . . . . . . 75,710 72,849
Other. . . . . . . . . . . . . . . . . . . . . . . . . 220,909 255,963
---------- ----------
Total Deferred Charges . . . . . . . . . . . . . . . 769,087 806,407
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . .$5,092,703 $5,222,905
========== ==========
The notes on page 6 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,
1995 1994
Capitalization and Liabilities
Capitalization
Common stock equity
Common stock . . . . . . . . . . . . . . . . . . $476,686 $476,686
Capital in excess of par value. . . . . . . . . . 842,228 841,624
Retained earnings . . . . . . . . . . . . . . . . 401,086 346,547
---------- ----------
Total common stock equity. . . . . . . . . . . . . . . 1,720,000 1,664,857
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 . . . . . . . . . . . . . . . . . . . . 1,616,897 1,651,081
---------- ----------
Total Capitalization. . . . . . . . . . . . . . . 3,602,397 3,581,438
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . 5,512 36,231
Commercial paper . . . . . . . . . . . . . . . . . . . - 151,900
Accounts payable and accrued liabilities . . . . . . . 97,453 107,356
Interest accrued . . . . . . . . . . . . . . . . . . . 38,025 25,132
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 37,145 12,414
Other. . . . . . . . . . . . . . . . . . . . . . . . . 66,767 82,547
---------- ----------
Total Current Liabilities . . . . . . . . . . . . 244,902 415,580
Deferred Credits and Other Liabilities
Accumulated deferred investment tax credit . . . . . . 127,785 132,440
Excess deferred federal income taxes . . . . . . . . . 33,357 34,040
Other postretirement benefits. . . . . . . . . . . . . 71,874 55,887
Liability for environmental restoration. . . . . . . . 33,600 33,600
Other. . . . . . . . . . . . . . . . . . . . . . . . . 100,892 131,585
---------- ----------
Total Deferred Credits and Other Liabilities. . . 367,508 387,552
Accumulated Deferred Federal Income Taxes
Unfunded future federal income taxes . . . . . . . . . 360,345 363,151
Other. . . . . . . . . . . . . . . . . . . . . . . . . 517,551 475,184
---------- ----------
Total Accumulated Deferred Federal
Income Taxes . . . . . . . . . . . . . . . . . . 877,896 838,335
Commitments and Contingencies . . . . . . . . . . . . . - -
---------- ----------
Total Capitalization and Liabilities. . . . . . .$5,092,703 $5,222,905
========== ==========
The notes on page 6 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
1995 1994
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $143,717 $128,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . 138,341 131,015
Deferred fuel and purchased gas. . . . . . . . . 13,051 (1,510)
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . . (4,217) (6,092)
Changes in current operating assets and liabilities:
Accounts receivable excluding accounts
receivable sold. . . . . . . . . . . . . . . . 49,047 48,770
Prepayments. . . . . . . . . . . . . . . . . . . 11,171 11,331
Inventory. . . . . . . . . . . . . . . . . . . . 13,441 4,704
Accounts payable and accrued liabilities . . . . (9,903) (23,940)
Taxes accrued. . . . . . . . . . . . . . . . . . 24,731 12,510
Interest accrued . . . . . . . . . . . . . . . . 12,893 7,470
Other, net . . . . . . . . . . . . . . . . . . . . 10,693 49,593
-------- --------
Net Cash Provided by Operating Activities . . . 402,965 361,892
-------- --------
Investing Activities
Utility plant capital expenditures . . . . . . . . (120,727) (174,449)
Proceeds received from governmental and
other sources . . . . . . . . . . . . . . . . . 4,793 18,928
Expenditures for other property and investments. . (3,454) (32,904)
Funds restricted for capital expenditures. . . . . 1,324 33,960
-------- --------
Net Cash Used in Investing Activities . . . . . (118,064) (154,465)
-------- --------
Financing Activities
Issuance of pollution control notes. . . . . . . . 37,000 201,000
Sale of common stock . . . . . . . . . . . . . . . - 23,407
Repayments of first mortgage bonds, pollution
control notes and preferred stock,
including premiums. . . . . . . . . . . . . . . (92,395) (423,200)
Revolving credit agreement repayment . . . . . . . - (50,000)
Changes in funds set aside for preferred stock
repayments. . . . . . . . . . . . . . . . . . . - 95,000
Long-term notes, net . . . . . . . . . . . . . . . (4,006) (1,605)
Commercial paper, net. . . . . . . . . . . . . . . (151,900) 84,300
Dividends on common and preferred stock. . . . . . (89,289) (131,949)
-------- --------
Net Cash Used in Financing Activities . . . . . (300,590) (203,047)
-------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . (15,689) 4,380
Cash and Cash Equivalents, Beginning of Period. . . 22,322 4,264
-------- --------
Cash and Cash Equivalents, End of Period. . . . . . $6,633 $8,644
======== ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $75,673 $88,228
Income taxes. . . . . . . . . . . . . . . . . . . $36,843 $52,400
The notes on page 6 are an integral part of the financial statements.
<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
1995 1994
Balance, beginning of period. . . . . . . . . . $346,547 $320,114
Add net income. . . . . . . . . . . . . . . . . 143,717 128,041
-------- --------
490,264 448,155
Deduct dividends on capital stock:
Preferred. . . . . . . . . . . . . . . . . . . 14,100 14,211
Common . . . . . . . . . . . . . . . . . . . . 75,078 117,239
-------- --------
89,178 131,450
-------- --------
Balance, end of period. . . . . . . . . . . . . $401,086 $316,705
======== ========
The notes on page 6 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, 1994. 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 items have been reclassified on the consolidated
financial statements to conform to the 1995 presentation.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Rate Matters (See Form 10-Q for quarter ended June 30, 1995, Item
2(a)-Liquidity and Capital Resources-Rate Matters.)
On August 1, 1995, the Public Service Commission of the
State of New York (PSC) authorized a 3.2% increase in natural gas
base rates for the company, effective August 1, 1995. An 11.0%
return on common equity was also approved. This increase is the
third under the natural gas portion of the three-year electric
and natural gas rate settlement agreement. The rates were
approved on a temporary basis pending the outcome of settlement
discussions between the company, the PSC staff and other parties
regarding a new three-year natural gas rate-settlement agreement.
On October 17, 1995, the company, the PSC staff, the State
Consumer Protection Board and the Public Utility Law Project,
Inc. reached a new natural gas rate-settlement agreement (gas
agreement) that freezes natural gas prices for all residential
and most industrial and commercial customers from December 1,
1995, until July 31, 1998. The 3.2% increase in natural gas base
rate prices authorized by the PSC on August 1, 1995, would become
permanent. The gas agreement must be approved by the PSC before
it becomes effective.
The gas agreement eliminates the gas adjustment clause and
weather normalization clause. These clauses were used to collect
from or refund to customers the changes in the cost of natural
gas purchased and the effect of unusually warm or cold weather on
natural gas sales.
The gas agreement increases the minimum monthly charge for
most customers. These increases would be offset by reductions in
usage rates, so that customers, on average, would see no increase
in their bills and the company would not receive any additional
revenue. Also, the gas agreement establishes a gas Affordable
Energy Program that maintains the existing minimum monthly charge
for low-income customers.
Competitive Conditions (See Form 10-K for fiscal year ended
December 31, 1994, Item 1 (c)(x) - Competitive conditions)
In August 1994 the PSC instituted Phase II of a generic
proceeding which focused on the broad subject of flexible,
competitive rates in its initial phase. Phase II of the
proceeding was instituted to address competitive opportunities
available to electric customers and to investigate issues related
to the future regulation of electric service in a competitive
market. The overall objective is to identify regulatory and
ratemaking practices that will assist the transition to a more
competitive electric industry in New York State.
In June 1995 the PSC issued an Order adopting principles to
guide the transition to competition (guiding principles). The
guiding principles are designed to provide a framework for
electric competition and address issues in eight categories
related to providing electric service: resource management,
customer service, reliability and safety, competitive market
characteristics, regulatory issues, transition issues, economic
efficiency and economic developments. Issues related to both
wholesale and retail competition are being examined in this
proceeding. The company is working closely on this matter with
the Energy Association of New York State (Energy Association),
which includes the company and seven other investor-owned
utilities as members.
In October 1995, the Energy Association, the PSC staff and
certain other interested parties, separately filed formal
comments and proposed industry models in the PSC's competitive
opportunities proceeding.
The Energy Association's plan envisions all electricity
producers, including utilities, competing to sell electricity in
a wholesale market. The wholesale market structure proposed
would create an independent system operator (ISO) to coordinate
the safe and reliable operation of the bulk power transmission
system. A separate pool market mechanism would coordinate
commercial transactions. The ISO would not be a party to power
sales, except in emergency situations. Regulated utilities could
purchase energy from the pool, which would establish a spot
market price for electricity. In addition to the spot market,
generators, marketers/brokers and utilities would have the option
of entering into bilateral agreements with wholesale buyers.
While the Energy Association believes its plan can
successfully achieve an effective competitive electricity market
and lower electricity prices in New York State, its plan is
conditioned on four essential requirements. These include:
- A reasonable opportunity for utilities to fully recover
all investments and expenditures made to provide reliable
service under the existing regulatory compact.
- The option for utilities to continue in the generation
business.
- Appropriate treatment of nuclear plants which, because of
their unique characteristics, cannot be operated on a
deregulated basis.
- Development and adoption of a clearly defined transition
plan to ensure that system reliability and the interests
of both customers and investors are adequately protected.
In addition, the Energy Association's plan states that steps
in the following areas should be taken to reduce electricity
prices in New York State: government-mandated, uneconomic
independent power contracts, excessive state and local taxes,
governmental regulation and social mandates.
The PSC staff's proposed plan (Staff's plan) envisions
beginning the transition with New York State utilities divesting,
through a sale, spin-off, or establishment of a separate holding
company, most of their generating operations into separate
companies but continuing to own, operate and maintain their
transmission and distribution systems. An ISO would coordinate
market transactions and maintain the reliability of the electric
grid, and a regional transmission group would perform
transmission planning and ensure open access to the transmission
system. In addition, the Staff's plan would require shareholders
to absorb a portion of the costs stranded as a result of the
transition to a competitive marketplace. The Staff's plan calls
for testing the new electric infrastructure in the wholesale
market in late 1997 and beginning the transition to a competitive
retail market by early 1998.
The company believes that the portion of the Staff's plan
regarding the sharing of stranded costs is inconsistent with the
guiding principles, insofar as the guiding principles state
"Utilities should have a reasonable opportunity to recover
prudent and verifiable expenditures and commitments made pursuant
to their legal obligations...".
The administrative law judge presiding over this proceeding
is expected to issue a report or recommended decision by the end
of 1995.
This proceeding could affect the eligibility of the company
to continue applying Statement of Financial Accounting Standards
No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71). If the company could no longer meet the
criteria of SFAS 71 for all or a part of its business, the
company would have to expense certain previously deferred costs.
Although the company believes it will continue to meet the
criteria of SFAS 71 in the near future, it cannot predict what
effect a competitive marketplace or future actions of the PSC
will have on its ability to continue to do so.
The company began construction of its $57 million Seneca
Lake storage project in September 1995. The project consists of a
natural gas storage cavern located north of Watkins Glen on the
west side of Seneca Lake, a compressor station and two gas
transmission pipelines. The primary purpose of the project is to
ensure adequate supply to the company's core natural gas
customers. In addition, the project will increase supply
flexibility, allow the company to retire propane plants and
reduce pipeline demand charges. The PSC issued a certificate of
environmental compatibility and public need and approved
construction plans for the compressor station and most of the
western pipeline. The New York State Department of Environmental
Conservation granted us a conditional permit to store natural gas
in the cavern. The project is scheduled to be in service for the
1996-1997 heating season.
The company has taken other steps to address competitive
pressure. In June 1995 the company placed a 35 megawatt (MW)
generating unit at the company's Hickling Generating Station on
long-term cold standby. This is in addition to the two
generating units (97 MW) that were placed on long-term cold
standby during 1994. A generating unit at the company's
Greenidge Generating Station that is on long-term cold standby
has been activated as needed during 1995, when its output could
be sold to take advantage of wholesale sales opportunities. The
company continues to closely evaluate the performance of five
other units (308 MW) to make sure their output remains marketable
and their operation economical.
In addition to overall expense controls, the company has
taken several steps over the past two years to maximize cash flow
and improve financial flexibility, including significant capital
spending reductions and a common stock dividend reduction in
October 1994. As a result of these strategies, the company
expects to have cash in excess of its operating and capital needs
over the next several years. How this cash is utilized will
depend on industry and market conditions at the time, and could
include continued debt and preferred stock redemptions,
additional investments in unregulated businesses or the
repurchase of common stock. In September 1995, the company
<PAGE>
received PSC approval to repurchase not to exceed 4 million
shares of its common stock.
Diversification
NGE Enterprises, Inc. (NGE), a wholly owned subsidiary of
the company, owns two unregulated businesses - EnerSoft
Corporation (EnerSoft) and XENERGY, Inc. (XENERGY).
Formed in May 1993, EnerSoft is a computer software company
developing and marketing software for natural gas utilities,
marketers and pipeline operators. EnerSoft, through an alliance
with the New York Mercantile Exchange, has developed Channel 4, a
natural gas and pipeline capacity trading and information system
for the North American market. Channel 4 was launched and
available for use on August 11, 1995.
The company believes that electronic trading of natural gas
and pipeline capacity is an emerging market. Channel 4 is
competing against other electronic gas trading systems in the
marketplace. Most of these competing systems are owned and
operated by natural gas pipeline companies.
EnerSoft has been incurring operating losses. The company
expects that EnerSoft will continue to incur operating losses at
least through 1996. Market acceptance of electronic gas trading
and of the Channel 4 product is key to improving EnerSoft's
financial performance.
XENERGY, acquired in June 1994, is an energy services,
information systems and energy-consulting company providing
energy services, conservation engineering and DSM services to
utilities, governmental agencies and end-use energy consumers.
XENERGY's 1995 revenues have been lower than expected due to a
soft utility consulting market.
NGE is exploring environmental and operating services
opportunities with both domestic and foreign strategic partners.
As of October 31, 1995 and December 31, 1994, the company
had invested approximately $53 million and $47 million,
respectively, in NGE to finance its diversified investments. For
the nine months ended September 30, 1995, and for the year ended
December 31, 1994, NGE incurred net losses of $7.7 million and
$6.0 million, respectively. The company expects that NGE will
incur an operating loss in 1995 that will be higher than the loss
experienced in 1994. The company also expects that NGE will
continue to incur operating losses in 1996 and that it will have
an improvement in earnings in 1997.
<PAGE>
Net Cash Provided by Operating Activities
Cash provided by operating activities for the nine months
ended September 30, 1995, increased by $41 million, up 11% from
the nine months ended September 30, 1994. The increase was
primarily due to an increase in cash provided by working capital
items in 1995 and an increase in net income. Net cash from
operating activities is derived by adjusting reported net income
for charges or credits that have no cash effect (primarily
depreciation, amortization and deferred income taxes) and changes
in working capital items.
Net Cash Used in Investing Activities
For the nine months ended September 30, 1995, cash used in
investing activities decreased $36 million, down 24% compared to
the same period in 1994. The change was primarily due to a
decrease in expenditures for utility plant construction.
Capital expenditures for the nine months ended September 30,
1995 were $121 million and have primarily been for the extension
of service, necessary improvements at existing facilities,
compliance with the Clean Air Act Amendments of 1990 (1990
Amendments) and other environmental requirements. The company
received $5 million from governmental and other sources to
partially offset expenditures for compliance with the 1990
Amendments. The company estimates that it will spend $188
million, including nuclear fuel, for capital expenditures in
1995.
Net Cash Used in Financing Activities
Cash used in financing activities for the first nine months
of 1995 increased $98 million, up 48% compared to the first nine
months of 1994. The company issued less debt during the first
nine months of 1995 than during the comparable period in 1994.
This decrease was partially offset by a reduction in the amount
of debt redeemed and dividends paid.
In May 1995 the company repurchased $31 million of 9 7/8%
Series first mortgage bonds due February 2020 through the
issuance of commercial paper.
The Dividend Reinvestment and Stock Purchase Plan (DRP) is
currently purchasing shares on the open market rather than the
company issuing shares. The company expects the DRP will
continue purchasing shares on the open market.
<PAGE>
(b) Results of Operations
Three months ended September 30, 1995 compared with three months
ended September 30, 1994:
1995 1994 % Change
(Thousands, except Per Share Amounts)
Operating revenues $464,694 $432,451 7%
Operating income 76,600 63,351 21%
Earnings available for
common stock $38,878 $26,251 48%
Average shares outstanding 71,503 71,490 -%
Earnings per share $.54 $.37 46%
Dividends per share $.35 $.55 (36%)
Earnings per share for the three months ended September 30,
1995, increased 17 cents compared to the prior year period.
Higher operating income contributed 19 cents to earnings per
share for the period, primarily because of higher electric retail
sales.
Electric retail sales increased earnings for the quarter by
12 cents because, beginning in the first quarter of 1995, the
company is no longer returning revenues to customers from retail
sales above the levels forecasted in the revenue decoupling
mechanism (RDM). This is in accordance with the new electric
rate-settlement agreement approved by the PSC on August 1, 1995.
(See Form 10-Q for the quarter ended June 30, 1995, Item 2(a) -
Liquidity and Capital Resources - Rate Matters.)
Earnings per share were reduced by 2 cents due to higher
losses incurred by the company's diversified operations compared
to the same quarter last year.
<PAGE>
Nine months ended September 30, 1995 compared with nine months
ended September 30, 1994:
1995 1994 % Change
(Thousands, except Per Share Amounts)
Operating revenues $1,476,520 $1,386,257 7%
Operating income 248,249 231,125 7%
Earnings available for
common stock $129,617 $113,830 14%
Average shares outstanding 71,503 71,171 -%
Earnings per share $1.81 $1.60 13%
Dividends per share $1.05 $1.65 (36%)
Earnings per share for the nine months ended September 30,
1995, increased 21 cents compared to the prior year period.
Compared to 1994, 1995 operating income increased earnings per
share by 24 cents. Two one-time charges recorded in the second
quarter of 1994 reduced operating income in 1994 and lowered
earnings per share by 15 cents. Earnings per share for the second
quarter of 1994 were reduced by 12 cents as a result of the 1993
production-cost incentive penalty, and by 3 cents for the
company's share of a voluntary early retirement program offered
by Pennsylvania Electric Company (Penelec) to its Homer City
Generating Station employees. The company owns the Homer City
Generating Station jointly with Penelec which operates the
facility.
Excluding the one-time charges, operating income increased
earnings per share by 9 cents. A higher allowed return on equity
for the first seven months of 1995, 11.4% effective August 1994
compared to 10.8% effective in August 1993, added 8 cents to
earnings per share for the period. Also, lower interest expense
contributed 6 cents per share to earnings. Other income and
deductions reduced earnings by 7 cents per share primarily due to
higher losses incurred by the company's diversified operations
compared to the same period last year.
Interest Expense
Interest expense (before the reduction for allowance for
borrowed funds used during construction) decreased $2 million
comparing the quarters ended September 30, 1995 and 1994, and
decreased $7 million comparing the nine month periods ended
September 30, 1995 and 1994. These decreases were primarily due
to the refinancing or refunding of certain issues of long-term
debt.
<PAGE>
Operating Results by Business Segment
Electric Three Months ended September 30,
1995 1994 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 3,254,094 3,216,385 1%
Operating revenues $439,357 $408,805 7%
Operating expenses $357,911 $340,427 5%
The $30 million increase in electric operating revenues for
the quarter ended September 30, 1995, was primarily due to higher
electric prices that added $26 million. The higher prices were
due to changes in rates effective August 1995 and 1994, primarily
to accommodate increased mandated purchases of nonutility
generated (NUG) power.
Electric operating expenses rose by $17 million for the
third quarter of 1995 compared to the third quarter of 1994.
Electricity purchased, principally from NUGs, and fuel used in
electric generation increased operating expenses $10 million.
Higher federal income taxes, principally the result of higher
pre-tax book income, increased operating expenses $8 million.
Nine Months ended September 30,
1995 1994 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 9,711,287 9,950,630 (2%)
Operating revenues $1,277,917 $1,174,224 9%
Operating expenses $1,046,168 $961,316 9%
Electric retail sales decreased 2% for the first nine months
of 1995 compared to the first nine months of 1994 as a result of
the warmer weather during the first quarter of this year and
continued sluggish economic conditions in the company's service
territory.
Electric operating revenues increased $104 million for the
nine months ended September 30, 1995. Revenues rose $75 million
because of increases in electric prices, due to changes in rates
effective August 1995 and 1994, primarily to accommodate
increased mandated purchases of NUG power. An increase in sales
of electricity to others added $13 million to revenues. Electric
revenues for 1994 were reduced by $13 million because of the 1993
production-cost penalty that was recorded in the second quarter
of 1994.
The increase of $85 million in electric operating expenses
for the nine months is primarily attributable to an increase of
$68 million in electricity purchased, primarily due to purchases
from NUGs and an increase of $15 million in higher federal income
taxes, the result of higher pre-tax book income.
Natural Gas Three Months ended September 30,
1995 1994 % Change
(Thousands)
Deliveries-
dekatherms(dth) 6,738 6,582 2%
Operating revenues $25,337 $23,646 7%
Operating expenses $30,183 $28,673 5%
Natural gas deliveries for the three month period increased
2% in 1995 compared to 1994. This increase is the result of
incremental sales to large customers.
Natural gas operating revenues increased by $2 million in
the third quarter of 1995 compared to the third quarter of 1994
primarily as a result of higher sales.
The increase in natural gas operating expenses for the third
quarter of 1995 is primarily due to a $1 million increase in
administrative and general expenses.
Nine Months ended September 30,
1995 1994 % Change
(Thousands)
Deliveries-
dekatherms(dth) 39,463 42,090 (6%)
Operating revenues $198,603 $212,033 (6%)
Operating expenses $182,103 $193,816 (6%)
Natural gas deliveries decreased 6% for the first nine
months of 1995 compared to the first nine months of 1994. The
1995 decrease in deliveries was due to warmer weather in the
first quarter of 1995 and continued sluggish economic conditions
in the company's service territory.
For the nine months ended September 30, 1995, natural gas
operating revenues decreased $13 million compared to the nine
months ended September 30, 1994. The decrease was primarily due
to lower sales which decreased revenues by $18 million. This
decrease was partially offset by a $4 million increase in
revenues as a result of higher natural gas prices due primarily
to changes in rates effective in August 1995 and 1994.
The decrease in natural gas operating expenses of $12
million is primarily due to a decrease in natural gas purchased
of $14 million, which is attributable to a decrease in volume.
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(a) 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. GM
alleged 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 were for damages incurred and
to be incurred. The company estimated that GM was claiming
approximately $8 million, after trebling. The company believed
that it had not violated the federal antitrust law and that this
lawsuit was without merit.
By agreement dated August 14, 1995, the dispute upon which
the litigation was based was settled and the litigation was
terminated with prejudice to renewal. The settlement was
prospective and established the basis for future service by the
company to GM's Harrison Radiator Plant. The company believes
that the settlement of this matter will not have a material
adverse effect on its results of operations or financial
position.
(b) By complaint dated August 12, 1994, as amended October 19,
1994, a class action lawsuit was commenced against the company
and James A. Carrigg, Chairman, President and Chief Executive
Officer of the company (Defendants) in the U.S. District Court
for the Eastern District of New York (District Court). The
lawsuit was brought by two alleged shareholders purporting to act
on behalf of purchasers of the company's Common Stock pursuant to
its Dividend Reinvestment and Stock Purchase Plan between May 15
and August 10, 1994, and on behalf of purchasers of the company's
securities on the open market between March 15 and August 10,
1994. The complaint alleges that certain statements in the
company's Form 10-K for 1993 and the company's Annual Report to
Shareholders for 1993 relating to the company's diversification
program and common stock dividend violated the federal securities
laws. Plaintiffs are seeking to recover damages in an
unspecified amount. The Defendants believe that this lawsuit is
without merit.
On November 23, 1994, the Defendants made a motion to
dismiss. On August 21, 1995 the District Court issued a decision
which granted the motion to dismiss and dismissed the action in
its entirety. Plaintiffs appealed that decision to the U.S.
Court of Appeals for the Second Circuit. Defendants intend to
continue to defend this action vigorously.
(c) On October 4, 1995 the company entered into an Order on
Consent with the New York State Department of Environmental
Conservation (NYSDEC) requiring the company to conduct an interim
remedial measure program under NYSDEC's oversight at a former
company maintenance facility in Chatham, New York. The interim
remedial measure program at the site, which is not listed in the
New York State Registry of Inactive Hazardous Waste Sites, was
substantially completed in October 1995 at a cost of
approximately $750,000.
(d) The company responded on October 3, 1995, to a request for
information by the U.S. Environmental Protection Agency
concerning alleged disposal of polychlorinated biphenyls (PCBs)
at facilities owned or operated by PCB Treatment Inc. in Kansas
City, Kansas and Kansas City, Missouri. The company is currently
unable to determine its share, if any, relative to that of the
other parties who received such requests, of the costs to
remediate these sites. 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
<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 Gary J. Turton
Gary J. Turton
Controller
(Chief Accounting Officer)
Date: November 9, 1995
<PAGE>
EXHIBIT INDEX
10-45 -- Annual Executive Incentive Compensation Plan Amendment
No. 5
27 -- Financial Data Schedule.
Exhibit 10-45
AMENDMENT NO. 5
to
THE ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN
of
NEW YORK STATE ELECTRIC & GAS CORPORATION
The Annual Executive Incentive Compensation Plan of New York
State Electric & Gas Corporation (the "Plan") is hereby amended,
effective as of October 13, 1995, as follows:
1. Article IV is hereby amended by deleting "based solely on
corporate achievement" from the sentence.
2. Article V, Section A, is hereby amended to read in its
entirety as follows:
A. The performance measures and goals are identical to
the performance measures and goals for the 1995
Performance Plus Program for salaried employees. The
level of contribution of each measure to the
incentive award for each of the four groups set
forth in Article III, however, is different and is
outlined in Article VII. There are two measures of
performance criteria:
i) Threshold Measure - An incentive award is based on
the cumulative performance of four performance
measures.
ii) Variable Measure - This is a performance measure
that can increase or decrease the amount of the
incentive award to the extent to which the
shareholder performance goal is achieved or not
achieved.
<PAGE>
3. Article VII is hereby amended to read in its entirety as
follows:
Each of the four groups set forth in Article III will
have the following incentive award ranges:
Incentive Award as a percent of salary grade midpoint
At At
Threshold Target
Performance Performance
Group I 7.5% 15%
Group II 6.25% 12.5%
Group III 5% 10%
Group IV 3.75% 7.5%
There are four separate performance measures which
provide opportunities for an incentive award. An
incentive award is based on the cumulative performance
of these measures and can be earned even if all of the
performance measures are not met. The formula for
determining incentive awards is set forth in Table 1.
If all four of the performance measures are met and the
shareholder performance measure is between 100% and 109%
inclusive, then the participants will receive the awards
set forth above under the heading "At Threshold
Performance".
If the shareholder performance measure is at 120% or
greater and the three other performance measures are
met, the participants will receive the awards set forth
above under the heading "At Target Performance". If the
shareholder performance measure is less than 120% but at
least 80%, a prorated incentive award can still be
earned based on the cumulative performance of the four
performance measures.
If the calculation of the award is zero or a negative
number no award will be granted and no reduction will be
made in base salary.
For 1995 the contributions to payout will be calculated
pursuant to Table 1.
4. The first paragraph of Article VIII is hereby amended to
read as follows:
At the conclusion of each performance period a
determination will be made by the Committee whether the
goals have been achieved, the extent to which they have
been achieved and the amount of any incentive award. The
Committee's determination will be submitted to the Board
of Directors for approval. Final determination of
incentive awards by the Board of Directors will be made
not later than the end of February following the end of
each performance period. Distribution of incentive
awards will be made as soon thereafter as practical.
<PAGE>
TABLE 1
THE ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN
OF
NEW YORK STATE ELECTRIC & GAS CORPORATION
For 1995, the performance measures and goals are identical to the
performance measures and goals for the 1995 Performance Plus
Program for salaried employees. The contribution of each measure
to the incentive award, however, is different and is calculated
as follows:
Threshold Measure
Performance Measures Contributions to Payout
Total Shareholder Return
Group I +/- 2.8%
Group II +/- 2.3%
Group III +/- 1.9%
Group IV +/- 1.4%
Customer Service
Group I +/- 1.9%
Group II +/- 1.6%
Group III +/- 1.25%
Group IV +/- .95%
Electric Retail Sales and Natural
Gas Deliveries
Group I +/- .9%
Group II +/- .75%
Group III +/- .6%
Group IV +/- .45%
Total Controllable Expenditures
Group I +/- 1.9%
Group II +/- 1.6%
Group III +/- 1.25%
Group IV +/- .95%
An awards payout percentage will be calculated by first taking
the sum of the four Performance Measures in the table.
Contributions to Payout can be either positive or negative
depending on whether the particular goal was achieved or not
achieved.
<PAGE>
- 2 -
Shareholder Measure:
100% or greater - Achieved
Less than 100% - Not Achieved
Customer Service Measure:
100 or more - Achieved
Less than 100 - Not Achieved
Sales Measure:
Both electric and gas goals met or exceeded - Achieved
Either electric or gas goal not met - Not Achieved
Expenditure Measure:
At or below expenditure goal - Achieved
Exceeded expenditure goal - Not Achieved
Variable Measure
Payouts percentages are then calculated by multiplying the sum of
the four performance measures for each group determined under the
Threshold Measure by the following factors as determined by the
extent to which the Shareholder Measure exceeded or fell below
100%.
Shareholder Measure:
120% or more 2x
110% - 119% 1.5x
100% - 109% 1x
90% - 99% 1x
80% - 89% .5x
Less than 80% 0
For all determinations of the Shareholder Measure, if the
Shareholder Measure is not a whole percentage, it will be rounded
down to the nearest whole percentage. Calculations of the awards
payout percent will be rounded to the nearest 100th of a percent.
Awards Calculation
The awards payout percentage will be calculated by taking the sum
of the four performance measures for each group determined under
the Threshold Measure and then multiplying by the factor
established under the Variable Measure.
Awards will then be calculated by multiplying the awards payout
percentage by the salary grade midpoint for each employee.
<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, 1995 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-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,973,239
<OTHER-PROPERTY-AND-INVEST> 101,389
<TOTAL-CURRENT-ASSETS> 248,988
<TOTAL-DEFERRED-CHARGES> 769,087
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,092,703
<COMMON> 476,686
<CAPITAL-SURPLUS-PAID-IN> 842,228
<RETAINED-EARNINGS> 401,086
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,720,000
125,000
140,500
<LONG-TERM-DEBT-NET> 1,616,897
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 5,512
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,484,794
<TOT-CAPITALIZATION-AND-LIAB> 5,092,703
<GROSS-OPERATING-REVENUE> 1,476,520
<INCOME-TAX-EXPENSE> 96,747
<OTHER-OPERATING-EXPENSES> 1,131,524
<TOTAL-OPERATING-EXPENSES> 1,228,271
<OPERATING-INCOME-LOSS> 248,249
<OTHER-INCOME-NET> (6,842)
<INCOME-BEFORE-INTEREST-EXPEN> 241,407
<TOTAL-INTEREST-EXPENSE> 97,690
<NET-INCOME> 143,717
14,100
<EARNINGS-AVAILABLE-FOR-COMM> 129,617
<COMMON-STOCK-DIVIDENDS> 75,078
<TOTAL-INTEREST-ON-BONDS> 87,094
<CASH-FLOW-OPERATIONS> 402,965
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</TABLE>
