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
June 30, 1996
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 July 31, 1996 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 . . . . . . . . . . 13
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 19
(b) Reports on Form 8-K . . . . . . . . . . . 19
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 21
<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 June 30 Three Months Six Months
1996 1995 1996 1995
Operating Revenues
Electric . . . . . . . . . . . . . . $397,088 $388,559 $869,440 $838,560
Natural gas. . . . . . . . . . . . . 55,845 51,357 202,257 173,266
------- ------- --------- ---------
Total Operating Revenues. . . . 452,933 439,916 1,071,697 1,011,826
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 46,699 51,431 106,280 114,936
Electricity purchased. . . . . . . . 90,062 77,329 180,688 156,991
Natural gas purchased. . . . . . . . 32,357 26,422 98,108 93,773
Other operating expenses . . . . . . 84,411 78,747 160,534 157,109
Maintenance. . . . . . . . . . . . . 28,411 29,444 53,527 53,398
Depreciation and amortization. . . . 47,052 46,010 94,143 92,036
Federal income taxes . . . . . . . . 20,039 20,142 81,929 66,709
Other taxes. . . . . . . . . . . . . 49,017 49,498 107,140 105,225
------- ------- --------- ---------
Total Operating Expenses. . . . 398,048 379,023 882,349 840,177
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 54,885 60,893 189,348 171,649
Other Income and Deductions . . . . . (3,801) (3,876) (7,476) (5,248)
------- ------- --------- ---------
Income Before Interest Charges. . . . 51,084 57,017 181,872 166,401
------- ------- --------- ---------
Interest Charges
Interest on long-term debt . . . . . 26,773 28,928 54,473 58,513
Other interest . . . . . . . . . . . 3,890 3,600 8,670 8,204
Allowance for borrowed funds
used during construction . . . . . (461) (141) (829) (530)
------- ------- --------- ---------
Interest Charges, Net . . . . . 30,202 32,387 62,314 66,187
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 20,882 24,630 119,558 100,214
Preferred Stock Dividends . . . . . . 2,386 4,716 4,719 9,475
------- ------- --------- ---------
Earnings Available for Common Stock . $18,496 $19,914 $114,839 $90,739
======= ======= ========= =========
Earnings Per Share. . . . . . . . . . $.26 $.28 $1.61 $1.27
Dividends Per Share . . . . . . . . . $.35 $.35 $.70 $.70
Average Shares Outstanding. . . . . . 71,503 71,503 71,503 71,503
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)
June 30, Dec. 31,
1996 1995
Assets
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . .$5,133,911 $5,090,044
Natural gas. . . . . . . . . . . . . . . . . . . . . . 456,606 445,256
Common . . . . . . . . . . . . . . . . . . . . . . . . 151,033 140,686
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,741,550 5,675,986
Less accumulated depreciation . . . . . . . . . . . . . 1,865,519 1,791,625
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 3,876,031 3,884,361
Construction work in progress . . . . . . . . . . . . . 80,858 79,229
---------- ----------
Total Utility Plant. . . . . . . . . . . . . . . . . 3,956,889 3,963,590
Other Property and Investments, Net . . . . . . . . . . 111,477 99,633
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . 7,965 11,433
Special deposits . . . . . . . . . . . . . . . . . . . 3,872 5,785
Accounts receivable, net . . . . . . . . . . . . . . . 180,491 195,834
Fuel, at average cost. . . . . . . . . . . . . . . . . 37,104 33,682
Materials and supplies, at average cost. . . . . . . . 43,842 44,809
Prepayments. . . . . . . . . . . . . . . . . . . . . . 32,673 31,371
Accumulated deferred federal income
tax benefits, net . . . . . . . . . . . . . . . . . 27,480 7,594
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 333,427 330,508
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . 321,593 323,446
Unamortized debt expense. . . . . . . . . . . . . . 83,177 85,023
Demand-side management program costs. . . . . . . . 73,531 74,824
Other regulatory assets . . . . . . . . . . . . . . 192,675 206,736
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 670,976 690,029
Other assets . . . . . . . . . . . . . . . . . . . . . 14,353 30,571
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 685,329 720,600
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . .$5,087,122 $5,114,331
========== ==========
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)
June 30, Dec. 31,
1996 1995
Capitalization and Liabilities
Capitalization
Common stock equity
Common stock . . . . . . . . . . . . . . . . . . $476,686 $476,686
Capital in excess of par value. . . . . . . . . . 843,923 842,442
Retained earnings . . . . . . . . . . . . . . . . 482,189 424,412
---------- ----------
Total common stock equity. . . . . . . . . . . . . . . 1,802,798 1,743,540
Preferred stock redeemable solely at the
option of the company . . . . . . . . . . . . . . . 134,440 140,500
Preferred stock subject to mandatory
redemption requirements . . . . . . . . . . . . . . 25,000 25,000
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,532,952 1,581,448
---------- ----------
Total Capitalization. . . . . . . . . . . . . . . . 3,495,190 3,490,488
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . 36,442 37,003
Current portion of preferred stock . . . . . . . . . . 6,060 100,000
Commercial paper . . . . . . . . . . . . . . . . . . . 82,400 28,620
Accounts payable and accrued liabilities . . . . . . . 104,879 117,637
Interest accrued . . . . . . . . . . . . . . . . . . . 22,306 24,093
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 51,965 22,231
Other. . . . . . . . . . . . . . . . . . . . . . . . . 47,278 68,027
---------- ----------
Total Current Liabilities . . . . . . . . . . . . . 351,330 397,611
Regulatory and Other Liabilities
Regulatory liabilities:
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 127,581 128,643
Deferred income taxes . . . . . . . . . . . . . . . . 102,029 108,605
Other regulatory liabilities. . . . . . . . . . . . . 58,020 56,729
---------- ----------
Total regulatory liabilities. . . . . . . . . . . . 287,630 293,977
Other liabilities
Accumulated deferred investment tax credit. . . . . . 122,931 126,032
Deferred income taxes - other . . . . . . . . . . . . 637,473 617,452
Other postretirement benefits . . . . . . . . . . . . 83,477 75,683
Liability for environmental restoration . . . . . . . 31,800 31,800
Other . . . . . . . . . . . . . . . . . . . . . . . . 77,291 81,288
---------- ----------
Total other liabilities . . . . . . . . . . . . . . 952,972 932,255
Total Regulatory and Other Liabilities. . . . . . . 1,240,602 1,226,232
Commitments and Contingencies . . . . . . . . . . . . . - -
---------- ----------
Total Capitalization and Liabilities. . . . . . . .$5,087,122 $5,114,331
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Cash Flows - (Unaudited)
(Thousands)
Periods Ended June 30 Six Months
1996 1995
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $119,558 $100,214
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . 94,143 92,036
Deferred fuel and purchased gas. . . . . . . . . 110 17,138
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . . (10,192) 4,938
Changes in current operating assets and liabilities:
Accounts receivable excluding accounts
receivable sold. . . . . . . . . . . . . . . . 15,343 43,965
Inventory. . . . . . . . . . . . . . . . . . . . (2,455) 12,449
Accounts payable and accrued liabilities . . . . (12,758) (17,120)
Taxes accrued. . . . . . . . . . . . . . . . . . 29,734 28,082
Other, net . . . . . . . . . . . . . . . . . . . . 27,650 (20,856)
------- --------
Net Cash Provided by Operating Activities . . . 261,133 260,846
------- --------
Investing Activities
Utility plant capital expenditures . . . . . . . . (94,075) (68,766)
Proceeds received from governmental and
other sources . . . . . . . . . . . . . . . . . 1,131 3,730
Expenditures for other property and investments. . (1,454) (2,480)
Funds restricted for capital expenditures. . . . . - 2,192
------- --------
Net Cash Used in Investing Activities . . . . . (94,398) (65,324)
------- --------
Financing Activities
Issuance of pollution control notes. . . . . . . . - 37,000
Repayments of preferred stock and first
mortgage bonds, including premiums. . . . . . . (168,076) (92,395)
Long-term notes, net . . . . . . . . . . . . . . . 1,099 (3,279)
Commercial paper, net. . . . . . . . . . . . . . . 53,780 (92,600)
Dividends on common and preferred stock. . . . . . (57,006) (59,547)
------- --------
Net Cash Used in Financing Activities . . . . . (170,203) (210,821)
------- --------
Net(Decrease)in Cash and Cash Equivalents . . . . . (3,468) (15,299)
Cash and Cash Equivalents, Beginning of Period. . . 11,433 22,322
------- --------
Cash and Cash Equivalents, End of Period. . . . . . $7,965 $7,023
======= ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $57,866 $61,699
Income taxes. . . . . . . . . . . . . . . . . . . $49,581 $25,917
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 June 30 Six Months
1996 1995
Balance, beginning of period. . . . . . . . . . $424,412 $346,547
Add net income. . . . . . . . . . . . . . . . . 119,558 100,214
--------- --------
543,970 446,761
Deduct dividends on capital stock:
Preferred. . . . . . . . . . . . . . . . . . . 4,719 9,475
Common . . . . . . . . . . . . . . . . . . . . 50,052 50,052
--------- --------
54,771 59,527
Deduct premium paid on preferred stock redemption 7,010 -
--------- --------
Balance, end of period. . . . . . . . . . . . . $482,189 $387,234
======== ========
The notes on page 6 are an integral part of the financial statements.
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, 1995. 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 1996 presentation.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Competitive conditions (See Form 10-K for fiscal year ended
December 31, 1995, Item 1(c)(x) - Competitive conditions)
The electric and natural gas utility landscape is changing
rapidly as energy markets become more competitive, complex and
dynamic. The company is positioning itself to take maximum
advantage of the industry's move to a competitive market.
Regulatory changes, accounting issues, customer satisfaction, the
economic climate and operational and financial flexibility will
all affect the company's competitive position. In addition,
diversified opportunities closely related to the company's core
business are receiving focused attention as the company
transforms itself into a successful competitor.
Regulatory Changes (See Form 10-Q for the quarter ended March 31,
1996, Item 2(a) - Liquidity and Capital Resources, Competitive
Conditions - Regulatory Changes)
Regulatory issues being addressed by the Public Service
Commission of the State of New York (PSC), regulators in other
states and the Federal Energy Regulatory Commission (FERC) will
ultimately bring about dramatic changes in the electric industry.
On April 24, 1996, the FERC issued two orders in its proceeding
(Mega-NOPR) relating to the development of competitive wholesale
electric markets. On May 20, 1996, the PSC issued an Opinion and
Order (Opinion) in its Competitive Opportunities Proceeding.
Mega-NOPR: On April 24, 1996, FERC issued Orders 888 and
889 adopting final rules to facilitate the development of
competitive wholesale electric markets by opening up transmission
services and to address the resulting stranded costs.
The FERC directed all public utilities to file a compliance
open access transmission tariff on or before July 9, 1996. Order
888 allows utilities to submit further modifications to their
respective tariff, and customers to request modifications to the
tariff.
The company filed its compliance open access transmission
tariff and a modified open access transmission tariff on July 9
and July 10, 1996, respectively. The company is required to
operate under the July 9 compliance tariff until the July 10
modified tariff is accepted.
Under the compliance open access tariff, the company must
offer transmission service to its wholesale customers on a basis
that is comparable to that which it provides itself. The company
is also required to offer and/or provide certain ancillary
services.
Competitive Opportunities Proceeding: In August 1994 the
PSC instituted an investigation of issues related to a
restructuring of the electric industry in New York (Competitive
Opportunities Proceeding). The overall objective of the
Competitive Opportunities Proceeding is to identify regulatory
and ratemaking practices that will assist in the transition to a
more competitive electric industry.
On May 20, 1996, the PSC issued their Opinion which sets
forth the PSC's vision and goals for the future of the electric
industry in New York. The Opinion calls for a competitive
wholesale power market in early 1997 and the introduction of
retail access for all electric customers in early 1998. The
PSC's goals include lowering rates for consumers, increasing
customer choice, continuing reliability of service, continuing
programs that are in the public interest, allaying concerns about
market power and continuing customer protections and the
obligation to serve.
In the Opinion, the PSC strongly encourages divestiture,
particularly of generation assets, but does not require it. The
Opinion states that incentives for divestiture will be worked out
individually for each utility in conjunction with its filing to
the PSC due by October 1, 1996 setting forth a rate/restructuring
plan (see below). The Opinion also states that utilities should
have a reasonable opportunity to seek recovery of strandable
costs consistent with the goals of lowering rates, fostering
economic development, increasing customer choices and maintaining
reliable service.
The Opinion requires each of the major New York electric
utilities (except for Long Island Lighting Company and Niagara
Mohawk Power Corporation) to submit a rate/restructuring plan by
October 1, 1996 that addresses, at a minimum, the following
matters:
- The corporate structure of each utility in both the short
and long term, the schedule for and cost of attaining that
structure, a description of how that structure complies with
the PSC's vision and, in cases where divesture of
generation is not proposed, effective mechanisms to
adequately address resulting market power concerns;
- A schedule for introducing retail access to all of the
utility's customers and a set of unbundled tariffs that is
consistent with the retail access program;
- A rate plan to be effective for a significant portion of
the transition that incorporates the PSC's goal of moving to
a competitive market, including mechanisms to reduce rates
and address strandable costs;
- Identification of public policy programs, whose funding is
not recoverable in a competitive market, that need special
rate treatment and competitively neutral mechanisms to
recover such costs;
- Examination of load pockets unique to the utility,
identification of potential market power problems and
proposals to mitigate market power; and
- A plan for the provision of energy services, including
customer protections that are consistent with an emerging
competitive market.
Following the submission of the October 1, 1996 filings, all
parties in the Competitive Opportunities Proceeding will be able
to review and comment on the filings. The PSC will then review
each filing.
The company is actively working on preparation of the above
filing called for in the Order.
Certain above-market costs that New York utilities bear may
impair their ability to compete with utilities in other states.
The company and the Energy Association of New York State have
urged the State of New York to immediately implement policy
changes to reduce electricity prices, in ways that could be
accomplished without industry restructuring. For example, policy
changes could reduce costs associated with purchases from non-
utility generators (NUGs), eliminate and/or reduce the gross
receipts tax and reduce other state and local taxes.
Natural Gas Industry
The PSC issued an Opinion and Order in December 1994
(December Order) that set forth the policy framework to guide the
transition and movement of New York's gas distribution industry
to a more competitive marketplace in the post-FERC Order 636
environment. The PSC subsequently issued an Order on
Reconsideration in August 1995 addressing petitions for rehearing
or clarification of the December Order. In November 1995 the
company, and other utilities, filed restructuring tariffs in
compliance with the PSC's Order on Reconsideration. Under the
company's tariffs, approved by PSC Order on March 28, 1996 (March
Order) with certain modifications, residential and small
businesses may buy natural gas from other sources with the
company providing delivery service for a separate fee. The March
Order approving the company's tariffs is not expected to have a
material impact on the company's natural gas operations. In
addition, consistent with the March Order, the company is
implementing new services to compete more effectively for sales
to larger, more sophisticated transportation customers.
On April 29, 1996, the company and other utilities filed a
petition for rehearing of certain of the determinations made in
the March Order, including the PSC's decisions to not deal with
the stranded cost issue beyond three years and to provide new
customers the same access to pipeline capacity as existing
customers.
Operational and Financial Flexibility
Generating Unit Performance: In July 1996 the company
announced plans to remove three generating units from active
service by mid-1997 if initiatives to improve their marketability
did not succeed. The three units, two at Jennison Generating
Station and one at Hickling Generating Station, represent 121
megawatts (MW) of capacity and would be placed on long-term cold
standby. Currently Goudey, Greenidge and Hickling generating
stations each have one unit on long-term cold standby,
representing a combined capacity of 132 MW. Certain of these
units operated intermittently in 1996 when energy markets were
favorable.
<PAGE>
Rate Matters (See Form 10-K for fiscal year ended December 31,
1995, Item 1(a) - Rates and regulatory matters, Electric Rate
Settlement)
On August 1, 1995, the PSC approved a new three-year
electric rate settlement agreement (electric agreement) for the
period August 1, 1995 through July 31, 1998. The electric
agreement provides for additional revenue of $45.3 million and
$45.5 million in years two and three, respectively, with the rate
design for years two and three to be determined at a later date.
In May 1996 a PSC Administrative Law Judge issued a
Recommended Decision (RD) on the rate design for years two and
three of the electric agreement. Year two calls for a price
freeze for about 1,600 industrial and high load factor commercial
and public authority customers; an average increase of 2.8% for
most other nonresidential customers; and an average increase of
3.7% for residential customers, mostly collected through an
increase in the basic monthly service charge.
To date, the PSC has not acted on the implementation of
years two and three of the company's electric agreement.
Apparently the PSC needs more time to determine how the electric
agreement fits with its Opinion in the Competitive Opportunities
Proceeding. The company expects the PSC to consider the matter
at its meeting later in August.
On July 19, 1996, the company filed tariff leaves reflecting
rates for year two of the electric agreement with the PSC. The
rates reflect a design based on the RD and have an effective date
of September 1, 1996. A surcharge will be applied to the rates
of the customers mentioned above to reflect the collection of the
year two revenue requirement over an eleven month period.
Diversification
NGE Enterprises, Inc. (NGE), a wholly-owned subsidiary of
the company, owns four unregulated businesses - EnerSoft
Corporation (EnerSoft), XENERGY, Inc. (XENERGY), NGE Funding
Corporation (NGE Funding) and NGE Environmental, Inc. (NGE
Environmental).
EnerSoft, formed in May 1993, develops and markets computer
software and real-time information and trading systems for
natural gas utilities, marketers and pipeline operators.
EnerSoft, in 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.
The system was available for use on August 11, 1995.
<PAGE>
Electronic trading of natural gas and pipeline capacity is
an emerging market. The electronic trading industry is
continuously developing new products and the nature of the
industry and competition create a risk that certain products may
not recover the cost of their development. Channel 4 is
competing against other electronic gas trading systems, most of
which are owned and operated by natural gas pipeline companies.
The Channel 4 system has been adding subscribers; however, sales
to date continue to be disappointing.
EnerSoft has been incurring operating losses, and it is
anticipated that this will continue in 1996 and 1997. Market
acceptance of electronic gas trading and the Channel 4 product is
key to improving EnerSoft's financial performance; however,
market acceptance remains slow. NGE is currently considering
various strategic alternatives regarding EnerSoft.
XENERGY, acquired in June 1994, is an energy services,
information systems and energy-consulting company providing
energy services, conservation engineering and professional
services to utilities, governmental agencies and end-use energy
consumers. XENERGY's 1995 revenues were lower than expected due
to a soft utility demand-side management consulting market.
Revenues in 1996 are expected to be comparable to 1995. However,
as a result of the reorganization mentioned below, revenues are
expected to begin to improve later this year.
In order to meet the changing demands of the market place,
XENERGY's management undertook a major reorganization in November
1995. This better positions XENERGY to take advantage of the
emerging opportunities in a competitive utility industry. In
addition to focusing on new revenue sources, actions were taken
to reduce corporate overhead costs, including a workforce
reduction.
XENERGY has been successful in securing customers to supply
electricity under pilot programs for retail electricity
competition. In Massachusetts, XENERGY was chosen to supply 200
million kilowatt hours per year to the Massachusetts High
Technology Council, a group of 13 companies participating in the
pilot program. In New Hampshire, XENERGY has formed an alliance
with Freedom Energy Company, L.L.C. to supply power to customers
representing approximately 10 percent of the 50MW load in the
pilot program.
NGE formed NGE Funding on April 18, 1996. This financing
entity was created to provide debt and lease financing to end-use
customers as a value-added service in support of NGE's efforts in
the energy services business.
<PAGE>
To expand its presence in the end-use energy services
market, XENERGY, on April 29, 1996 purchased KENETECH Energy
Management, Inc. This acquisition provides XENERGY with a number
of performance based energy contracts, an expanded client base,
and a greater depth of experience in the performance based
contract area.
On May 1, 1996, NGE formed NGE Environmental. This entity
was created for NGE's entry into the environmental services
business. NGE has been exploring opportunities in this area with
both domestic and foreign strategic partners in the United States
and international markets.
NGE continues to explore operating services opportunities
with both domestic and foreign strategic partners in the U.S. and
international markets.
As of July 31, 1996 and December 31, 1995, the company had
invested approximately $56 million and $54 million, respectively,
in NGE to finance its diversified investments. For the six
months ended June 30, 1996 and for the year ended December 31,
1995, NGE incurred net losses of $6 million and $12 million,
respectively. The company expects that NGE will continue to
incur operating losses at least through 1997. The loss in 1996
is expected to be comparable to 1995 with a slight improvement
expected in 1997.
Investing Activities
Capital expenditures for the first six months of 1996
totaled $94 million, primarily for the purchase of facilities,
extension of service, necessary improvements at existing
facilities and environmental compliance requirements. The
company estimates its capital expenditures in 1996 will total
$215 million and will be financed entirely with internally
generated funds.
Financing Activities
In April 1996 the Company redeemed the remaining $37 million
of its 8 5/8% Series first mortgage bonds due 2007, at a premium,
through the issuance of commercial paper.
In July 1996 the company purchased the following, at a
discount, through the issuance of commercial paper: $2.6 million
of its 4.15% preferred stock, $1.5 million of its 4.15% (1954)
preferred stock and $2.0 million of its 4.40% preferred stock.
<PAGE>
(b) Results of Operations
Three months ended June 30, 1996 compared with three months ended
June 30, 1995:
1996 1995 % Change
(Thousands, except per share amounts)
Operating revenues $452,933 $439,916 3%
Earnings available for
common stock $18,496 $19,914 (7%)
Average shares outstanding 71,503 71,503 -
Earnings per share $.26 $.28 (7%)
Dividends per share $.35 $.35 -
Earnings per share for the three months ended June 30, 1996,
decreased two cents compared to the same quarter a year ago.
Electric and natural gas retail deliveries for the quarter rose
3% and 7%, respectively, over last year. The increases in
deliveries were mainly due to a combination of additional
customers and the effects of weather. Higher second quarter
sales, including wholesale sales, did not have a significant
effect on earnings due to lower margins in 1996. The lower
electric and natural gas margins were mainly the result of higher
commodity costs.
Lower interest charges added three cents to second quarter
1996 earnings and a reduction in preferred stock dividends due to
the January 1996 redemption of $100 million of 8.95% preferred
stock net of related interest expense on commercial paper, added
two cents to earnings per share. Those increases were offset by
an increase in certain operating expenses, which reduced earnings
per share by five cents.
<PAGE>
Six months ended June 30, 1996 compared with six months ended
June 30, 1995:
1996 1995 % Change
(Thousands, except per share amounts)
Operating revenues $1,071,697 $1,011,826 6%
Earnings available for
common stock $114,839 $90,739 27%
Average shares outstanding 71,503 71,503 -
Earnings per share $1.61 $1.27 27%
Dividends per share $.70 $.70 -
For the six months ended June 30, 1996, earnings per share
rose 34 cents compared to the same period a year ago. Higher
electric and natural gas retail sales added 23 cents to earnings
per share for the six months. The higher sales were mainly due
to a combination of colder weather in the first quarter of 1996
compared to the mild winter last year and additional customers.
Earnings increased up to eight cents per share due to the
elimination of the gas adjustment clause, which will reverse
later this year.
Lower interest charges in 1996 added six cents to earnings
per share and a reduction in preferred stock dividends, due to
the January 1996 redemption of $100 million of 8.95% preferred
stock net of related interest expense on commercial paper, added
four cents to earnings per share. Those increases were partially
offset by increases in maintenance and other operating expenses,
which lowered earnings per share by three cents, and a two-cent
charge to earnings per share due to a decrease in other income
and deductions.
<PAGE>
Operating Results by Business Segment
Electric Three Months ended June 30,
1996 1995 % Change
(Thousands)
Retail sales-kilowatt-
hours (kwh) 3,092,135 2,995,103 3%
Operating revenues $397,088 $388,559 2%
Operating expenses $342,288 $329,978 4%
Operating income $54,800 $58,581 (6%)
Electric retail sales increased 3% for the quarter ended
June 30, 1996, primarily as a result of weather and additional
customers.
The $9 million, or 2%, increase in electric operating
revenues for the quarter was primarily due to higher retail
sales, which added $11 million to revenues. Changes in prices
effective August 1995 added another $5 million to revenues. Those
increases were partially offset by a $6 million decrease in
regulatory deferrals and a $3 million decrease in sales of
electricity to others.
Electric operating expenses increased by $12 million for the
three months, primarily due to a $13 million increase in
electricity purchased, mostly due to purchases from NUGs.
Increases in certain operating costs added another $3 million to
expenses. Those increases were partially offset by a $5 million
decrease in fuel used in electric generation (due to reduced
generation).
<PAGE>
Six Months ended June 30,
1996 1995 % Change
(Thousands)
Retail sales-kilowatt-
hours (kwh) 6,734,641 6,457,193 4%
Operating revenues $869,440 $838,560 4%
Operating expenses $714,389 $688,257 4%
Operating income $155,051 $150,303 3%
For the six months ended June 30, 1996, electric retail
sales increased 4% primarily due to colder weather in the first
quarter of 1996 compared to the mild winter last year.
The $31 million, or 4%, increase in electric operating
revenues for the six months ended June 30, 1996, was primarily
due to higher retail sales which added $30 million to revenues.
Changes in prices effective August 1995 added another $19 million
to revenues. Those increases were partially offset by a $16
million decrease in regulatory deferrals and a $4 million
decrease in sales of electricity to others.
Electric operating expenses rose $26 million, or 4%, for the
six months ended June 30, 1996, compared to the prior year
period. Increases in electricity purchased, mostly due to
purchases from NUGs, increased operating expenses by $24 million
and federal income taxes added another $9 million to operating
expenses as a result of higher pretax book income. Those
increases were partially offset by a $9 million decrease in fuel
used in electric generation (due to reduced generation).
Natural Gas Three Months ended June 30,
1996 1995 % Change
(Thousands)
Deliveries-
dekatherms (dth) 10,938 10,186 7%
Operating revenues $55,845 $51,357 9%
Operating expenses $55,760 $49,045 14%
Operating income $85 $2,312 (96%)
Natural gas deliveries increased 7% for the second quarter
of 1996 compared to 1995 due to a combination of additional
customers and the effects of weather.
For the three months ended June 30, 1996, natural gas
operating revenues rose $4 million, or 9%, compared to the same
quarter in 1995. The increase was primarily due to changes in
prices effective in August 1995 which added $3 million to
revenues.
<PAGE>
The increase of $7 million in natural gas operating expenses
for the quarter ended June 30, 1996, was primarily due to a $6
million increase in natural gas purchased that was mostly due to
higher commodity prices. Increases in certain operating costs
added another $2 million to expenses. A decrease in federal
income taxes of $1 million due to lower pretax book income
partially offset those increases.
Six Months ended June 30,
1996 1995 % Change
(Thousands)
Deliveries-
dekatherms (dth) 36,275 32,725 11%
Operating revenues $202,257 $173,266 17%
Operating expenses $167,960 $151,920 11%
Operating income $34,297 $21,346 61%
Natural gas deliveries increased 11% for the six months
ended June 30, 1996, compared to the same period in 1995, due to
a combination of additional customers and colder weather in the
first quarter of 1996 compared to the mild winter last year.
For the six months ended June 30, 1996, natural gas
operating revenues increased $29 million, or 17%, compared to the
six months ended June 30, 1995. Higher retail sales added $16
million, changes in prices effective August 1995 added $8 million
and increased transportation of customer-owned gas added $2
million to revenues for the period.
Natural gas operating expenses were $16 million, or 11%,
higher for the first six months of 1996 compared to the same
period in 1995. Operating expenses increased because of higher
federal income taxes, the result of higher pretax book income,
which added $7 million and an increase in natural gas purchased,
due to a higher volume of purchases, which added $4 million.
Increases in certain operating costs and an increase in
distribution costs added another $3 million to expenses.
<PAGE>
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
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 (Eastern 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,
1994 and August 10, 1994. The complaint alleged 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 sought to recover damages in
an unspecified amount.
On November 23, 1994, the Defendants made a motion to
dismiss. On August 21, 1995 the Eastern 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 (Court of Appeals).
On May 22, 1996 the Court of Appeals affirmed the decision.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the company was held
on May 10, 1996. The following matters were voted upon:
a) The election of four directors:
Nominees Cumulative Votes For Cumulative Votes Withheld
A. P. Casarett 59,546,469 269,516
J. J. Castiglia 59,928,551 112,566
L. B. DeFleur 59,739,250 76,735
J. M. Keeler 58,017,164 1,798,821
b) A stockholder proposal relating to the elimination of a
classified Board of Directors was defeated:
Shares For: 21,281,812
Shares Against: 30,044,897
Shares Abstain: 1,528,205
Broker "Non Voted": 8,889,779
c) A stockholder proposal relating to a percentage reduction in
director remuneration based on a dividend reduction was
defeated:
Shares For: 10,868,067
Shares Against: 39,417,760
Shares Abstain: 1,302,625
Broker "Non Voted": 8,921,279
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
Vice President and Controller
(Chief Accounting Officer)
Date: August 8, 1996<PAGE>
EXHIBIT INDEX
27 -- Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> UT EXHIBIT 27
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,956,889
<OTHER-PROPERTY-AND-INVEST> 111,477
<TOTAL-CURRENT-ASSETS> 333,427
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 685,329
<TOTAL-ASSETS> 5,087,122
<COMMON> 476,686
<CAPITAL-SURPLUS-PAID-IN> 843,923
<RETAINED-EARNINGS> 482,189
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,802,798
25,000
134,440
<LONG-TERM-DEBT-NET> 1,532,952
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 82,400
<LONG-TERM-DEBT-CURRENT-PORT> 36,442
6,060
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,467,030
<TOT-CAPITALIZATION-AND-LIAB> 5,087,122
<GROSS-OPERATING-REVENUE> 1,071,697
<INCOME-TAX-EXPENSE> 81,929
<OTHER-OPERATING-EXPENSES> 800,420
<TOTAL-OPERATING-EXPENSES> 882,349
<OPERATING-INCOME-LOSS> 189,348
<OTHER-INCOME-NET> (7,476)
<INCOME-BEFORE-INTEREST-EXPEN> 181,872
<TOTAL-INTEREST-EXPENSE> 62,314
<NET-INCOME> 119,558
4,719
<EARNINGS-AVAILABLE-FOR-COMM> 114,839
<COMMON-STOCK-DIVIDENDS> 50,052
<TOTAL-INTEREST-ON-BONDS> 54,473
<CASH-FLOW-OPERATIONS> 261,133
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
</TABLE>
