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, 1997
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, 1997 was 67,502,827.
<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 . . . . . 7
(b) Results of Operations . . . . . . . . . . 11
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . 17
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)
Three Months Six Months
Periods Ended June 30 1997 1996 1997 1996
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . $411,453 $397,088 $862,723 $869,440
Natural gas. . . . . . . . . . . . . 58,917 57,579 195,784 207,283
------- ------- --------- ---------
Total Operating Revenues. . . . . 470,370 454,667 1,058,507 1,076,723
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 52,706 46,699 112,689 106,280
Electricity purchased. . . . . . . . 98,247 90,062 191,459 180,688
Natural gas purchased. . . . . . . . 28,462 34,091 88,869 103,134
Other operating expenses . . . . . . 80,967 84,411 160,528 160,534
Maintenance. . . . . . . . . . . . . 30,550 28,411 54,467 53,527
Depreciation and amortization. . . . 48,027 47,052 96,316 94,143
Other taxes. . . . . . . . . . . . . 48,668 49,017 103,909 107,140
------- ------- --------- ---------
Total Operating Expenses. . . . . 387,627 379,743 808,237 805,446
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 82,743 74,924 250,270 271,277
Interest Charges, Net . . . . . . . . 29,882 30,202 60,508 62,314
Other Income and Deductions . . . . . 4,578 9,146 9,346 17,837
------- ------- --------- ---------
Income Before Federal Income Taxes. . 48,283 35,576 180,416 191,126
Federal Income Taxes. . . . . . . . . 22,008 14,694 72,164 71,568
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 26,275 20,882 108,252 119,558
Preferred Stock Dividends . . . . . . 2,352 2,386 4,667 4,719
------- ------- --------- ---------
Earnings Available for Common Stock . $23,923 $18,496 $103,585 $114,839
======= ======= ========= =========
Earnings Per Share. . . . . . . . . . $.35 $.26 $1.51 $1.61
Dividends Per Share . . . . . . . . . $.35 $.35 $.70 $.70
Average Shares Outstanding. . . . . . 68,279 71,503 68,813 71,503
The notes on pages 6 and 7 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)
June 30, Dec. 31,
1997 1996
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $13,422 $8,253
Special deposits . . . . . . . . . . . . . . . . . . . 2,694 31,364
Accounts receivable, net . . . . . . . . . . . . . . . 135,558 189,043
Fuel, at average cost. . . . . . . . . . . . . . . . . 34,274 36,472
Materials and supplies, at average cost. . . . . . . . 44,285 43,044
Prepayments. . . . . . . . . . . . . . . . . . . . . . 46,893 47,169
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . . . 23,404 3,424
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 300,530 358,769
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 5,200,018 5,177,365
Natural gas. . . . . . . . . . . . . . . . . . . . . . 548,186 529,023
Common . . . . . . . . . . . . . . . . . . . . . . . . 155,218 151,290
---------- ----------
5,903,422 5,857,678
Less accumulated depreciation. . . . . . . . . . . . . 2,010,945 1,933,599
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . . 3,892,477 3,924,079
Construction work in progress. . . . . . . . . . . . . 58,082 58,285
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 3,950,559 3,982,364
Other Property and Investments, Net . . . . . . . . . . 95,947 99,221
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 267,711 269,767
Environmental remediation costs . . . . . . . . . . . 84,600 32,100
Unamortized debt expense. . . . . . . . . . . . . . . 78,862 80,745
Demand-side management program costs. . . . . . . . . 69,576 71,425
Other . . . . . . . . . . . . . . . . . . . . . . . . 125,768 149,561
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 626,517 603,598
Other assets . . . . . . . . . . . . . . . . . . . . . 22,242 15,729
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 648,759 619,327
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $4,995,795 $5,059,681
========== ==========
The notes on pages 6 and 7 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)
June 30, Dec. 31,
1997 1996
(Thousands)
Liabilities
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $32,972 $83,488
Commercial paper . . . . . . . . . . . . . . . . . . . 37,800 129,300
Accounts payable and accrued liabilities . . . . . . . 92,465 121,123
Interest accrued . . . . . . . . . . . . . . . . . . . 20,814 22,195
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 42,825 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . 53,036 71,324
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 279,912 427,430
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 107,967 109,065
Deferred income taxes . . . . . . . . . . . . . . . . 88,280 94,004
Other . . . . . . . . . . . . . . . . . . . . . . . . 78,535 65,471
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 274,782 268,540
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 754,449 751,553
Other postretirement benefits . . . . . . . . . . . . 106,509 95,195
Environmental remediation costs . . . . . . . . . . . 84,600 32,100
Other . . . . . . . . . . . . . . . . . . . . . . . . 70,535 74,627
---------- ----------
Total other liabilities. . . . . . . . . . . . . . . . 1,016,093 953,475
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,486,620 1,480,814
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 3,057,407 3,130,259
Commitments - -
Preferred Stock Redeemable Solely at the
Option of the Company. . . . . . . . . . . . . . . . 134,440 134,440
Preferred Stock Subject to Mandatory
Redemption Requirements. . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock . . . . . . . . . . . . . . . . . . . . 462,250 464,469
Capital in excess of par value. . . . . . . . . . . . 811,793 816,384
Retained earnings . . . . . . . . . . . . . . . . . . 544,470 489,129
Treasury stock . . . . . . . . . . . . . . . . . . . (39,565) -
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 1,778,948 1,769,982
---------- ----------
Total Liabilities and Stockholders' Equity . . . . $4,995,795 $5,059,681
========== ==========
The notes on pages 6 and 7 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)
Six Months
Periods Ended June 30 1997 1996
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $108,252 $119,558
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 96,316 94,143
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . . (23,381) (10,192)
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . 53,485 15,343
Inventory . . . . . . . . . . . . . . . . . . . 957 (2,455)
Accounts payable and accrued liabilities . . . . (28,658) (12,758)
Taxes accrued. . . . . . . . . . . . . . . . . . 42,825 29,734
Other, net . . . . . . . . . . . . . . . . . . . . 27,146 27,760
------- --------
Net Cash Provided by Operating Activities . . . 276,942 261,133
-------- --------
Investing Activities
Utility plant capital expenditures . . . . . . . . (55,842) (94,075)
Proceeds from governmental and other sources . . . 911 1,131
Expenditures for other property and investments. . (804) (1,454)
-------- --------
Net Cash Used in Investing Activities . . . . . (55,735) (94,398)
-------- --------
Financing Activities
Repurchase of common stock . . . . . . . . . . . . (7,254) -
Purchase of treasury stock . . . . . . . . . . . . (39,565) -
Repayments of first mortgage bonds and
preferred stock, including net premiums. . . . . (48,000) (168,076)
Changes in funds set aside for first mortgage
bond repayments. . . . . . . . . . . . . . . . . 25,000 -
Long-term notes, net . . . . . . . . . . . . . . . (1,667) 1,099
Commercial paper, net. . . . . . . . . . . . . . . (91,500) 53,780
Dividends on common and preferred stock. . . . . . (53,052) (57,006)
-------- --------
Net Cash Used in Financing Activities . . . . . (216,038) (170,203)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . . 5,169 (3,468)
Cash and Cash Equivalents, Beginning of Period. . . 8,253 11,433
-------- --------
Cash and Cash Equivalents, End of Period. . . . . . $13,422 $7,965
======== ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $55,230 $57,866
Income taxes. . . . . . . . . . . . . . . . . . . $65,252 $49,581
The notes on pages 6 and 7 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)
Six Months
Periods ended June 30 1997 1996
(Thousands)
Balance, beginning of period. . . . . . . . . . $489,129 $424,412
Add net income. . . . . . . . . . . . . . . . . 108,252 119,558
-------- --------
597,381 543,970
Deduct dividends on capital stock
Preferred. . . . . . . . . . . . . . . . . . . 4,667 4,719
Common . . . . . . . . . . . . . . . . . . . . 48,244 50,052
-------- --------
52,911 54,771
Deduct premium paid on preferred
stock redemption. . . . . . . . . . . . . . . - 7,010
-------- --------
Balance, end of period. . . . . . . . . . . . . $544,470 $482,189
======== ========
The notes on pages 6 and 7 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, 1996. Due to the seasonal nature of the company's
operations, financial results for interim periods are not
necessarily 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 1997 presentation.
Note 3. Stock-Based Compensation Plans
The shareholders of the company approved the 1997 Stock
Option Plan at the Annual Meeting of Stockholders in May 1997.
(See Part II, Item 4. Submission of Matters to a Vote of Security
Holders.) The company applies the provisions of Statement of
Financial Accounting Standards No. 123 (Statement 123),
Accounting for Stock-Based Compensation, to its stock-based
compensation plans and accounts for them in accordance with
Accounting Principles Board No. 25, Accounting for Stock Issued
to Employees, as permitted by Statement 123.
Note 4. Unsolicited Tender Offer
(See Part II, Item 1. Legal Proceedings.)
On July 18, 1997, a subsidiary of Omaha, Nebraska-based
CalEnergy Company, Inc. (CalEnergy) commenced an unsolicited
tender offer to purchase 9.9% of the company's common stock for
$24.50 per share in cash as part of a stated plan to acquire all
of the company's common stock. The company's board of directors
(Board), after a comprehensive and careful review, unanimously
recommended that shareholders reject CalEnergy's unsolicited
tender offer. The Board also decided to reject CalEnergy's
proposal to commence merger negotiations for a transaction in
which CalEnergy would acquire all of the company's common stock
at $27.50 per share, as not being in the best interests of the
company or its shareholders, customers, employees and other
constituencies. The company recognized a liability of $18 million
in July 1997 for commitments to financial advisors providing
services related to this matter. The company is recognizing
expenses for those and all other fees related to this matter as
fees are earned.
<PAGE>
Note 5. Benefit Trusts
In accordance with the terms of the Employee Benefit Trust
Agreement and Director Benefit Trust Agreement, each dated
July 1, 1994, as amended, the company deposited $52 million into
external trust funds in July 1997. The obligation to make such
deposits arose as a result of the actions of CalEnergy. (See
Note 4. Unsolicited Tender Offer.) Those agreements cover
employee severance agreements and certain employee and director
plans.
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, 1996, Item 7 - Liquidity and Capital Resources -
Competitive Conditions - Electric Industry and Natural Gas
Industry, Accounting Issues, and Rate Matters - Electric Rate
Settlement and Form 10-Q for the quarter ended March 31, 1997,
Item 2(a) - Liquidity and Capital Resources - Competitive
Conditions - Electric Rate and Restructuring Plan, and FERC
Orders 888 and 889.)
Electric Industry
Electric Rate and Restructuring Plan
The company reached an agreement with the Public Service
Commission of the State of New York (PSC) Staff, on July 28,
1997, on the principles to govern a settlement of the company's
electric rate and restructuring plan. A settlement agreement
(Settlement Agreement) reflecting, among other things, those
principles is expected to be entered into shortly with the PSC
Staff and others. The Settlement Agreement, which is subject to
PSC approval, will include the following key elements:
- Forgo two previously approved price increases for
residential and certain commercial customers totaling 6%
and freeze overall average electric prices for those
customers through July 31, 2002;
- Rates for large-use industrial and commercial customers
will be reduced 5% each year for the next five years;
- A retail choice program that is the most aggressive plan
in the state for implementing customer choice, under which
all customers will be permitted to buy electricity in a
competitive marketplace by August 1, 1999, reinforcing the
company's commitment to competition;
- After further negotiation, an extension of the current
natural gas settlement through July 2002;
<PAGE>
- The company will separate its fossil fuel generation into
an unregulated subsidiary. The fossil generating units
will be subject to an auction process, that will be
completed by August 1, 1999, in which the company can
participate; and
- The company will receive a reasonable opportunity to
recover all prudently incurred investments made in the
past.
Prices could be reduced further by passing back to customers
savings from renegotiation of nonutility generator (NUG)
contracts, the passage of proposed securitization legislation
and/or a reduction in the gross receipts tax.
The Settlement Agreement will be presented to all interested
parties and an administrative law judge, with the expectation of
a PSC decision in the fourth quarter of 1997.
The company is unable to predict the outcome of this
proceeding and its ultimate effect on the company's financial
position, results of operations or its eligibility to continue
applying Statement of Financial Accounting Standards No. 71
(Statement 71), Accounting for the Effects of Certain Types of
Regulation, to its regulated operations. Continued application
of Statement 71 requires that the company's regulated operations
must meet the following three criteria:
- rates for regulated services or products provided to
customers are subject to approval by an independent
third-party regulator,
- the regulated rates are designed to recover the company's
costs of providing regulated services or products, and
- it is reasonable to assume that rates set at levels that
will recover the company's costs can be charged to and
collected from customers.
Although the company believes that it will continue to meet
those criteria in the near future for its businesses that
continue to be regulated, it cannot predict what effect the
following two matters will have on its ability to do so:
1) recent inquiries by the Securities and Exchange Commission's
Chief Accountant regarding the continued application of Statement
71 for generation operations of electric utilities facing
restructuring or 2) authoritative guidance from the Financial
Accounting Standards Board's Emerging Issues Task Force related
to the continued application of Statement 71 during the
transition to competition. If the company no longer met the
criteria of Statement 71 for all or a separable part of its
business, it may have to record as expense or revenue certain
previously deferred items (regulatory assets and regulatory
liabilities) and may have to record as a loss the amount for
purchase power contracts with nonutility generators that is above
the estimated price in a competitive marketplace.
Dairylea's Petition to the PSC
The PSC issued an order in June 1997, requiring four upstate
utilities, including the company, to proceed with a retail access
pilot program for more than 17,000 upstate commercial farmers and
food processors, which includes approximately 6,700 of the
company's customers, who meet certain eligibility requirements.
The four utilities would continue to provide all services for
their participating customers except energy and capacity, which
would be supplied by alternative suppliers or energy services
companies. The program, which begins in November 1997, does not
include any provision for the recovery of stranded costs. On
June 23, 1997, the company filed a lawsuit in the New York State
Supreme Court, Albany County for a judgment annulling the PSC's
order. The company will withdraw this lawsuit if the PSC approves
the Settlement Agreement.
The company does not believe that this proceeding will have
a material adverse effect on its financial position or results of
operations.
Petition to the FERC on NUGs
The company petitioned the Federal Energy Regulatory
Commission (FERC) in February 1995, asking for relief from having
to pay approximately $2 billion more than its avoided costs for
power purchased over the lives of two NUG contracts. One of
these contracts is with Saranac Power Partners, L.P. (Saranac),
the general partner of which is Saranac Energy Company, Inc., a
wholly-owned, indirect subsidiary of CalEnergy. (See Note 4.
Unsolicited Tender Offer.) The other contract is with Lockport
Energy Associates, L.P. (Lockport). The FERC denied that
petition in April 1995 and denied the company's subsequent
request for a rehearing. The company believes that the
overpayments under the two contracts violate the Public Utility
Regulatory Policies Act of 1978.
The company filed a petition with the United States Court of
Appeals for the District of Columbia (Court of Appeals) in June
1995, to review the FERC's decision. On July 11, 1997, the Court
of Appeals issued a decision stating it lacks jurisdiction to
rule on the company's appeal of the FERC's refusal to modify the
power purchase contracts. The Court of Appeals said the company
may pursue its claim in the United States District Court. The
company commenced an action in the United States District Court
for the Northern District of New York (District Court) on
August 7, 1997, against Saranac, Lockport, FERC and the PSC. The
complaint asks the District Court to reform the two NUG contracts
by reducing the price the company must pay for electricity from
Saranac and Lockport or to send the matter back to the FERC or to
the PSC with direction that they modify such contracts. The
complaint also seeks restitution of all moneys paid to Saranac
and Lockport above the company's avoided costs.
The company continues to seek cost-effective ways to
terminate or renegotiate existing NUG contracts and thus reduce
its overpayment burdens under such contracts.
<PAGE>
FERC Orders 888 and 889
The FERC issued Orders 888 and 889 in April 1996, adopting
final rules to facilitate the development of competitive
wholesale electric markets by opening up transmission services
and to address the resulting stranded costs. In March 1997 the
FERC issued Orders 888-A and 889-A, which generally affirmed
Orders 888 and 889. Various parties, including the company, have
filed petitions for review of these orders with the United States
Courts of Appeals in various circuits.
In Order 888, the FERC directed all public utilities to file
a compliance open-access transmission tariff on or before July 9,
1996. In Order 888-A, the FERC directed all public utilities to
file a revised compliance tariff by July 14, 1997. The FERC has
approved the company's transmission tariffs.
Natural Gas Industry
Seneca Lake Natural Gas Storage Project
The company's Seneca Lake storage project was placed into
service in December 1996. The project consists of a natural gas
storage cavern, a compressor station and two natural gas
transmission pipelines.
The company received approval from the PSC on May 30, 1997,
for a $10 million expansion of the project's compressor station.
This expansion, which is scheduled to be completed by November 1,
1997, will increase the cavern's working gas storage capacity
from 800 million to 1.45 billion cubic feet of natural gas and
allow for growth in the company's wholesale natural gas business
through the sale of storage capacity.
Joint Venture with Central Maine Power Company (CMP)
The company and CMP have signed a memorandum of
understanding that could lead to the formation of a jointly-owned
company to distribute natural gas to Maine customers in areas not
currently served by a natural gas utility. Various regulatory
approvals are required before the joint venture could operate a
new gas distribution service. The opportunity for new retail
distribution of natural gas depends on completion of either or
both of two new pipeline proposals made by separate
organizations. Those proposals are currently under federal and
state regulatory review.
Investing Activities
Capital expenditures for the first six months of 1997 were
$56 million, primarily for the extension of service and necessary
improvements to existing facilities. The company estimates its
capital expenditures for 1997 will total $141 million and will be
financed entirely with internally generated funds.
Financing Activities
The company initiated a common stock repurchase program in
September 1996. As of June 30, 1997, the company had repurchased
all four million shares authorized under this program.
(b) Results of Operations
Three Months Ended June 30,
1997 1996 Change
(Thousands, except per share amounts)
Total Operating Revenues $470,370 $454,667 3%
Operating Income $82,743 $74,924 10%
Earnings Available for
Common Stock $23,923 $18,496 29%
Average Shares Outstanding 68,279 71,503 (5%)
Earnings Per Share $.35 $.26 35%
Dividends Per Share $.35 $.35 -
Earnings per share for the three months ended June 30, 1997,
increased nine cents compared to the prior year period. Lower
costs of natural gas purchased added six cents to earnings per
share and higher wholesale sales of electricity added five cents
to earnings per share. Decreased losses incurred by NGE
Enterprises, Inc. added three cents and reduced average shares
outstanding, due to the repurchase of common stock, increased
earnings per share another two cents.
Those increases were partially offset by higher costs of
mandated purchases of power from NUGs and lower electric retail
sales, due to milder weather, that reduced earnings per share
five and two cents, respectively.
Six Months ended June 30,
1997 1996 Change
(Thousands, except per share amounts)
Total Operating Revenues $1,058,507 $1,076,723 (2%)
Operating Income $250,270 $271,277 (8%)
Earnings Available for
Common Stock $103,585 $114,839 (10%)
Average Shares Outstanding 68,813 71,503 (4%)
Earnings Per Share $1.51 $1.61 (6%)
Dividends Per Share $.70 $.70 -
Earnings per share for the six months ended June 30, 1997,
decreased 10 cents compared to the same period last year. Higher
costs of mandated purchases of power from NUGs, a less favorable
electric sales mix in the first quarter, due to lower residential
and commercial sales but higher industrial sales, and higher
fuel costs due to increased electric generation, reduced earnings
per share 19 cents. Lower electric and natural gas retail sales,
primarily due to very mild weather in the first quarter, reduced
earnings per share an additional 19 cents.
Those decreases were partially offset by several items that
increased earnings per share. A decrease in the cost of natural
gas purchased added seven cents and higher wholesale sales of
electricity, decreased losses incurred by NGE Enterprises, Inc.
and reduced average shares outstanding, due to the repurchase of
common stock, each added six cents to earnings per share.
Operating Results by Business Segment
Electric Three Months ended June 30,
1997 1996 Change
(Thousands)
Retail Sales -
Megawatt-Hours (mwh) 3,071 3,092 (1%)
Operating Revenues $411,453 $397,088 4%
Operating Expenses $334,939 $321,137 4%
Operating Income $76,514 $75,951 1%
The $14 million increase in electric operating revenues for
the quarter was primarily due to a $16 million increase in
wholesale sales. Partially offsetting that increase were lower
retail sales, due to milder weather, that reduced revenues $3
million.
The $14 million increase in electric operating expenses is
primarily due to an $8 million increase in electricity purchased,
mostly due to higher costs of mandated purchases of power from
NUGs. Higher fuel costs, due to increased electric generation,
added another $6 million to operating expenses.
Six Months ended June 30,
1997 1996 Change
(Thousands)
Retail Sales -
Megawatt-Hours (mwh) 6,563 6,735 (3%)
Operating Revenues $862,723 $869,440 (1%)
Operating Expenses $666,908 $648,102 3%
Operating Income $195,815 $221,338 (12%)
Electric retail sales decreased 3% for the six months ended
June 30, 1997, primarily because of very mild weather in the
first quarter.
The $7 million decrease in electric operating revenues for
the six months ended June 30, 1997, is primarily due to lower
retail sales that decreased revenues $20 million and a less
favorable electric sales mix that lowered revenues $10 million.
Those decreases were partially offset by higher wholesale sales
of $18 million.
Electric operating expenses increased $19 million primarily
due to an $11 million increase in electricity purchased, mostly
due to higher costs of mandated purchases of power from NUGs, and
a $6 million increase in fuel costs due to an increase in
electric generation.
<PAGE>
Natural Gas Three Months ended June 30,
1997 1996 Change
(Thousands)
Retail Deliveries-
Dekatherms (dth) 10,889 10,938 -
Operating Revenues $58,917 $57,579 2%
Operating Expenses $52,688 $58,606 (10%)
Operating Income $6,229 ($1,027) N/A
The $1 million increase in natural gas operating revenues is
due to a more favorable sales mix that added $4 million to
revenues. That increase was partially offset by a $3 million
decrease in other revenues.
Natural gas operating expenses decreased $6 million due to a
$6 million decrease in the cost of natural gas purchased.
Six Months ended June 30,
1997 1996 Change
(Thousands)
Retail Deliveries -
Dekatherms (dth) 34,308 36,275 (5%)
Operating Revenues $195,784 $207,283 (6%)
Operating Expenses $141,329 $157,344 (10%)
Operating Income $54,455 $49,939 9%
Natural gas retail deliveries decreased 5% for the six
months ended June 30, 1997, primarily due to very mild weather in
the first quarter of 1997 and one low-margin customer that closed
its cogeneration plant.
The $11 million decrease in natural gas operating revenues
is due to lower retail deliveries.
Natural gas operating expenses decreased $16 million due to
a $14 million decrease in the cost of natural gas purchased and a
$2 million decrease in certain operating and maintenance costs.
<PAGE>
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(See Part I, Item 2(a) - Liquidity and Capital Resources -
Competitive Conditions - Electric Industry.)
(a) By letter dated April 20, 1992, the U.S. Environmental
Protection agency (EPA) notified the company that the EPA had
reason to believe that the company was a potentially responsible
party (PRP) for the Clinton-Bender Removal Site (Clinton-Bender
Site) in Buffalo, New York. Five other PRPs have been identified
by the EPA. Nine private residential lots and one commercial
property at the Clinton-Bender Site were contaminated with lead,
allegedly due to run-off from the adjacent Bern Metals Site. The
EPA ordered the company to perform the necessary removal work at
the Clinton-Bender Site and the company is remediating the site
in conjunction with four other identified PRPs. The total cost
of the removal actions to be performed at the Clinton-Bender Site
is estimated to be $3.1 million. The removal work is
substantially complete. The company and the other participating
parties are seeking to recover from other PRPs, not participating
in the remedial action at the Clinton-Bender Site, any cost that
the company and the other participating parties have incurred or
will incur.
On November 3, 1993, the company was served with a summons
and complaint filed on behalf of certain of the homeowners at the
Clinton-Bender Site. Seven other defendants were named in the
complaint, which was filed in the New York State Supreme Court,
Erie County (Supreme Court, Erie County). The action was removed
to the U.S. District Court for the Western District of New York
(Western District Court). In their complaint, plaintiffs made
general allegations that the defendants violated federal
environmental laws without alleging facts in support of these
allegations. Plaintiffs also alleged personal injury, property
damage, and fear of cancer which they claim were caused by the
presence of hazardous substances on their property, allegedly
resulting from the disposal of such substances by the defendants
at the Bern Metals Site. Any liability incurred as a result of
these claims may have been joint and several. The plaintiffs
asked for $30 million in direct damages from all defendants, as
well as treble damages (for unspecified reasons) from all
defendants, and an additional $10 million in punitive damages
from each defendant. By order dated September 1, 1995, the
Western District Court dismissed the plaintiffs claims made under
the Clean Air Act, the Clean Water Act, and the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
which are the only claims based upon federal causes of action,
and remanded the action to the Supreme Court, Erie County. In
June 1997 the company and certain other defendants entered into a
settlement agreement with the plaintiffs, under which the
plaintiffs discontinued their actions with prejudice. The
company paid $150,000 toward this settlement.
<PAGE>
(b) The company commenced an action against CalEnergy Company,
Inc. (CalEnergy) and a subsidiary thereof, on July 30, 1997, in
the United States District Court for the Southern District of New
York (District Court). The action seeks preliminary and
permanent injunctive relief against the offer to purchase 9.9% of
the company's common stock and the planned takeover attempt of
the company by CalEnergy, on the grounds, among other things,
that CalEnergy has breached and continues to violate a
confidentiality agreement and that CalEnergy's tender offer
materials contained misleading and inadequate disclosures,
thereby violating the federal securities laws. In addition, the
company seeks an order requiring CalEnergy and its affiliates to
divest any and all securities of the company acquired by
CalEnergy and its affiliates while in possession of such
confidential information. (See Part I, Item 1, Note 4.
Unsolicited Tender Offer.)
(c) Nine purported class action lawsuits were commenced against
the company and some or all of its directors in the New York
State Supreme Court (Broome County, New York County, Kings County
and Tompkins County) on or about July 17, 1997 and various dates
thereafter through early August 1997. The lawsuits allege, among
other things, that the plaintiffs are being deprived of the
opportunity to realize the full value of their investment in the
company as a result of the defendants' failure to fulfill their
fiduciary duties and seek to maximize shareholder value in light
of CalEnergy's offer to negotiate a transaction by which
CalEnergy would acquire all outstanding shares of the company for
$27.50 per share. The lawsuits seek generally, among other
things, injunctive and declaratory relief requiring the
defendants to fulfill their fiduciary duties to maximize
shareholder value, and as to certain of the actions, damages.
The defendants believe that these lawsuits are without merit and
intend to defend them vigorously.
(d) CE Electric (NY), Inc. (CE), a wholly owned subsidiary of
CalEnergy, commenced a proceeding on July 31, 1997, in the New
York State Supreme Court (Tompkins County) (Court) seeking an
order permitting CE to inspect and copy the company's list of
shareholders and related materials. On August 8, 1997, the Court
issued an order directing the company to compile the list of
shareholders and related materials. The Court also held that if
the District Court in the matter referred to in (b) above
determines that there has not been a misuse of confidential
information by CalEnergy to warrant issuance of a preliminary
injunction barring the tender offer the company must produce the
materials within 24 hours, and if the District Court makes no
such determination, the parties may reapply to the Court for such
relief as may be warranted.
<PAGE>
(e) The company petitioned the PSC, on August 6, 1997, to issue
a ruling that CalEnergy and its subsidiaries cannot acquire any
shares of the company's common stock without first obtaining a
determination from the PSC pursuant to Section 70 of the New York
Public Service Law that the acquisition is in the public
interest. On August 13, 1997, the PSC issued an order stating,
among other things, that the purchase of 9.9% of the company's
common stock by CalEnergy is subject to the PSC's jurisdiction
and that such acquisition is approved upon several conditions.
Two such conditions are that CalEnergy not use its 9.9% interest
to impede a restructuring of the company and that CalEnergy
divest all of the company's common stock if the PSC denies
CalEnergy's application to acquire additional shares of the
company's common stock. The order also provides that CalEnergy
shall file for approvals of the acquisition of additional shares
of the company's common stock no later than August 29, 1997,
unless good cause is shown for a delay in such filing.
(f) A lawsuit was commenced on or about August 12, 1997,
against the company and its directors in the United States
District Court for the Southern District of New York. The
lawsuit seeks, among other things, declaratory and injunctive
relief ordering the defendants to correct alleged misleading
disclosures and omissions relating to director removal provisions
in documents filed by the company with the Securities and
Exchange Commission in connection with the CalEnergy tender
offer. (See Part I, Item 1, Note 4. Unsolicited Tender Offer.)
The defendants believe that the lawsuit is without merit and
intend to defend it vigorously.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the company was held
on May 21, 1997. The following matters were voted upon:
(a) The election of seven directors:
Nominees Cumulative Votes For Cumulative Votes Withheld
R. Aurelio 57,922,963 7,801
L. B. DeFleur 57,925,220 5,544
E. A. Gilmour 57,825,815 104,949
A. E. Kintigh 57,897,405 33,359
A. G. Marshall 57,612,805 317,959
W. G. Rich 58,135,913 205,149
W. W. von Schack 58,112,340 181,576
(b) Approval of the 1997 Stock Option Plan:
Shares For: 51,043,716
Shares Against: 6,806,788
Shares Abstain: 1,369,611
(c) A stockholder proposal relating to a percentage reduction
in director remuneration based on a dividend reduction was
defeated:
Shares For: 10,061,944
Shares Against: 39,427,344
Shares Abstain: 1,419,060
Broker "Non Voted": 7,504,192
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
A report on Form 8-K dated July 28, 1997, was filed to
report certain information under Item 5, "Other Events" and Item
7, "Financial Statements and Exhibits."
A report on Form 8-K/A dated July 28, 1997, was filed to
report certain information under Item 7, "Financial Statements
and Exhibits."
<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 14, 1997
<PAGE>
EXHIBIT INDEX
(1) The following exhibit is delivered with this report:
Exhibit No.
27 - Financial Data Schedule
(2) The following exhibits are incorporated herein by reference:
Exhibit No. Filed In As Exhibit No.
10-36 - Supplemental Executive Retirement Plan
Amendment No. 12 - Company's Schedule
14D-9, dated July 30, 1997 . . . . . . . 22
10-37 - Amended and Restated Annual Executive
Incentive Plan Amendment No. 1 - Company's
Schedule 14D-9, dated July 30, 1997 . . . 2
10-38 - Long-Term Executive Incentive Share Plan
Amendment No. 1 - Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . 3
10-39 - Form of Severance Agreement for Senior Vice
Presidents Amendment No. 2 - Company's
Schedule 14D-9, dated July 30, 1997 . . . 4
10-40 - Form of Severance Agreement for Senior Vice
Presidents Amendment No. 3 - Company's
Schedule 14D-9, dated July 30, 1997 . . . 5
10-41 - Form of Severance Agreement for Vice
Presidents Amendment No. 2 - Company's
Schedule 14D-9, dated July 30, 1997 . . . 6
10-42 - Form of Severance Agreement for Vice
Presidents Amendment No. 3 - Company's
Schedule 14D-9, dated July 30, 1997 . . . 7
10-43 - Form of Severance Agreement for
Treasurer - Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . 8
10-44 - Employment Agreement for W. W. von Schack
Amendment No. 2 - Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . 11
10-45 - Employment Agreement for W. W. von Schack
Amendment No. 3 - Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . 12
10-46 Employee Benefit Trust Agreement - Company's
Schedule 14D-9, dated July 30, 1997 . . . 13
10-47 First Amendment to Employee Benefit Trust
Agreement - Company's Schedule 14D-9, dated
July 30, 1997 . . . . . . . . . . . . . . 14
10-48 Second Amendment to Employee Benefit Trust
Agreement - Company's Schedule 14D-9, dated
July 30, 1997 . . . . . . . . . . . . . . 15
10-49 Third Amendment to Employee Benefit Trust
Agreement - Company's Schedule 14D-9, dated
July 30, 1997 . . . . . . . . . . . . . . 16
10-50 Director Benefit Trust Agreement - Company's
Schedule 14D-9, dated July 30, 1997 . . . 17
10-51 First Amendment to Director Benefit Trust
Agreement - Company's Schedule 14D-9, dated
July 30, 1997 . . . . . . . . . . . . . . 18
10-52 Second Amendment to Director Benefit Trust
Agreement - Company's Schedule 14D-9, dated
July 30, 1997 . . . . . . . . . . . . . . 19
10-53 - Employee Invention and Confidentiality
Agreement (Existing Executive) - Company's
Schedule 14D-9, dated July 30, 1997 . . . 9
10-54 - Employee Invention and Confidentiality
Agreement (Existing Executive) Amendment
No. 1 - Company's Schedule 14D-9, dated
July 30, 1997 . . . . . . . . . . . . . . 10
10-55 - 1997 Stock Option Plan - Company's
Schedule 14D-9, dated July 30, 1997 . . . 20
10-56 - Non-Statutory Stock Option Award
Agreement - Company's Schedule 14D-9,
dated July 30, 1997 . . . . . . . . . . . 21
<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, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1997
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<TOTAL-NET-UTILITY-PLANT> 3,950,559
<OTHER-PROPERTY-AND-INVEST> 95,947
<TOTAL-CURRENT-ASSETS> 300,530
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<OTHER-ASSETS> 648,759
<TOTAL-ASSETS> 4,995,795
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<CAPITAL-SURPLUS-PAID-IN> 811,793
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,778,948
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<LONG-TERM-DEBT-NET> 1,486,620
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