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, 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 October 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 16
(b) Reports on Form 8-K . . . . . . . . . . . 16
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 17
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
New York State Electric & Gas Corporation
Consolidated Statements of Income - (Unaudited)
Periods Ended September 30 Three Months Nine Months
1997 1996 1997 1996
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . $456,530 $421,709 $1,319,253 $1,291,149
Natural gas. . . . . . . . . . . . . 36,299 36,277 232,083 243,560
------- ------- --------- ---------
Total Operating Revenues. . . . 492,829 457,986 1,551,336 1,534,709
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 60,583 55,869 173,272 162,149
Electricity purchased. . . . . . . . 102,833 90,268 294,292 270,956
Natural gas purchased. . . . . . . . 21,608 24,400 110,477 127,534
Other operating expenses . . . . . . 106,494 91,749 267,022 252,283
Maintenance. . . . . . . . . . . . . 25,359 25,292 79,826 78,819
Depreciation and amortization. . . . 46,062 47,465 142,378 141,608
Other taxes. . . . . . . . . . . . . 49,064 48,658 152,973 155,798
------- ------- --------- ---------
Total Operating Expenses. . . . 412,003 383,701 1,220,240 1,189,147
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 80,826 74,285 331,096 345,562
Interest Charges, Net . . . . . . . . 29,623 29,701 90,131 92,015
Other Income and Deductions . . . . . 3,166 24,695 12,512 42,532
------- ------- --------- ---------
Income Before Federal Income Taxes. . 48,037 19,889 228,453 211,015
Federal Income Taxes. . . . . . . . . 19,760 8,837 91,924 80,405
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 28,277 11,052 136,529 130,610
Preferred Stock Dividends . . . . . . 2,348 2,436 7,015 7,155
------- ------- --------- ---------
Earnings Available for Common Stock . $25,929 $8,616 $129,514 $123,455
======= ======= ========= =========
Earnings Per Share. . . . . . . . . . $.38 $.12 $1.89 $1.73
Dividends Per Share . . . . . . . . . $.35 $.35 $1.05 $1.05
Average Shares Outstanding. . . . . . 67,503 71,416 68,371 71,474
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)
Sep. 30, Dec. 31,
1997 1996
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $7,656 $8,253
Special deposits . . . . . . . . . . . . . . . . . . . 2,854 31,364
Accounts receivable, net . . . . . . . . . . . . . . . 120,413 189,043
Fuel, at average cost. . . . . . . . . . . . . . . . . 42,423 36,472
Materials and supplies, at average cost. . . . . . . . 42,963 43,044
Prepayments. . . . . . . . . . . . . . . . . . . . . . 51,422 47,169
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . . . 20,232 3,424
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 287,963 358,769
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 5,215,236 5,177,365
Natural gas. . . . . . . . . . . . . . . . . . . . . . 557,193 529,023
Common . . . . . . . . . . . . . . . . . . . . . . . . 147,119 151,290
---------- ----------
5,919,548 5,857,678
Less accumulated depreciation. . . . . . . . . . . . . 2,051,465 1,933,599
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . . 3,868,083 3,924,079
Construction work in progress. . . . . . . . . . . . . 70,349 58,285
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 3,938,432 3,982,364
Other Property and Investments, Net . . . . . . . . . . 146,204 99,221
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 267,723 269,767
Environmental remediation costs . . . . . . . . . . . 84,000 32,100
Unamortized debt expense. . . . . . . . . . . . . . . 77,640 80,745
Demand-side management program costs. . . . . . . . . 69,268 71,425
Other . . . . . . . . . . . . . . . . . . . . . . . . 124,631 149,561
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 623,262 603,598
Other assets . . . . . . . . . . . . . . . . . . . . . 20,913 15,729
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 644,175 619,327
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $5,016,774 $5,059,681
========== ==========
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)
Sep. 30, Dec. 31,
1997 1996
(Thousands)
Liabilities
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $35,156 $83,488
Commercial paper . . . . . . . . . . . . . . . . . . . 44,400 129,300
Accounts payable and accrued liabilities . . . . . . . 95,946 121,123
Interest accrued . . . . . . . . . . . . . . . . . . . 35,549 22,195
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 39,278 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . 70,928 71,324
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 321,257 427,430
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 107,783 109,065
Deferred income taxes . . . . . . . . . . . . . . . . 85,672 94,004
Other . . . . . . . . . . . . . . . . . . . . . . . . 82,718 65,471
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 276,173 268,540
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 755,004 751,553
Other postretirement benefits . . . . . . . . . . . . 112,359 95,195
Environmental remediation costs . . . . . . . . . . . 84,000 32,100
Other . . . . . . . . . . . . . . . . . . . . . . . . 71,713 74,627
---------- ----------
Total other liabilities. . . . . . . . . . . . . . . . 1,023,076 953,475
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,455,362 1,480,814
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 3,075,868 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. . . . . . . . . . . . 812,008 816,384
Retained earnings . . . . . . . . . . . . . . . . . . 546,773 489,129
Treasury stock . . . . . . . . . . . . . . . . . . . (39,565) -
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 1,781,466 1,769,982
---------- ----------
Total Liabilities and Stockholders' Equity . . . . $5,016,774 $5,059,681
========== ==========
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)
Nine Months
Periods Ended September 30 1997 1996
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . $136,529 $130,610
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . 142,378 141,608
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . (23,164) (12,601)
Changes in current operating assets and liabilities
Accounts receivable. . . . . . . . . . . . . . 68,630 58,896
Inventory. . . . . . . . . . . . . . . . . . . (5,870) (9,777)
Accounts payable and accrued liabilities . . . (25,177) (18,181)
Taxes accrued. . . . . . . . . . . . . . . . . 39,278 13,806
Interest accrued . . . . . . . . . . . . . . . 13,354 12,123
Other, net . . . . . . . . . . . . . . . . . . . 59,483 74,202
-------- --------
Net Cash Provided by Operating Activities . . 405,441 390,686
-------- --------
Investing Activities
Utility plant capital expenditures . . . . . . . (90,821) (148,085)
Proceeds from governmental and other sources . . 1,041 2,269
Expenditures for other property and investments. (53,179) (1,090)
-------- --------
Net Cash Used in Investing Activities . . . . (142,959) (146,906)
-------- --------
Financing Activities
Repurchase of common stock . . . . . . . . . . . (7,245) (17,644)
Purchase of treasury stock . . . . . . . . . . . (39,565) -
Repayments of first mortgage bonds and
preferred stock, including net premiums . . . (73,000) (171,478)
Changes in funds set aside for first
mortgage bond repayments. . . . . . . . . . . 25,000 -
Long-term notes, net . . . . . . . . . . . . . . (4,339) (1,576)
Commercial paper, net. . . . . . . . . . . . . . (84,900) 31,880
Dividends on common and preferred stock. . . . . (79,030) (84,418)
-------- --------
Net Cash Used in Financing Activities . . . . (263,079) (243,236)
-------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents . . . . . . . . . . . . . . . (597) 544
Cash and Cash Equivalents, Beginning of Period. . 8,253 11,433
-------- --------
Cash and Cash Equivalents, End of Period. . . . . $7,656 $11,977
======== ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . $66,652 $70,786
Income taxes. . . . . . . . . . . . . . . . . . $74,246 $72,680
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)
Nine Months
Periods ended September 30 1997 1996
(Thousands)
Balance, beginning of period. . . . . . . . . $489,129 $424,412
Add net income. . . . . . . . . . . . . . . . 136,529 130,610
-------- --------
625,658 555,022
Deduct dividends on capital stock
Preferred. . . . . . . . . . . . . . . . . . 7,015 7,155
Common . . . . . . . . . . . . . . . . . . . 71,870 75,078
-------- --------
78,885 82,233
Deduct premium paid on preferred
stock redemption, net . . . . . . . . . . . - 4,383
-------- --------
Balance, end of period. . . . . . . . . . . . $546,773 $468,406
======== ========
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, 1996. 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 1997 presentation.
Note 3. 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 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 interest of the
company or its shareholders, customers, employees and
constituencies. CalEnergy announced, on August 15, 1997, that it
was dropping its unsolicited bid to take over the company because
its $24.50 tender offer failed to attract the 9.9% of the
company's common stock it sought. The company expensed all costs
associated with this matter in the third quarter of 1997.
<PAGE>
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; 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 Form 10-Q for the
quarter ended June 30, 1997, Item 2(a) - Liquidity and Capital
Resources - Competitive Conditions - Electric Industry, Electric
Rate and Restructuring Plan, and Natural Gas Industry, Joint
Venture with Central Maine Power.)
Electric Industry
Electric Rate and Restructuring Plan
The company filed a restructuring plan (Plan), on October 9,
1997, with the Public Service Commission of the State of New York
(PSC). The Plan, which will bring competition to the company's
service territory, was agreed to by the company, PSC Staff and
certain other parties to the Competitive Opportunities
Proceeding. The Plan is subject to PSC approval, is expected to
be effective at the beginning of 1998 and includes the following
key elements:
- Eliminate a 7% increase in electric prices previously
approved by the PSC;
- Cap overall, average electric prices for residential and
certain commercial customers for four years;
- Cut prices an additional 5% for residential and certain
commercial customers at the beginning of the fifth year of
the Plan;
- Reduce prices 5% in each of the next five years for eligible
industrial, commercial and public authority customers who
are heavy users of electricity;
- Cut prices further by working diligently to reduce the
onerous burden of nonutility generator (NUG) contracts,
reduce the state gross receipts tax and encourage the
passage of securitization legislation;
- Enable all of the company's retail customers to begin
choosing their electricity supplier by August 1, 1999;
- The company, subject to the receipt of the requisite
approvals, will form a holding company. Subsidiaries under
the holding company will include the company, a generation
company and an energy services company;
- The company will auction its seven coal-fired generating
stations. Prior to the auction, those stations will be
transferred by the company to the generation subsidiary.
The generation subsidiary intends to bid on some or all of
the coal-fired generating stations;
- The company intends to sell its 18% interest in Nine Mile
Point 2 nuclear generating station; and
- The company will receive a reasonable opportunity to recover
all prudently incurred investments made in the past.
The preceding key elements are intended to be a summary of
certain elements of the Plan and are qualified in their entirety
by reference to the full text of the Plan which is filed as an
exhibit to this Form 10-Q.
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 regulated operations,
if the company no longer met them for all or a separable part of
its regulated operations, 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.
<PAGE>
In accordance with 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, it is expected that once the company
receives PSC approval of the Plan, the coal-fired generation
portion of the company's business will no longer be able to apply
Statement 71. The company believes the discontinuance of the
application of Statement 71 to the coal-fired generation portion
of its business will not affect the financial position or results
of operations of the company because any above-market generation
costs, regulatory assets and regulatory liabilities of the coal-
fired generation portion of its business will be recovered by the
regulated portion of the company.
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 20, 1997,
for a $10 million expansion of the project's compressor station.
This expansion, which was completed on November 1, 1997,
increased the cavern's working gas storage capacity from 800
million to 1.45 billion cubic feet of natural gas and will allow
for growth in the company's wholesale natural gas business
through the sale of storage capacity.
The company's application to provide firm and interruptible
storage service in interstate commerce at market-based rates was
approved by the Federal Energy Regulatory Commission on October
15, 1997.
Joint Venture with Central Maine Power Company (CMP)
The company and CMP signed a memorandum of understanding
that could lead to the formation of a jointly-owned company
(joint venture) 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 also 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. The company's board of directors
authorized an investment of up to $20 million in the joint
venture.
<PAGE>
Investing Activities
Capital expenditures for the first nine months of 1997 were
$91 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.
In accordance with the terms of certain benefit trust
agreements, 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 3.
Unsolicited Tender Offer.) Those agreements cover employee
severance agreements and certain employee and director plans.
The funds are invested principally in intermediate-term fixed
income instruments.
Financing Activities
During the third quarter of 1997 the company repaid $25
million of 6 1/4% Series first mortgage bonds that matured on
September 1, 1997.
<PAGE>
(b) Results of Operations
Three Months Ended September 30,
1997 1996 Change
(Thousands, except per share amounts)
Total Operating Revenues $492,829 $457,986 8%
Operating Income $80,826 $74,285 9%
Earnings Available for
Common Stock $25,929 $8,616 201%
Average Shares Outstanding 67,503 71,416 (5%)
Earnings Per Share $.38 $.12 217%
Dividends Per Share $.35 $.35 -
Earnings per share increased 26 cents compared to the prior
year quarter. Higher sales of electricity added 16 cents and
lower operating costs added 10 cents to earnings per share. In
the prior year quarter a charge of 14 cents per share was
recorded to write down an investment in EnerSoft Corporation.
Lower costs of natural gas purchased added four cents while
decreased losses incurred by NGE Enterprises, Inc. and a
reduction in the number of shares outstanding added three cents
and two cents, respectively, to earnings per share. Those
increases were partially offset by a charge of 24 cents per share
for takeover defense fees.
Nine Months Ended September 30,
1997 1996 Change
(Thousands, except per share amounts)
Total Operating Revenues $1,551,336 $1,534,709 1%
Operating Income $331,096 $345,562 (4%)
Earnings Available for
Common Stock $129,514 $123,455 5%
Average Shares Outstanding 68,371 71,474 (4%)
Earnings Per Share $1.89 $1.73 9%
Dividends Per Share $1.05 $1.05 -
Earnings per share increased 16 cents compared to the same
period last year. Lower costs of natural gas purchased added 15
cents and lower operating costs added nine cents to earnings per
share. In the prior period a charge of 14 cents per share was
recorded to write down an investment in EnerSoft Corporation.
Higher sales of electricity, decreased losses incurred by NGE
Enterprises, Inc. and a reduction in the number of shares
outstanding each increased earnings per share by eight cents.
Those increases were partially offset by a charge of 24
cents per share for takeover defense fees and increased costs of
electricity purchased that reduced earnings per share by 22
cents.
<PAGE>
Operating Results by Business Segment
Electric Three Months Ended September 30,
1997 1996 Change
(Thousands)
Retail Sales-
Megawatt-hours (mwh) 3,278 3,163 4%
Operating Revenues $456,530 $421,709 8%
Operating Expenses $362,942 $335,056 8%
Operating Income $93,588 $86,653 8%
The $35 million increase in electric operating revenues for
the quarter was due to a $40 million increase in sales of
electricity, primarily wholesale sales. That increase was
partially offset by a less favorable electric sales mix that
decreased revenues by $3 million.
The $28 million increase in electric operating expenses was
primarily due to a $12 million increase in electricity purchased
and a $12 million increase in operating costs, due to takeover
defense fees partially offset by a reduction in certain operating
expenses.
Nine Months Ended September 30,
1997 1996 Change
(Thousands)
Retail Sales-
Megawatt-hours (mwh) 9,841 9,897 (1%)
Operating Revenues $1,319,253 $1,291,149 2%
Operating Expenses $1,029,850 $983,158 5%
Operating Income $289,403 $307,991 (6%)
The $28 million increase in electric operating revenues was
primarily due to a $45 million increase in wholesale sales. That
increase was partially offset by a less favorable electric sales
mix that reduced revenues $13 million and lower retail sales that
decreased revenues $7 million.
Electric operating expenses increased $47 million primarily
due to a $23 million increase in electricity purchased, a $13
million increase in operating costs, due to takeover defense fees
partially offset by a reduction in certain operating expenses,
and an $11 million increase in fuel costs, due to increased
electric generation.
<PAGE>
Natural Gas Three Months Ended September 30,
1997 1996 Change
(Thousands)
Retail Deliveries-
Dekatherms(dth) 6,665 7,136 (7%)
Operating Revenues $36,299 $36,277 -
Operating Expenses $49,061 $48,645 1%
Operating Loss ($12,762) ($12,368) 3%
Natural gas operating revenues were comparable to revenues
for the prior year period. A more favorable sales mix was offset
by a 7% decrease in natural gas deliveries, which was primarily
due to one low-margin customer that closed its cogeneration
plant.
Natural gas operating expenses were also comparable to the
prior period. A $3 million increase in other operating expenses
was offset by a $3 million decrease in the cost of natural gas
purchased.
Nine Months Ended September 30,
1997 1996 Change
(Thousands)
Retail Deliveries-
Dekatherms(dth) 40,973 43,411 (6%)
Operating Revenues $232,083 $243,560 (5%)
Operating Expenses $190,390 $205,989 (8%)
Operating Income $41,693 $37,571 11%
The $11 million decrease in natural gas operating revenues
was primarily due to lower retail deliveries. The decrease in
retail deliveries was primarily due to very mild weather in the
first quarter of 1997 and one low-margin customer that closed its
cogeneration plant.
Natural gas operating expenses decreased $16 million
primarily due to a decrease in the cost of natural gas purchased.
<PAGE>
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(See Part I, Item 2(a) - Liquidity and Capital Resources -
Competitive Conditions - Electric Rate and Restructuring Plan.)
(a) A Remedial Investigation and Feasibility Study was performed
at the Bern Metals/Universal Iron Site by certain of the other
potentially responsible parties (PRPs), and a proposed remedial
action plan identifying the preferred remedy and summarizing the
other alternatives considered has been issued for the site. The
New York State Department of Environmental Conservation (NYSDEC),
by letter dated March 22, 1996, to the company and six of the
other eight PRPs, inquired whether the company and such six other
PRPs were willing to conduct or finance the design and
implementation of the remedial alternative once it was selected.
The NYSDEC informed the company that if the company declined to
enter into negotiations with NYSDEC for such purpose, NYSDEC
might remediate the Bern Metals/Universal Iron Site itself using
the Hazardous Waste Remedial Fund and would seek recovery of any
expense from the company. On March 29, 1996, NYSDEC issued a
Record of Decision which provided for remedial action having an
estimated cost of $1.9 million. Without admitting any liability
or responsibility and without prejudice to any defenses it might
have, the company on October 9, 1997, entered into an Order on
Consent with NYSDEC and four other PRPs pursuant to which the
company and such PRPs will design the remedy for the Bern
Metals/Universal Iron Site, subject to NYSDEC approval. (See Form
10-K for fiscal year ended December 31, 1996, Item 3(e).)
(b) The company responded on October 3, 1995, to a request for
information by the U.S. Environmental Protection Agency (EPA)
concerning alleged disposal of polychlorinated biphenyls at
facilities owned or operated by PCB Treatment, Inc. in Kansas
City, Kansas and Kansas City, Missouri. On September 27, 1996,
the company entered into an Order on Consent with the EPA under
which the company and at least nine other companies will perform
the first phase of remedial activity, a Removal Site Evaluation
and Engineering Evaluation/Cost Analysis, at the two facilities
operated by PCB Treatment, Inc. The cost to the company of its
obligation under this Order on Consent is not expected to exceed
$95,000. By letter dated September 16, 1997, the EPA notified
1,251 entities, including the company, of their potential
liability at the two facilities and informed the recipients of
additional response activities, which the recipients may be asked
to perform or finance at a later date.
(c) 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 sought 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 had breached and continued 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 sought 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. This action was discontinued without
prejudice on September 16, 1997. (See Part I, Item 1, Note 3.
Unsolicited Tender Offer.)
(d) Ten 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. On
October 23, 1997, a Consolidated Amended and Supplemental Class
Action Complaint in the New York State Supreme Court (Tompkins
County) was served on the company and all of its directors. The
lawsuit consolidates, amends and supplements the ten purported
class action lawsuits. The defendants believe that this lawsuit
is without merit and intend to defend it vigorously.
(e) 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 (c) above
determined that there had not been a misuse of confidential
information by CalEnergy to warrant issuance of a preliminary
injunction barring the tender offer the company was to produce
the materials within 24 hours, and if the District Court made no
such determination, the parties could reapply to the Court for
such relief as may be warranted. This action was discontinued
without prejudice on September 24, 1997.
<PAGE>
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 October 10, 1997, was filed to
report certain information under Item 5, "Other Events."
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: November 13, 1997
<PAGE>
EXHIBIT INDEX
(1) The following exhibit is delivered with this report:
Exhibit No.
27 - Financial Data Schedule.
(2) The following exhibit is incorporated herein by reference:
Exhibit No. Filed In As Exhibit No.
99-1 - Agreement Concerning the Competitive
Rate and Restructuring Plan of New
York State Electric & Gas Corporation -
Registration No. 333-37997. . . . . . . 99.2
<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 SEPTEMBER 30, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,938,432
<OTHER-PROPERTY-AND-INVEST> 146,204
<TOTAL-CURRENT-ASSETS> 287,963
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 644,175
<TOTAL-ASSETS> 5,016,774
<COMMON> 462,250
<CAPITAL-SURPLUS-PAID-IN> 812,008
<RETAINED-EARNINGS> 546,773
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,781,466
25,000
134,440
<LONG-TERM-DEBT-NET> 1,455,362
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 44,400
<LONG-TERM-DEBT-CURRENT-PORT> 35,156
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,540,950
<TOT-CAPITALIZATION-AND-LIAB> 5,016,774
<GROSS-OPERATING-REVENUE> 1,551,336
<INCOME-TAX-EXPENSE> 91,924
<OTHER-OPERATING-EXPENSES> 267,022
<TOTAL-OPERATING-EXPENSES> 1,220,240
<OPERATING-INCOME-LOSS> 331,096
<OTHER-INCOME-NET> (12,512)
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 90,131
<NET-INCOME> 136,529
7,015
<EARNINGS-AVAILABLE-FOR-COMM> 129,514
<COMMON-STOCK-DIVIDENDS> 71,870
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 405,441
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.89
</TABLE>
