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, 1998
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, 1998 was 64,508,477. All
shares were held by Energy East Corporation.
<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 . . . . . . . . . . 12
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 15
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
1998 1997 1998 1997
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . $407,740 $456,530 $1,318,096 $1,319,253
Natural gas. . . . . . . . . . . . . 37,576 36,299 213,755 232,083
------- ------- --------- ---------
Total Operating Revenues. . . . 445,316 492,829 1,531,851 1,551,336
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation
and electricity purchased . . . . . 152,304 163,416 521,227 467,564
Natural gas purchased. . . . . . . . 23,537 21,608 111,925 110,477
Other operating expenses . . . . . . 73,077 106,494 213,636 267,022
Maintenance. . . . . . . . . . . . . 17,795 25,359 70,445 79,826
Depreciation and amortization. . . . 28,573 46,062 113,211 142,378
Other taxes. . . . . . . . . . . . . 46,418 49,064 147,318 152,973
------- ------- --------- ---------
Total Operating Expenses. . . . 341,704 412,003 1,177,762 1,220,240
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 103,612 80,826 354,089 331,096
Interest Charges, Net . . . . . . . . 29,585 29,623 89,851 90,131
Other Income and Deductions . . . . . 2,765 3,166 6,193 12,512
------- ------- --------- ---------
Income Before Federal Income Taxes. . 71,262 48,037 258,045 228,453
Federal Income Taxes. . . . . . . . . 29,460 19,760 101,637 91,924
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 41,802 28,277 156,408 136,529
Preferred Stock Dividends . . . . . . 2,351 2,348 6,880 7,015
------- ------- --------- ---------
Earnings Available for Common Stock . $39,451 $25,929 $149,528 $129,514
======= ======= ========= =========
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,
1998 1997
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $2,807 $8,168
Special deposits . . . . . . . . . . . . . . . . . . . 4,498 3,170
Accounts receivable, net . . . . . . . . . . . . . . . 87,739 189,008
Loan receivable - associated company . . . . . . . . . 132,516 -
Fuel, at average cost. . . . . . . . . . . . . . . . . 25,413 43,706
Materials and supplies, at average cost. . . . . . . . 9,154 41,561
Prepayments. . . . . . . . . . . . . . . . . . . . . . 99,007 68,452
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . . . - 2,148
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 361,134 356,213
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 3,355,878 5,234,725
Natural gas. . . . . . . . . . . . . . . . . . . . . . 591,864 576,683
Common . . . . . . . . . . . . . . . . . . . . . . . . 145,476 152,034
---------- ----------
4,093,218 5,963,442
Less accumulated depreciation. . . . . . . . . . . . . 1,348,352 2,093,274
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . . 2,744,866 3,870,168
Construction work in progress. . . . . . . . . . . . . 24,438 52,104
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 2,769,304 3,922,272
Other Property and Investments, Net . . . . . . . . . . 58,924 143,449
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 190,014 243,129
Unamortized debt expense. . . . . . . . . . . . . . . 72,752 76,418
Demand-side management program costs. . . . . . . . . 64,466 64,466
Environmental remediation costs . . . . . . . . . . . 61,800 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 131,238 113,637
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 520,270 580,550
Other assets . . . . . . . . . . . . . . . . . . . . . 30,928 26,197
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 551,198 606,747
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $3,740,560 $5,028,681
========== ==========
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,
Liabilities 1998 1997
(Thousands)
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $1,090 $38,240
Commercial paper . . . . . . . . . . . . . . . . . . . 59,900 58,000
Accounts payable and accrued liabilities . . . . . . . 136,481 124,981
Interest accrued . . . . . . . . . . . . . . . . . . . 35,362 20,500
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 42,309 6,146
Other. . . . . . . . . . . . . . . . . . . . . . . . . 63,390 79,631
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 338,532 327,498
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 100,381 81,986
Deferred income taxes - unfunded future federal
income taxes . . . . . . . . . . . . . . . . . . . . 74,159 99,126
Other . . . . . . . . . . . . . . . . . . . . . . . . 43,453 79,709
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 217,993 260,821
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 440,999 753,722
Other postretirement benefits . . . . . . . . . . . . 136,770 117,760
Environmental remediation costs . . . . . . . . . . . 81,800 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 77,680 73,021
---------- ---------
Total other liabilities. . . . . . . . . . . . . . . . 737,249 1,027,403
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,414,297 1,450,224
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 2,708,071 3,065,946
Commitments - -
Preferred Stock Redeemable Solely at the
Option of the Company. . . . . . . . . . . . . . . . 104,440 134,440
Preferred Stock Subject to Mandatory
Redemption Requirements. . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock. . . . . . . . . . . . . . . . . . . . . 430,057 462,250
Capital in excess of par value. . . . . . . . . . . . 430,114 811,648
Retained earnings . . . . . . . . . . . . . . . . . . 42,878 568,844
Treasury stock. . . . . . . . . . . . . . . . . . . . - (39,447)
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 903,049 1,803,295
---------- ----------
Total Liabilities and Stockholder's Equity . . . . $3,740,560 $5,028,681
========== ==========
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 1998 1997
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . $156,408 $136,529
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . 113,211 142,378
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . (936) (23,164)
Changes in current operating assets and liabilities
Accounts receivable. . . . . . . . . . . . . . 101,269 68,630
Loan receivable. . . . . . . . . . . . . . . . (132,516) -
Inventory. . . . . . . . . . . . . . . . . . . 50,700 (5,870)
Prepayments. . . . . . . . . . . . . . . . . . (30,555) (4,253)
Accounts payable and accrued liabilities . . . 11,500 (25,177)
Taxes accrued. . . . . . . . . . . . . . . . . 36,163 39,278
Interest accrued . . . . . . . . . . . . . . . 14,862 13,354
Other, net . . . . . . . . . . . . . . . . . . . 79,492 63,736
-------- --------
Net Cash Provided by Operating Activities . . 399,598 405,441
-------- --------
Investing Activities
Utility plant additions. . . . . . . . . . . . . (94,657) (90,821)
Proceeds from governmental and other sources . . 319 1,041
Other property and investment additions. . . . . 25,670 (53,179)
-------- --------
Net Cash Used in Investing Activities . . . . (68,668) (142,959)
-------- --------
Financing Activities
Repurchase of common stock . . . . . . . . . . . (114,023) (7,245)
Purchase of treasury stock . . . . . . . . . . . - (39,565)
Repayments of first mortgage bonds and
preferred stock, including net premiums . . . (60,600) (73,000)
Changes in funds set aside for first
mortgage bond repayments. . . . . . . . . . . - 25,000
Long-term notes, net . . . . . . . . . . . . . . 1,465 (4,339)
Commercial paper, net. . . . . . . . . . . . . . 1,900 (84,900)
Dividends on common and preferred stock. . . . . (165,033) (79,030)
-------- --------
Net Cash Used in Financing Activities . . . . (336,291) (263,079)
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . (5,361) (597)
Cash and Cash Equivalents, Beginning of Period. . 8,168 8,253
-------- --------
Cash and Cash Equivalents, End of Period. . . . . $2,807 $7,656
======== ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . $62,179 $66,652
Income taxes. . . . . . . . . . . . . . . . . . $62,349 $74,246
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, 1998 1997
(Thousands)
Balance, beginning of period. . . . . . . . . $568,844 $489,129
Add net income. . . . . . . . . . . . . . . . 156,408 136,529
-------- --------
725,252 625,658
Deduct dividends on capital stock
Preferred. . . . . . . . . . . . . . . . . . 6,880 7,015
Common . . . . . . . . . . . . . . . . . . . 158,153 71,870
-------- --------
165,033 78,885
Deduct transfer of NGE Generation, Inc. and NGE
Enterprises, Inc. to parent. . . . . . . . . 517,341 -
-------- --------
Balance, end of period. . . . . . . . . . . . $42,878 $546,773
======== ========
The notes on page 6 are an integral part of the financial statements.
<PAGE>
Item 1. Financial Statements (Cont'd)
Note 1. Holding Company Formation
On May 1, 1998, New York State Electric & Gas Corporation
(NYSEG) was reorganized into a holding company structure pursuant
to an Agreement and Plan of Share Exchange between NYSEG and
Energy East Corporation. Each outstanding share of NYSEG's common
stock was exchanged for one share of Energy East's common stock
and Energy East became the parent of NYSEG. Energy East's common
stock is listed on the New York Stock Exchange under the symbol
NEG. NYSEG's common stock was delisted from the New York Stock
Exchange. The preferred stock and debt of NYSEG were not
exchanged and remain securities of NYSEG. The unaudited
consolidated financial statements reflect the transfer at book
value of NYSEG's ownership interests in NGE Generation, Inc. and
NGE Enterprises, Inc. to Energy East, and its ownership interest
in Somerset Railroad Corporation to NGE Generation. These
transfers reduced NYSEG's assets by $1,101 million, its
liabilities by $321 million and its common stock equity by $780
million. (See Item 2(a) - Liquidity and Capital Resources -
Electric Business, Sale of our Coal-fired Generation Assets.)
Note 2. Principles of Consolidation
Our 1997 consolidated financial statements include assets
transferred to NGE Generation in February 1998, NGE Enterprises
and Somerset Railroad. Our 1998 consolidated financial statements
exclude NGE Generation and NGE Enterprises as of May 1, 1998, the
effective date of the reorganization into a holding company
structure, and exclude Somerset Railroad as of July 31, 1998, the
effective date of its transfer to NGE Generation.
Note 3. 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 our consolidated results for
the interim periods. All such adjustments, other than those
related to the reorganization into a holding company structure
noted above, 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
our annual report for the year ended December 31, 1997. Due to
the seasonal nature of our operations, financial results for
interim periods are not necessarily indicative of trends for a
twelve-month period.
Note 4. Reclassifications
Certain amounts have been reclassified on the consolidated
financial statements to conform with the 1998 presentation.
<PAGE>
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Competitive Conditions (See our Form 10-K for the fiscal year
ended December 31, 1997, Item 7 - Liquidity and Capital Resources
- - Competitive Conditions - Electric Industry, Natural Gas
Industry and Accounting Issues; and our Form 10-Q for the quarter
ended June 30, 1998, Item 2(a) - Liquidity and Capital Resources
- - Competitive Conditions - Holding Company Structure, Electric
Industry and Natural Gas Industry.)
Electric Business
Sale of our Coal-fired Generation Assets: Taking advantage of a
strong market for generation assets in the Northeast, we put our
seven coal-fired stations and associated assets and liabilities
up for auction earlier this year. Offers totaling $1.85 billion
were accepted from The AES Corporation and Edison Mission Energy
in August 1998 for those generation assets.
All proceeds, net of taxes and transaction costs, in excess
of the net book value of the generation assets, less funded
deferred taxes, will be used to write down our 18% investment in
Nine Mile Point nuclear generating unit No. 2. This treatment is
in accordance with our restructuring plan approved by the Public
Service Commission of the State of New York in January 1998.
There are a number of items such as depreciation, book value of
inventories, taxes and the exact date of the closing that will
affect the financial statements as we continue to precisely
define the specific costs of the items included in the
transactions. Any differences will affect the net proceeds.
On November 4, 1998, we received approval of the sales from
the PSC. Other regulatory approvals are expected by the end of
1998, and we expect the sales to close by the end of the first
quarter of 1999.
We are also developing strategies to satisfy our remaining
energy requirements in New York after the coal-fired stations are
sold and have requested firm proposals for power to meet those
energy requirements. The power may be purchased at market prices
that exceed the cost to generate the power from the coal-fired
stations, which would increase our operating expenses. We expect
to finalize these strategies by the end of 1998.
In approving the sale of the coal-fired stations, the PSC
stated that the $400 million in excess proceeds will be reflected
as a reduction of rate base in the calculation of earnings
subject to the 12% annual earnings cap in our electric return on
equity calculation, with earnings in excess of 12% being returned
to customers. The methodology for reflecting the $400 million
excess in the earnings cap has not been determined and,
therefore, we are unable to predict what effect, if any, this may
have on future earnings.
<PAGE>
New York Power Pool Restructuring: The Federal Energy Regulatory
Commission issued Orders 888 and 889 in 1996 to foster the
development of competitive wholesale electricity markets by
opening up transmission services and to address the resulting
stranded costs. In subsequent orders the FERC generally affirmed
Orders 888 and 889. Various parties, including us, have appealed
these orders in the United States Court of Appeals for the D.C.
Circuit.
In response to Order 888, the New York Power Pool submitted
a compliance filing to the FERC that was accepted in 1997. NYPP
members submitted additional filings to the FERC in 1997
proposing the restructuring of the NYPP by establishing a New
York Independent System Operator, a Power Exchange and a New York
State Reliability Council. The FERC approved the formation of the
system operator and reliability council in June 1998 and
indicated that it would rule on the rates, terms and conditions
of service to be implemented by the system operator under the
system operator's tariff at a later time. These additional FERC
rulings are needed before the system operator, the reliability
council and the restructured market can begin operating. We are
unable to predict the outcome that the remaining FERC proceedings
will have on the system operator and their ultimate effect on our
financial position or results of operations.
Natural Gas Business
Natural Gas Rate Agreement: We filed a natural gas rate
agreement with the PSC in May 1998. This agreement cuts prices
for most customers by reducing natural gas revenues by $26.9
million, or 2.2%, over the course of the agreement. The PSC
approved the agreement in September 1998 after making certain
modifications, which included assuring that no customer receive a
rate increase. After seeking clarification of the modifications
from the PSC Staff, we accepted the PSC Order with the
clarifications and one modification. We requested that the
present rates for certain areas be maintained. We are waiting
for a response from the PSC.
Role of Local Distribution Companies: The PSC issued a press
release on October 7, 1998, setting forth its vision for
furthering competition in the natural gas industry in New York
State. The PSC's vision is based on their Staff's Report issued
in September 1997 and calls for natural gas utilities to become
only transporters of natural gas over a three to seven year
period. We believe the competitive marketplace, not the PSC,
should decide who will be the suppliers of natural gas and that
removing natural gas utilities from this role will result in
higher prices to consumers. Recently we received the PSC's policy
statement related to this issue. We have not yet determined its
effect on us.
<PAGE>
Year 2000
Many of our computer systems, which include mainframe
systems and special-purpose systems, refer to years in terms of
their final two digits only. Such systems may interpret the year
2000 as the year 1900. If not corrected, those systems could
cause us to, among other things, issue inaccurate bills, report
inaccurate data or incur energy delivery problems.
We are working diligently to identify and address all of our
systems affected by this problem. We have identified and taken
appropriate corrective action on all of our mainframe systems.
Those systems are now able to process year 2000 and beyond
transactions.
We have identified over 5,000 items in our special-purpose
systems that are potentially affected by the Year 2000 problem.
We have fixed, eliminated, replaced or found no problem with over
80% of these items. However, additional items in our special-
purpose systems continue to be identified as we fully review our
systems. We expect our review of our special-purpose systems and
appropriate corrective action to be completed in early 1999,
except for our desktop computers. All of our desktop computers
will be replaced or certified Year 2000 compliant by the end of
the second quarter of 1999.
Our review of our computer systems revealed that most of
those requiring modifications or "fixes" do not control the
delivery of electricity and natural gas to our customers. Instead
they affect human resources, financial accounting, materials
management and other areas.
The Year 2000 issue could also adversely affect us if third
parties such as business partners, government agencies, other
utilities, financial institutions, suppliers and customers fail
to correct their Year 2000 problems. We have contacted key
external parties to determine the status of their Year 2000
programs. Some have not responded satisfactorily, and some have
not responded at all. Some contingency plans that we are
developing will assume that such third parties will not be Year
2000 compliant.
Identifying and addressing systems affected by the Year 2000
problem has been a high priority. Senior management began
investigating the Year 2000 problem in 1996. Through the third
quarter of 1998 we have spent approximately $8.5 million and
expect to spend an additional $3.0 million before we finish.
These amounts are being expensed as incurred and are being
financed entirely with internally generated funds. At this time
we believe that we have allocated adequate resources to address
our Year 2000 issues.
<PAGE>
Our Year 2000 program is progressing on schedule and we
believe we are taking all necessary steps to address this issue
successfully. As part of our normal business practice we have
plans in place for use during emergencies, some of which could
arise from Year 2000 problems. We are completing contingency
plans to specifically address reasonably likely worst case
scenarios that could arise as a result of the Year 2000 problem.
These scenarios include interruption or failure of normal
business activities or operations such as a partial electrical
and/or natural gas system shutdown; customer service, customer
information system or communication system failure; generating
station outages; the ability to issue accurate and timely bills;
and the ability to maintain continuous operation of our computer
systems. We expect to have our contingency plans tested and ready
by mid-1999.
The PSC issued an Order on October 30, 1998, adopting a July
1, 1999 deadline for New York utilities to complete their Year
2000 readiness programs for "mission critical" systems that are
necessary to provide safe and reliable service, and for
contingency plans. We believe that our Year 2000 readiness
program for mission critical systems and for contingency plans
will be completed by July 1, 1999. The PSC Order requires the
filing of status reports with the PSC regarding certain Year 2000
issues by December 31, 1998 and July 1, 1999.
Investing and Financing Activities
Investing Activities
Capital spending for the first nine months of 1998 were $95
million. We estimate our capital spending for 1998 will be about
$140 million, primarily for extension of service and necessary
improvements to existing facilities. This spending is expected to
be financed entirely with internally generated funds.
Financing Activities
In July 1998 we redeemed, at a premium, $30 million of 6.48%
preferred stock.
<PAGE>
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements
that are based upon management's current expectations and
information that is currently available. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-
looking statements in certain circumstances. Whenever used in
this report, the words "estimate," "expect," "believe," or
similar expressions are intended to identify such forward-looking
statements.
In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that
could cause actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, the status of our progress in addressing the Year 2000
problem; the effect on us of other entities failing to adequately
address the Year 2000 problem; regulatory developments; the
rapidly changing and increasingly competitive electric and
natural gas utility markets; the ability to obtain adequate and
timely rate relief; nuclear or environmental incidents; legal or
administrative proceedings; business conditions; technological
developments; changes in the cost or availability of capital;
factors affecting the utility industry in general, such as
deregulation and unbundling of energy services; weather
conditions; changes in electric or natural gas supply or cost;
and other considerations that may be disclosed from time to time
in our publicly disseminated documents and filings. We undertake
no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or
otherwise.
<PAGE>
(b) Results of Operations
Three Months Ended September 30,
1998 1997 Change
(Thousands)
Total Operating Revenues $445,316 $492,829 (10%)
Operating Income $103,612 $80,826 28%
Earnings Available for
Common Stock $39,451 $25,929 52%
After excluding the transfer of NGE Generation and NGE
Enterprises to our parent as part of the reorganization into a
holding company structure on May 1, 1998, and the effect of a
1997 nonrecurring charge, our earnings for the quarter increased
due to higher electric wholesale prices and higher electric
deliveries due to warmer than normal weather.
Nine Months Ended September 30,
1998 1997 Change
(Thousands)
Total Operating Revenues $1,531,851 $1,551,336 (1%)
Operating Income $354,089 $331,096 7%
Earnings Available for
Common Stock $149,528 $129,514 15%
After excluding the transfer of NGE Generation and NGE
Enterprises to our parent as part of the reorganization into a
holding company structure on May 1, 1998, and the effect of a
1997 nonrecurring charge, our earnings for the nine months
increased due to higher electric wholesale prices and higher
electric deliveries. Those increases were partially offset by
lower natural gas retail deliveries as a result of warmer weather
this past winter.<PAGE>
Operating Results by Business Segment
Electric Three Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 3,432 3,278 5%
Operating Revenues $407,740 $456,530 (11%)
Operating Expenses $293,291 $362,942 (19%)
Operating Income $114,449 $93,588 22%
Electric retail deliveries increased because of warmer
weather this quarter.
Excluding the effect of the transfer of NGE Generation and
NGE Enterprises to our parent company as part of the
reorganization into a holding company structure on May 1, 1998,
operating revenues increased due to higher electric deliveries.
And, operating expenses increased for the three months primarily
due to an increase in electricity purchased offset by a decrease
in other operating costs due to the effect of a 1997 nonrecurring
charge.
Nine Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 9,952 9,841 1%
Operating Revenues $1,318,096 $1,319,253 -
Operating Expenses $987,235 $1,029,850 (4%)
Operating Income $330,861 $289,403 14%
Excluding the effect of the transfer of NGE Generation and
NGE Enterprises to our parent company as part of the
reorganization into a holding company structure on May 1, 1998,
operating revenues for the nine months increased primarily due to
higher wholesale deliveries. And, operating expenses for the nine
months increased primarily due to an increase in electricity
purchased partially offset by a decrease in other operating costs
primarily due to the effect of a 1997 nonrecurring charge.
<PAGE>
Natural Gas Three Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 6,794 6,665 2%
Operating Revenues $37,576 $36,299 4%
Operating Expenses $48,413 $49,061 (1%)
Operating Income ($10,837) ($12,762) 15%
The increase in natural gas operating revenues was primarily
due to higher wholesale deliveries. The decrease in operating
expenses was due to a decrease in other operating costs due to
the effect of a 1997 nonrecurring charge, partially offset by an
increase in natural gas purchased due to higher wholesale
deliveries.
Nine Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 37,378 40,973 (9%)
Operating Revenues $213,755 $232,083 (8%)
Operating Expenses $190,527 $190,390 -
Operating Income $23,228 $41,693 (44%)
Natural gas retail deliveries decreased because of unusually
warm weather during this past winter.
Natural gas operating revenues decreased for the nine months
due to lower retail deliveries, primarily due to warmer weather.
That decrease was partially offset by an increase in wholesale
deliveries and a more favorable sales mix.
<PAGE>
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(a) On May 22, 1998, we, along with fifteen other parties,
received a special notice pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
from the U.S. Environmental Protection Agency, asking whether the
recipients wished to voluntarily finance or perform the remedial
design and remedial action at the Rosen Brothers Site in the City
of Cortland, New York. The estimated total present-worth cost of
the selected remedy is $3,140,000. The EPA also requested
reimbursement of past costs at the site of approximately
$692,000, plus interest.
On September 25, 1998, we, along with approximately 12 other
parties, entered into a consent decree with the EPA under which
we and the other settling parties will perform the selected
remedy and reimburse the EPA for the requested amount of past
costs. The EPA has agreed not to sue us and to protect us from
other claims with respect to the response and remediation costs
at the Rosen Brothers Site. (See our Form 10-K for the fiscal
year ended December 31, 1997, Item 3. Legal Proceedings.)
(b) On August 14, 1997, we were notified by the New York State
Department of Environmental Conservation that the NYSDEC was
contemplating enforcement action against us with respect to
violations of regulations concerning opacity of air emissions at
all of our New York coal-fired stations. We are in the process of
negotiating a consent decree with the NYSDEC under which we will
undertake to bring our New York coal-fired stations into
compliance with the opacity regulations. NYSDEC has also
indicated that it will include in the consent decree a penalty
for exceedances in 1997 of the nitrogen oxide cap at our coal-
fired stations. We will pay a penalty of less than $350,000, and
be liable to pay penalties for any future violations. We
anticipate that this decree will become final before the end of
1998.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
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 Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
Date: November 13, 1998
<PAGE>
EXHIBIT INDEX
(a) The following exhibits are delivered with this report:
Exhibit No.
(A)10-55 - Long-Term Executive Incentive Share Plan Amendment
No. 1.
27 - Financial Data Schedule.
(A) Management contract or compensatory plan or arrangement.
Exhibit 10-55
AMENDMENT NO. 1
to
LONG TERM EXECUTIVE INCENTIVE SHARE PLAN
of
NEW YORK STATE ELECTRIC & GAS CORPORATION
<PAGE>
The Long Term Executive Incentive Share Plan ("Plan") of New
York State Electric & Gas Corporation, effective January 1, 1996,
is hereby amended as follows:
Class III under Article IV of the Plan is hereby amended to
read in its entirety as follows:
III Vice Presidents, Treasurer, Executive Director - Human
Resources & Executive Director - Corporate Planning 20%
<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, 1998 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-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,769,304
<OTHER-PROPERTY-AND-INVEST> 58,924
<TOTAL-CURRENT-ASSETS> 361,134
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 551,198
<TOTAL-ASSETS> 3,740,560
<COMMON> 430,057
<CAPITAL-SURPLUS-PAID-IN> 430,114
<RETAINED-EARNINGS> 42,878
<TOTAL-COMMON-STOCKHOLDERS-EQ> 903,049
25,000
104,440
<LONG-TERM-DEBT-NET> 1,414,297
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 59,900
<LONG-TERM-DEBT-CURRENT-PORT> 1,090
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,232,784
<TOT-CAPITALIZATION-AND-LIAB> 3,740,560
<GROSS-OPERATING-REVENUE> 1,531,851
<INCOME-TAX-EXPENSE> 101,637
<OTHER-OPERATING-EXPENSES> 213,636
<TOTAL-OPERATING-EXPENSES> 1,177,762
<OPERATING-INCOME-LOSS> 354,089
<OTHER-INCOME-NET> (6,193)
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 89,851
<NET-INCOME> 156,408
6,880
<EARNINGS-AVAILABLE-FOR-COMM> 149,528
<COMMON-STOCK-DIVIDENDS> 158,153
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 399,598
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
