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, 1999
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 Identification No.)
incorporation or organization)
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, 1999, was 64,508,477. All shares are owned by
Energy East Corporation.
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) Results of Operations . . . . . . . . . 8
(b) Liquidity and Capital Resources . . . . 8
PART II
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . 13
(b) Reports on Form 8-K . . . . . . . . . . 13
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
New York State Electric & Gas Corporation
Statements of Income - (Unaudited)
Three Months Nine Months
Periods Ended September 30 1999 1998 1999 1998
(Thousands)
Operating Revenues
Electric . . . . . . . . . . . . . . $518,400 $407,740 $1,336,331 $1,318,096
Natural gas. . . . . . . . . . . . . 40,558 37,576 230,744 213,755
-------- -------- --------- ---------
Total Operating Revenues. . . . . 558,958 445,316 1,567,075 1,531,851
-------- -------- --------- ---------
Operating Expenses
Electricity purchased and fuel
used in generation . . . . . . . . 281,891 152,304 598,985 521,227
Natural gas purchased. . . . . . . . 26,162 23,537 113,794 111,925
Other operating expenses . . . . . . 64,726 73,077 185,777 213,636
Maintenance. . . . . . . . . . . . . 20,160 17,795 54,529 70,445
Depreciation and amortization. . . . 27,719 28,573 590,747 113,211
Other taxes. . . . . . . . . . . . . 40,835 46,418 140,645 147,318
Gain on sale of generation assets. . - - (674,572) -
Writeoff of Nine Mile Point 2. . . . - - 69,930 -
-------- -------- --------- ---------
Total Operating Expenses. . . . . 461,493 341,704 1,079,835 1,177,762
-------- -------- --------- ---------
Operating Income. . . . . . . . . . . 97,465 103,612 487,240 354,089
Interest Charges, Net . . . . . . . . 37,062 29,585 97,960 89,851
Other (Income) and Deductions . . . . (155) 2,765 (2,391) 6,193
-------- -------- --------- ---------
Income Before Federal Income Taxes. . 60,558 71,262 391,671 258,045
Federal Income Taxes. . . . . . . . . 23,182 29,460 212,760 101,637
-------- -------- --------- ---------
Net Income. . . . . . . . . . . . . . 37,376 41,802 178,911 156,408
Preferred Stock Dividends . . . . . . 493 2,351 2,214 6,880
-------- -------- --------- ---------
Earnings Available for Common Stock . $36,883 $39,451 $176,697 $149,528
======== ======== ========= =========
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
Balance Sheets - (Unaudited)
Sep. 30, Dec. 31,
1999 1998
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $162,047 $12,149
Special deposits . . . . . . . . . . . . . . . . . . . 1,193 4,729
Accounts receivable, net . . . . . . . . . . . . . . . 129,585 113,553
Loan receivable, affiliated company. . . . . . . . . . 153,645 134,443
Fuel, at average cost. . . . . . . . . . . . . . . . . 21,418 20,200
Materials and supplies, at average cost. . . . . . . . 8,143 8,292
Prepayments. . . . . . . . . . . . . . . . . . . . . . 167,707 102,691
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 643,738 396,057
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 3,384,189 3,361,747
Natural gas. . . . . . . . . . . . . . . . . . . . . . 617,287 602,737
Common . . . . . . . . . . . . . . . . . . . . . . . . 139,912 144,043
---------- ----------
4,141,388 4,108,527
Less accumulated depreciation. . . . . . . . . . . . . 2,007,539 1,362,501
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 2,133,849 2,746,026
Construction work in progress. . . . . . . . . . . . . 8,738 27,741
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 2,142,587 2,773,767
Other Property and Investments, Net . . . . . . . . . . 65,144 62,136
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 28,750 136,404
Unamortized loss on debt . . . . . . . . . . . . . . 68,074 71,530
Demand-side management program costs. . . . . . . . . 55,603 64,466
Environmental remediation costs . . . . . . . . . . . 59,100 60,600
Other . . . . . . . . . . . . . . . . . . . . . . . . 29,062 125,693
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 240,589 458,693
Other assets . . . . . . . . . . . . . . . . . . . . . 24,804 27,359
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 265,393 486,052
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $3,116,862 $3,718,012
========== ==========
The notes on pages 6 and 7 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Balance Sheets - (Unaudited)
Sep. 30, Dec. 31,
1999 1998
Liabilities (Thousands)
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $486 $2,604
Current portion of preferred stock . . . . . . . . . . - 75,000
Commercial paper . . . . . . . . . . . . . . . . . . . - 78,300
Accounts payable and accrued liabilities . . . . . . . 104,486 101,511
Interest accrued . . . . . . . . . . . . . . . . . . . 33,925 19,556
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 183,764 701
Accumulated deferred federal income taxes, net . . . . 35,977 44,274
Other. . . . . . . . . . . . . . . . . . . . . . . . . 76,653 76,302
---------- ----------
Total Current Liabilities . . . . . . . . . . . . . 435,291 398,248
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 66,292 98,038
Deferred income taxes, unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 14,073 60,896
Other . . . . . . . . . . . . . . . . . . . . . . . . 22,434 42,182
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 102,799 201,116
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 215,931 432,968
Other postretirement benefits . . . . . . . . . . . . 156,858 137,681
Environmental remediation costs . . . . . . . . . . . 79,100 80,600
Other . . . . . . . . . . . . . . . . . . . . . . . . 93,709 81,540
---------- ----------
Total other liabilities. . . . . . . . . . . . . . . . 545,598 732,789
Long-term debt. . . . . . . . . . . . . . . . . . . . . 1,363,852 1,412,157
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 2,447,540 2,744,310
Commitments . . . . . . . . . . . . . . . . . . . . . . - -
Preferred Stock
Preferred stock redeemable solely at the
company's option. . . . . . . . . . . . . . . . . . . 10,131 29,440
Preferred stock subject to mandatory
redemption requirements . . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock . . . . . . . . . . . . . . . . . . . . . 430,057 430,057
Capital in excess of par value . . . . . . . . . . . . 170,480 430,329
Retained earnings. . . . . . . . . . . . . . . . . . . 33,654 58,876
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 634,191 919,262
---------- ----------
Total Liabilities and Stockholder's Equity . . . . $3,116,862 $3,718,012
========== ==========
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
Statements of Cash Flows - (Unaudited)
Nine Months
Periods Ended September 30 1999 1998
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $178,911 $156,408
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 590,747 113,211
Federal income taxes and investment tax credits
deferred, net. . . . . . . . . . . . . . . . . 123,540 (936)
Gain on sale of affiliate's generation assets. . (674,572) -
Writeoff of Nine Mile Point 2. . . . . . . . . . 69,930 -
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . (16,032) 101,269
Loan receivable, affiliated company. . . . . . . (19,202) (132,516)
Inventory. . . . . . . . . . . . . . . . . . . . (1,069) 50,700
Prepayments. . . . . . . . . . . . . . . . . . . (65,016) (30,555)
Accounts payable and accrued liabilities . . . . 2,975 11,500
Taxes accrued. . . . . . . . . . . . . . . . . . 183,063 36,163
Interest accrued . . . . . . . . . . . . . . . . 14,369 14,862
Other, net . . . . . . . . . . . . . . . . . . . . (23,254) 79,492
-------- --------
Net Cash Provided by Operating Activities . . . 364,390 399,598
-------- --------
Investing Activities
Sale of affiliate's generation assets. . . . . . . 518,969 -
Utility plant additions. . . . . . . . . . . . . . (46,064) (94,338)
Other property and investments . . . . . . . . . . - 25,670
-------- --------
Net Cash Provided by (Used in)
Investing Activities. . . . . . . . . . . . . 472,905 (68,668)
-------- --------
Financing Activities
Capital distribution to parent . . . . . . . . . . (289,000) -
Repurchase of common stock . . . . . . . . . . . . - (114,023)
Repayments of preferred stock and first
mortgage bonds, including net premiums . . . . . (144,557) (60,600)
Long-term notes, net . . . . . . . . . . . . . . . - 1,465
Commercial paper, net. . . . . . . . . . . . . . . (78,300) 1,900
Dividends on common and preferred stock. . . . . . (175,540) (165,033)
-------- --------
Net Cash Used in Financing Activities . . . . . (687,397) (336,291)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents. . . . . . . . . . . . . . . . . 149,898 (5,361)
Cash and Cash Equivalents, Beginning of Period. . . 12,149 8,168
-------- --------
Cash and Cash Equivalents, End of Period. . . . . . $162,047 $2,807
======== ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $58,699 $62,179
Income taxes (including $400,537 related to
gain on sale of affiliate's generation assets). $460,931 $62,349
The notes on pages 6 and 7 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Statements of Retained Earnings - (Unaudited)
Nine Months
Periods ended September 30 1999 1998
(Thousands)
Balance, beginning of period. . . . . . . . . . $58,876 $568,844
Add net income. . . . . . . . . . . . . . . . . 178,911 156,408
-------- --------
237,787 725,252
Deduct dividends on capital stock
Preferred. . . . . . . . . . . . . . . . . . . 2,214 6,880
Common . . . . . . . . . . . . . . . . . . . . 173,326 158,153
-------- --------
175,540 165,033
Deduct
Transfer of NGE Generation, Inc. and XENERGY
Enterprises, Inc. to parent. . . . . . . . . 28,593 517,341
-------- --------
Balance, end of period. . . . . . . . . . . . . $33,654 $42,878
======== ========
The notes on pages 6 and 7 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Note 1. Unaudited Financial Statements
The accompanying unaudited financial statements reflect all
adjustments which are necessary, in the opinion of management,
for a fair presentation of New York State Electric & Gas
Corporation's (company) results for the interim periods. All
such adjustments, other than those related to the sale of an
affiliate's coal-fired generation assets and the writeoff of Nine
Mile Point 2, are of a normal recurring nature. The company's
1998 consolidated financial statements exclude NGE Generation,
Inc. and XENERGY Enterprises, Inc. beginning May 1, 1998, the
effective date of the reorganization into a holding company
structure, and exclude Somerset Railroad Corporation beginning
July 1, 1998, the effective date of its transfer to NGE
Generation. The unaudited financial statements should be read in
conjunction with the consolidated financial statements and notes
contained in the company's Form 10-K for the year ended December
31, 1998. Due to the seasonal nature of the company's
operations, financial results for interim periods are not neces-
sarily indicative of trends for a 12-month period.
Note 2. Investment in Nine Mile Point nuclear generating unit
No. 2
The company wrote off its entire 18% investment in Nine Mile
Point 2 during the second quarter of 1999. An affiliate
completed the sale of its interest in the Homer City generation
assets to Edison Mission Energy in March 1999, and the sale of
its remaining coal-fired generation assets to The AES Corporation
in May 1999. The proceeds from the sale of those assets, net of
taxes and transaction costs, in excess of the net book value,
less funded deferred taxes, were used to write down the company's
18% investment in Nine Mile Point 2 by $384 million. This
treatment is in accordance with the company's restructuring plan
approved by the Public Service Commission of the State of New
York in January 1998. The company wrote down its investment an
additional $104 million due to the required writeoff of funded
deferred taxes related to Nine Mile Point 2. These writedowns
are reflected in depreciation and amortization for the second
quarter of 1999.
The company announced in June 1999 that it has agreed to
sell its 18% interest in Nine Mile Point 2 to AmerGen Energy
Company, a joint venture of PECO Energy Company and British
Energy. (See Item 2(b) - Electric Business, Nine Mile Point
nuclear generating unit No. 2.) Based on the sale agreement, the
company wrote off $70 million, its remaining investment in Nine
Mile Point 2 after the writedowns discussed above, in accordance
with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of.
<PAGE>
Note 3. Segment Information
Selected financial information for the company's two
business segments is presented in the following table. The
electric business segment consists of electricity generation,
transmission and distribution operations. The natural gas
business segment consists of natural gas distribution,
transportation and storage operations.
Three Months Ended Electric Natural Gas Total
September 30, 1999
Operating Revenues $518,400 $40,558 $558,958
Net Income (Loss) $46,089 $(8,713) $37,376
September 30, 1998
Operating Revenues $407,740 $37,576 $445,316
Net Income (Loss) $52,338 $(10,536) $41,802
Nine Months Ended
September 30, 1999
Operating Revenues $1,336,331 $230,744 $1,567,075
Net Income $160,961 $17,950 $178,911
September 30, 1998
Operating Revenues $1,318,096 $213,755 $1,531,851
Net Income $152,883 $5,596 $158,479 (1)
Identifiable Assets
September 30, 1999 $1,871,035 $506,521 $2,377,556 (2)
December 31, 1998 $2,565,977 $497,750 $3,063,727 (2)
(1) Net Income for the nine months ended September 30, 1998,
excludes a net loss from a subsidiary that was transferred to the
company's parent as part of the reorganization into a holding
company structure effective May 1, 1998.
(2) Identifiable Assets exclude corporate assets of $739,306 for
September 30, 1999, and $654,285 for December 31, 1998.
Note 4. Reclassifications
Certain amounts have been reclassified on the financial
statements to conform with the 1999 presentation.
<PAGE>
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Results of Operations
Earnings
Third quarter earnings decreased primarily due to electricity
price reductions given to retail customers and higher electricity
purchased power costs, offset by higher transmission wheeling
revenue, cost control efforts and higher retail deliveries caused
by economic development and increased cooling load. Earnings
increased for the nine months primarily due to cost control efforts
and higher retail electric and natural gas deliveries caused by
economic development and weather, offset by price reductions given
to customers, after excluding the nonrecurring benefit from the
sale of an affiliate's coal-fired generation assets, the writeoff
of Nine Mile Point 2 and the effect of transferring wholesale
electricity activity to an affiliate due to the reorganization into
a holding company structure in May 1998.
Operating Results for the Electric Business
Electric operating revenues for the third quarter increased
due to higher wholesale deliveries, higher transmission wheeling
revenue, and higher retail deliveries caused by economic
development and increased cooling load, partially offset by price
reductions given to retail customers. Electric operating expenses
increased for the quarter primarily due to higher purchased power
costs, partially offset by cost control efforts.
Electric operating revenues increased for the nine months due
to higher retail deliveries caused by economic development and
weather and higher transmission wheeling revenues, partially offset
by price reductions given to retail customers, after excluding the
effects of transferring wholesale activity to an affiliate in May
1998. Electric operating expenses increased for the nine months
primarily due to higher purchased power costs, partially offset by
cost control efforts, after excluding the nonrecurring benefit from
the sale of an affiliate's coal-fired generation assets, the
writeoff of Nine Mile Point 2 and the effect of transferring
wholesale activity to an affiliate in May 1998.
Operating Results for the Natural Gas Business
Natural gas operating revenues for the third quarter increased
primarily due to wholesale sales. A higher volume of wholesale
natural gas purchases was offset by cost control efforts.
Natural gas operating revenues increased for the nine months
primarily due to higher retail deliveries due to a milder-than-
normal winter last year and wholesale sales. Operating expenses
decreased for the nine months primarily due to cost control
efforts, partially offset by a higher volume of wholesale natural
gas purchases. A higher volume of retail natural gas purchases was
offset by lower retail purchased gas costs.
(b) Liquidity and Capital Resources
(See the company's Form 10-Q for the quarter ended June 30, 1999,
Item 2(b) - Liquidity and Capital Resources - Electric Business and
Natural Gas Business.)
Electric Business
Nine Mile Point nuclear generating unit No. 2: The company
announced in June 1999 that it has agreed to sell its 18% interest
in Nine Mile Point 2 to AmerGen Energy Company, a joint venture of
PECO Energy Company and British Energy. In the same announcement,
Niagara Mohawk Power Corporation announced the sale of Nine Mile
Point 1 and its 41% interest in Nine Mile Point 2 to AmerGen. At
closing, the company will receive $27.9 million in proceeds based
on its 18% ownership share. (See Item 1 - Note 2 to the Financial
Statements.) The company may be entitled to additional payments
through 2012 under a financial sharing agreement. A power purchase
agreement with AmerGen requires the company to purchase 17.1% of
all electricity from Nine Mile Point 2 at negotiated prices for
three years.
AmerGen will assume full responsibility for the
decommissioning of its ownership share of Nine Mile Point 2. The
decommissioning fund will be pre-funded to a fixed amount by the
sellers, with all potential costs above the fixed amount paid by
AmerGen. The company expects the sale of Nine Mile Point 2 to be
completed in the second quarter of 2000.
Rochester Gas & Electric Corporation, a Nine Mile Point 2
cotenant, has expressed interest in possibly exercising its right
of first refusal on the sale of the plant. The company cannot
predict the likelihood of this event or its impact on the sale of
Nine Mile Point 2.
Issues have been raised recently regarding worsening
performance at the Nine Mile Point units, which are operated by
Niagara Mohawk. On September 30, 1999, the Nuclear Regulatory
Commission issued a Plant Performance Review on the Nine Mile Point
units. The NRC stated that it will increase its scrutiny of the
operation of the Nine Mile Point nuclear units over the next six
months as a result of the worsening performance of those units and
weaknesses in areas such as plant maintenance, work planning and
scheduling, and engineering support.
Niagara Mohawk has announced that significant management
changes will be made at Nine Mile Point, including the hiring of
PECO Energy for managerial advice, because performance of the units
has not reached expected levels. The company supports these
efforts to improve performance at Nine Mile Point 2 and continues
to believe that the sale of the plants to AmerGen, a proven
operator of nuclear plants, is in the best interests of customers
and the company's shareholder. If the operating performance of
Nine Mile Point 2 continues to deteriorate and it becomes apparent
that significant expenditures would be required to improve
performance, the company intends to take whatever actions it
believes are appropriate to protect the interests of customers and
its shareholder, including support for the potential shutdown of
the unit.
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 the company, 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 members
submitted filings to the FERC proposing, among other things, to
restructure the power pool by establishing a New York Independent
System Operator and a New York State Reliability Council. In a
series of orders in 1998 and 1999 the FERC conditionally authorized
the formation of the system operator and reliability council and
conditionally accepted the tariffs and rates applicable to
transmission service, and the formation of energy and ancillary
services markets administered by the system operator. Each of New
York's major transmission owners is expected to turn over certain
operational control over the power system to the system operator.
The system operator is anticipated to begin operating on November
18, 1999. The system operator's staff has completed final market
testing of software and market mechanisms. The company does not
expect the restructuring to have a material adverse effect on its
financial position or results of operations.
Electric Restructuring Plan: The company's restructuring plan,
which included a five-year electric price cap, was approved by the
PSC, with minor modifications, in January 1998.
The company submitted a tariff filing in compliance with the
restructuring plan in January 1999. On July 15, 1999, and
September 17, 1999, the PSC issued orders relating to the
compliance filing. Those orders addressed issues related to the
company's retail access credit (the amount backed out of a
customer's bill when that customer participates in retail access),
suppliers' obligations and customer identification.
As a result of the orders, the company's retail access credit
was maintained at its current value, it was determined that retail
access suppliers are responsible for energy, capacity and some
ancillary services for their own customers and the company may
require a deposit from customers who fail to provide adequate
identification. The PSC also concluded that costs for line losses,
installed reserves and certain ancillary services are being
recovered through the company's delivery charge and are not part of
the retail access credit. The company submitted filings in
compliance with the orders on July 29, 1999, and October 7, 1999.
The company is currently unable to predict the effect of the orders
on its financial position or results of operations.
<PAGE>
Competitive Electric Metering: On June 16, 1999, the PSC issued an
Order Providing for Competitive Metering, which calls for opening
up competition for electric metering services among certain
customers in New York State. The services include installation and
maintenance of electric meters, meter reading and meter data
retrieval and storage. Competitive metering would initially be
available to eligible customers with electricity requirements of 50
kilowatts or more.
Utilities were initially required to file unbundled metering
tariffs by October 1, 1999, to identify their metering costs as a
component of existing electricity prices. The company, along with
three other utility companies in New York State, filed a petition
for rehearing on this order in July 1999. The petition for
rehearing was denied in September 1999. The company filed its
tariffs on November 1, 1999, to become effective on December 1,
1999, for customers who choose competitive metering providers. PSC
Staff and interested parties are collaborating to develop
procedures for implementing competitive metering.
Utilities will continue their provider of last resort
responsibilities for metering. Stranded cost issues will be
handled in individual utility proceedings. The company is
currently unable to predict the effect of this order on its
financial position or results of operations.
Auction of NUG Contract Rights: The company continues to seek ways
to provide relief to its customers from the onerous nonutility
generator (NUG) contracts it was ordered to sign by the PSC. On
November 4, 1999, the company announced that it intends to sell -
through competitive bidding - 470 megawatts (mw) of natural gas-
fired energy and generating capacity under three of its power
purchase agreements with NUGs.
The contracts are with Saranac Power Partners (240 mw) in
Plattsburgh, Lockport Energy Associates (175 mw) in Lockport and
Indeck Energy Services of Silver Springs (55 mw). The agreements
expire on June 21, 2009, October 8, 2007, and April 11, 2006,
respectively. Over the remaining terms of the contracts it is
estimated that the company's customers will pay over $2 billion
dollars above the competitive market price. The sale, expected to
be completed March 1, 2000, will be conditioned on obtaining
satisfactory regulatory approval.
Other Matters
Year 2000 Readiness Disclosure
Many of the company's 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 the company to, among other things, experience energy
delivery problems, report inaccurate data or issue inaccurate
bills.
The company has been working diligently to address this
problem by reviewing all of its mainframe and special-purpose
systems; identifying potentially affected software, hardware, and
date-sensitive components, often referred to as embedded chips, of
various equipment; determining and taking appropriate corrective
action; and, when appropriate, testing its systems.
The company's mainframe systems consist of the hardware and
software components of its information technology systems. The
company believes it has identified, taken appropriate corrective
action and tested all of its mainframe systems. The company
believes those systems are now able to process year 2000 and beyond
transactions.
The company's special-purpose systems consist of its non-
information technology systems. The company has identified over
5,000 items in its special-purpose systems that may be affected by
the Year 2000 problem. Items identified include software, hardware
and embedded chips in systems such as those that control the
acquisition and the delivery of electricity and natural gas to
customers and those in its communication systems. The company
believes it has fixed, eliminated, replaced or found no problem
with all of the special-purpose items it has identified that affect
its electricity and natural gas delivery systems and its
communication systems.
Even though the company believes it has taken corrective
action with respect to its own Year 2000 issues, the Year 2000
issue could adversely affect it if there are items in its mainframe
or special-purpose systems that may be affected by the Year 2000
problem and that it has not identified in its review of those
systems. The Year 2000 issue could also adversely affect the
company if third parties such as suppliers, customers, neighboring
or interconnected utilities and other entities fail to correct any
of their Year 2000 problems. The company has contacted key third
parties to determine the status of their Year 2000 readiness
programs. The company is following up with key third parties who
have not completed their Year 2000 readiness programs. The company
has developed contingency plans, some of which are discussed below,
for reasonably likely worst case scenarios based upon an assumption
that it and the key third parties contacted will not be Year 2000
compliant.
The company believes it has taken all necessary steps to
address the Year 2000 issue successfully. Through September 30,
1999, the company has spent approximately $11.8 million and
expects to spend an additional $0.9 million on Year 2000 readiness
including contingency plan preparations. The company believes this
amount is adequate to address its Year 2000 issues. These amounts
are being expensed as incurred and are being financed entirely with
internally generated funds. Addressing the Year 2000 issue has not
caused the company to delay any significant information system
projects.
As part of its normal business practice the company has
plans in place for use during emergencies, some of which could
arise from Year 2000 problems. The company is also implementing an
emergency preparedness plan which will help it to address customer
emergencies and coordinate with other emergency service providers.
Each of the company's 13 division offices will be open from 10:00
p.m. on December 31, 1999, to 2:00 a.m. on January 1, 2000. The
company's personnel will be available to staff county emergency
preparedness offices during this same time period. Other customer
contact sites will also be established. Temporary local numbers
will be established so customers can contact the company should
long distance telephone service fail. The company has completed
over 75 contingency plans to specifically address reasonably likely
worst case scenarios that could arise as a result of the Year 2000
problem. Certain company personnel have been designated to work
from 10:00 p.m. on December 31, 1999, to 2:00 a.m. on January 1,
2000, and have been trained to execute the contingency plans. Each
plan is ready and has been tested. In addition, an integrated
system-wide test of the plans was successfully conducted using the
designated personnel.
The contingency plans address, among other scenarios, the
interruption or failure of normal business activities or operations
such as a partial electrical and/or natural gas system shutdown.
If the interruption or failure is due to embedded chips in
equipment such as automatic control devices, the company's
contingency plan is to implement its normal system restoration
procedures that it utilizes during emergencies. If the
interruption or failure is due to telecommunications not being
available, the company plans to use alternative communication
devices such as radio systems and satellite phones. Another
scenario addressed by the company's contingency plans is the
failure of its customer information system. Should that occur, the
company plans to rely on customer information previously stored and
make the appropriate adjustment to each customer's next bill after
the system is restored.
The company is dependent on others for its supply of natural
gas. In the event a supplier is not able to meet the company's
needs, it plans to purchase the needed amount of natural gas from
one of its many other suppliers on the same transmission line.
Since the sale of its affiliate's coal-fired generation assets has
been completed, the company will be buying from third parties,
including nonutility generators and the New York Power Authority,
the majority of the electricity its customers need. If the
electricity available in its region is not adequate for all of the
customers on its system, the company plans to operate at lower
levels of power as outlined in its established emergency
procedures. Should its mainframe hardware be disabled, it has a
backup mainframe system that is capable of operating all of its
business systems.
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 and for
contingency plans. Mission critical systems include those systems
that control the acquisition and the delivery of electricity and
natural gas to customers, emergency management systems and certain
electricity generation plants. The
company completed its Year 2000 readiness program for mission
critical systems and for contingency plans before the PSC's July 1,
1999, deadline.
Investing and Financing Activities
Investing Activities
Capital spending for the first nine months of 1999 was $46
million, primarily for the extension of service and necessary
improvements to existing facilities. The company's capital
spending for 1999 is estimated to be about $75 million, and is
expected to be paid for entirely with internally generated funds.
Financing Activities
On February 1, 1999, the company redeemed, at par, $25 million
of 7.40% Series preferred stock and $50 million of adjustable rate
preferred stock.
On April 1, 1999, the company purchased, at a discount, shares
of the following series of preferred stock: $7.2 million of 3.75%,
$2.8 million of 4 1/2% (Series 1949), $1.4 million of 4.15%, $4.8
million of 4.40%, and $3.1 million of 4.15% (Series 1954).
On April 1, 1999, the holders of a majority of the votes of
shares of the company's serial preferred stock consented to
increase the amount of unsecured debt the company may issue by up
to an additional $1.2 billion.
In June 1999 the company redeemed, at a premium, $50 million
of 7 5/8% Series first mortgage bonds.
In November 1999 the company agreed to purchase, on the open
market, at premiums, $77 million of
9 7/8% Series first mortgage bonds due May 1, 2020, and $77 million
of 9 7/8% Series first mortgage bonds due November 1, 2020. Those
purchases will be financed with Floating-rate Unsecured Notes. The
company will incur a $27 million charge in the fourth quarter of
1999 as a result of the purchase of the bonds.
The company plans to redeem, at a premium, $25 million of
6.30% Series preferred stock in December 1999.
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 risk
that more Year 2000 problems may be found; the fact that despite
all of the company's efforts, there can be no assurances that all
of its Year 2000 issues have been remedied; the fact that there can
be no assurances that all Year 2000 issues that could affect the
company can or will be totally eliminated by its suppliers,
customers, neighboring or interconnected utilities and other
entities; and the fact that its assessment of the effects of Year
2000 issues are based, in part, upon information received from its
suppliers, customers, neighboring or interconnected utilities and
other entities, its reasonable reliance upon this information and
the risk that inaccurate or incomplete information may have been
supplied to it.
Some additional factors that could cause actual results to
differ materially from those contemplated in any forward-looking
statements include, among others, the deregulation and unbundling
of energy services; the company's ability to compete in the rapidly
changing and increasingly competitive electricity and natural gas
utility markets; its ability to control nonutility generator and
other costs; changes in fuel supply or cost and the success of its
strategies to satisfy its power requirements now that all of its
affiliate's coal-fired generation assets have been sold; the
ability to obtain adequate and timely rate relief; nuclear or
environmental incidents; legal or administrative proceedings;
changes in the cost or availability of capital; growth in the areas
in which it is doing business; weather variations affecting
customer energy usage; and other considerations that may be
disclosed from time to time in its publicly disseminated documents
and filings. The company undertakes no obligation to publicly
update any forward-looking statements, whether as a result of new
information, future events or otherwise.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(a) By letter dated January 21, 1992, the New York State
Department of Environmental Conservation notified the company that
it had been identified as a potentially responsible party at the
Peter Cooper Corporation's Landfill Site (Peter Cooper Site) in the
village of Gowanda, New York. The Peter Cooper Site is listed on
the National Priorities List and the New York State Registry.
Three other PRPs were identified in the NYSDEC letter. The company
believes that remediation costs at the Peter Cooper Site might rise
to $16 million. By letter dated May 12, 1992, the company notified
the NYSDEC that it believed it had no responsibility for the
alleged contamination at the Peter Cooper Site, and declined to
conduct remediation or finance remediation costs.
On July 2, 1996, the U.S. Environmental Protection Agency
notified the company of its concern regarding the stream bank
erosion along a portion of the Peter Cooper Site that is located on
the company's property. Without admitting to any liability or
responsibility, on October 24, 1996, the company entered into an
Order on Consent with the EPA to stabilize the stream bank. This
project was completed in January 1997 at a cost of $120,000. By
letter dated June 30, 1999, the EPA notified the company and 18
other companies that they are PRPs with respect to the Peter Cooper
Site, and offered them the opportunity to perform a remedial
investigation and feasibility study at the site. Along with
approximately 12 other companies, the company indicated to the EPA
its willingness to consider performing the study for a portion of
the Peter Cooper site. Although the company is still discussing
the possibility of performing the study with the EPA and the other
parties, it believes that the ultimate disposition of this matter
will not have a material adverse effect on its financial position
or results of operations.
Item 5. Other Information
The company received a letter dated October 12, 1999, from the
Office of the Attorney General of New York State alleging that the
company may have constructed and operated major modifications to
certain emission sources at the Goudey and Greenidge generating
stations, which it formerly owned, without obtaining the required
prevention of significant deterioration of new source review pre-
construction permits. The Goudey and Greenidge plants were sold to
AES in May 1999. The letter requested that the company and AES
provide the Attorney General's Office with a large number of
documents relating to this allegation.
The company is reviewing its files for documents relating to
the Attorney General's request. The company believes it has
complied with the applicable rules and regulations and there is no
basis for the Attorney General's allegation.
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 September 30, 1999, 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 /s/Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
Date: November 12, 1999
EXHIBIT INDEX
(a) The following exhibits are delivered with this report:
Exhibit No.
(A)10-40 - Amended and Restated Annual Executive Incentive Plan.
27 - Financial Data Schedule.
_______________________________
(A) Management contract or compensatory plan or arrangement.
EXHIBIT 10-40
As Amended and Restated
Effective January 1, 1999
NEW YORK STATE ELECTRIC & GAS CORPORATION
ANNUAL EXECUTIVE INCENTIVE PLAN
I. Plan Objective
The objective of the Annual Executive Incentive Plan (the "Plan")
is to provide certain key employees of New York State Electric &
Gas Corporation (the "Company") with the opportunity to earn
annual incentive compensation through superior management
performance. Exceptional performance will promote the future
growth and success of the Company.
II. Definitions
Wherever used in the Plan, unless the context clearly indicates
otherwise, the following words and phrases shall have the
meanings set forth below:
A. "Plan" shall mean the New York State Electric & Gas
Corporation Annual Executive Incentive Plan as embodied
herein and as amended from time to time.
B. "Participant" shall mean an individual who has satisfied the
eligibility requirements of Article IV hereof.
C. "Performance Period" shall mean the period commencing
January 1 and ending December 31 of the same calendar year
for which performance is being measured.
D. "Energy East" shall mean Energy East Corporation.
E. "Earnings Per Common Share (Earnings)" shall mean Energy
East's annual net income reduced by preferred stock
dividends and divided by the average common shares
outstanding during the year.
F. "Threshold Earnings Level" shall mean the minimum level of
Earnings Per Common Share at which an award may be earned.
G. "Maximum Earnings Level" shall mean the level of Earnings
Per Common Share at which a maximum award may be earned.
H. "Level of Achievement" shall mean the Participant's
achievement of a Participant's individual objective for the
Performance Period expressed as a percentage, ranging from
zero to 100%.
I. "Board" shall mean the Board of Directors of the Company.
III. Administration
The Plan shall be administered by the Executive Compensation and
Succession Committee (the "Committee") of the Board of Directors
of Energy East (the "Energy East Board") composed of such members
as shall be appointed from time to time by the Energy East Board.
No member of the Committee while serving as such shall be
eligible for participation in the Plan.
Except as otherwise provided in this Plan, decisions and
determinations by the Committee shall be final and binding upon
all parties. The Committee shall have the authority to interpret
the Plan, to establish and revise rules and regulations relating
to the Plan, and to make any other determinations that it
believes necessary or advisable for the administration of the
Plan.
IV. Eligibility
Eligibility for participation in the Plan is limited to officers
of the Company holding the positions set forth below, plus any
other employee of the Company who is approved for participation
by the President of the Company. Participants shall be grouped
as follows:
Group I President
Group II Senior Vice Presidents
Group III Vice Presidents and other Executives
In the event that, during the Performance Period, an employee
becomes eligible for participation in the Plan, incentive awards
payable under the Plan will be determined based on length of
participation in the Plan measured retroactively from the first
day of the month in which the employee becomes eligible for
participation in the Plan.
In the event that, during the Performance Period a Participant
changes from one eligibility group to another, incentive awards
payable under the Plan will be prorated based on length of
participation in each eligibility group measured from the first
day of the month coinciding with or following the Participant's
change in eligibility.
If during any Performance Period a Participant ceases to be an
employee of the Company for any reason, other than disability,
retirement or death, such Participant shall not be entitled
to receive an award for such Performance Period unless otherwise
determined by the Board in its sole discretion. In the event
that during a Performance Period a Participant ceases to be an
employee of the Company by reason of a transfer of employment to
Energy East or another subsidiary of Energy East, such
Participant will be eligible to receive a prorated award for such
Performance Period based on the number of full months of
participation as an employee of the Company provided; however
that no person is eligible to participate in the Plan during such
period that he or she is participating in the Energy East Annual
Executive Incentive Plan. In the event of disability, retirement
or death, the Participant (or his or her successor in interest)
shall be entitled to a prorated award based on the number of full
months of participation.
Participation in the Plan precludes a Participant's eligibility
in any other annual incentive compensation plan provided by the
Company, (such as the Performance Plus Plan) Energy East or
another subsidiary of Energy East. Individuals entering the Plan
during a Performance Period remain eligible to receive prorated
awards under other annual incentive compensation plans provided
by the Company, Energy East or another subsidiary of Energy East
for periods prior to their participation in the Plan.
V. Performance Measurement and Criteria
The Plan uses the financial performance measure of Earnings Per
Common Share (Earnings) in determining whether incentive awards
may be earned by Participants. A Threshold Earnings Level, a
Maximum Earnings Level and individual objectives for each
Participant will be established for each Performance Period. The
Threshold Earnings Level must be achieved by Energy East in order
for Participants to be eligible for incentive awards. The actual
Earnings level achieved at or above Threshold Level will then be
used to determine the Participant's Incentive Level Percentage in
accordance with the provisions of Article VII. A Participant's
actual award will also depend on the Participant's Level of
Achievement of the Participant's individual objectives for the
Performance Period, as further set forth in Article VII.
VI. Objective Setting
A. Corporate
Performance objectives will be established annually (or for an
individual who becomes eligible to participate in the Plan while
a Performance Period is in progress in accordance with Item C
below) upon a recommendation of the President of the Company
which recommendation shall be approved by the Board.
Notwithstanding paragraph C below, the Board may establish
additional or substitute performance objectives at any time
during a Performance Period; provided that such objectives shall
not reduce any awards to which the Participant may be entitled in
connection with previously established objectives without the
Participant's consent.
B. Adjustments
The Board may adjust the size of incentive awards in its
discretion for extraordinary events if it determines that such
adjustment is necessary for the benefit of the Company.
C. Timing
The Threshold and Maximum Earnings Levels and the individual
objectives for each Participant for the yearly Performance Period
are to be established not later than the end of February,
retroactive to the first of that year. Performance objectives
for individuals who become eligible to participate in the Plan
while the yearly Performance Period is in progress are to be
established at such time as the Board determines it necessary for
the benefit of the Company.
VII. Determination of Incentive Award
At the conclusion of each Performance Period a determination will
be made by the Committee as to the Earnings level achieved by
Energy East. The achievement of an Earnings level at or above
the Threshold Earnings Level is the first step in qualifying
Participants for an incentive award.
Each Participant has Threshold and Maximum Incentive Level
Percentages assigned to the Participant's Group, as defined in
Article IV, based on that Group's potential impact on the
Company's performance. The Threshold and Maximum Incentive
Level Percentages by Group are as follows:
Threshold Incentive Maximum Incentive
Group Level Percentages Level Percentages
I 70% 125%
II 55% 90%
III 45% 65%
A Participant's Incentive Level Percentage will depend on the
Earnings level achieved by Energy East for each Performance
Period. If only the Threshold Earnings Level is achieved, the
Participant's Incentive Level Percentage will be the Threshold
Incentive Level Percentage for the Participant's Group. If the
Maximum Earnings Level is met or exceeded, the Participant's
Incentive Level Percentage will be the Maximum Incentive Level
Percentage for the Participant's Group. When the Earnings level
achieved by Energy East is greater than the Threshold Earnings
Level but less than Maximum Earnings Level, the Participant's
Incentive Level Percentage will be calculated based on a
corresponding interpolation between Threshold and Maximum
Incentive Level Percentages for the Participant's Group.
Each Participant will be assigned individual objectives for
the Performance Period which will be used to measure individual
performance. Each individual objective will also be assigned a
relative weight, which in the aggregate will total 100%. To
determine the Incentive Award Percentage to be used in
calculating a Participant's Incentive Award, the weight of each
individual objective will be multiplied by the Participant's
Level of Achievement for that objective with the product further
multiplied by the Participant's Threshold Incentive Level
Percentage. The resultant Incentive Award Percentages for each
individual objective will then be aggregated to determine the
Participant's Incentive Award Percentage. The following is an
example of the calculation of an Incentive Award Percentage for a
Group III Participant at the Threshold Incentive Level
Percentage:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Objective Level of Threshold Incentive Incentive Award
Weight Achievement Level Percentage Percentage
Individual Objective 1 40% x 100% x 45% = 18%
Individual Objective 2 40% x 50% x 45% = 9%
Individual Objective 3 20% x 0% x 45% = 0%
100 % 27%
</TABLE>
To calculate an Incentive Award for a Participant, the
Participant's cumulative Incentive Award Percentage will be
multiplied by the Participant's annual base salary as of the last
day of the Performance Period. The Incentive Award will be
rounded to the nearest whole dollar amount.
Approval of incentive awards will be made by the Board not later
than the end of February following the end of each Performance
Period. Distribution of incentive awards will be made as soon
thereafter as practical.
VIII. Incentive Award
Incentive awards will be granted in cash. Participants may
elect, during the year preceding the performance period, to defer
up to 100% of any potential incentive award pursuant to the
Company's Deferred Compensation Plan for Salaried Employees.
Incentive awards payable under the Plan will not be considered as
a component of regular earnings or base compensation for any
purpose.
IX. Effective Date
This Plan shall be effective as of January 1, 1996.
X. Miscellaneous
The Board may at any time suspend, terminate, modify or amend
this Plan.
No Participant shall have any claim or right to be granted an
award under this Plan. Participation in the Plan shall not be
deemed an employment contract.
The Company shall have the right to deduct from the cash
incentive awards made pursuant to this Plan any taxes required by
law to be withheld with respect to such cash payments.
In the case of a Participant's death, an incentive award shall be
made to his or her designated beneficiary, or in the absence of
such designation, by will or the laws of descent and
distribution.
Except as set forth in the preceding paragraph, a Participant's
rights and benefits under the Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, attachment, execution
or levy of any kind, either voluntary or involuntary, including
any such liability which arises from the Participant's bankruptcy
or for the support of a spouse or former spouse or for any other
relative of the Participant prior to the incentive award actually
being received by the person eligible to benefit under the Plan.
Any attempt at such prohibited anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment,
attachment, execution or levy, shall be void and unenforceable
except as otherwise provided by law.
XI. Payments Upon a Change in Control
A. Calculation of Payments
Notwithstanding any other provisions hereof (including, without
limitation, Article VIII hereof), if a Change in Control (as
defined in Section B of this Article XI) shall occur, the
following shall be paid, in cash, no later than the tenth (10th)
day following such Change in Control:
i) all incentive awards for any completed fiscal year of Energy
East which preceded the Change in Control, which awards have been
finally determined but not yet either (x) distributed or (y)
deferred pursuant to the Company's Deferred Compensation Plan for
Salaried Employees,
ii) if, at the time of the Change in Control, the Board has not
yet finally determined the incentive awards with respect to the
fiscal year of Energy East immediately preceding the fiscal year
in which the Change in Control occurs, an incentive award with
respect to such fiscal year, determined by the Board in
accordance with the provisions of the preceding Articles hereof,
and
iii) an incentive award with respect to the fiscal year of
Energy East in which the Change in Control occurs which shall be
calculated by (x) assuming that the Threshold Earnings Level for
such fiscal year has been achieved and that a Participant's Level
of Achievement for each individual objective is one hundred
percent, and (y) multiplying the result so obtained by a fraction
the numerator of which is the number of days elapsed from the
beginning of such fiscal year until the Change in Control and the
denominator of which is three hundred and sixty-five (365).
Notwithstanding anything contained herein to the contrary,
following a Change in Control, the Plan shall continue in full
force and effect, and a Participant shall be entitled to receive
an additional incentive award with respect to the fiscal year in
which the Change in Control occurs, equal to the excess (if any)
of the amount of the incentive award for such year, determined in
accordance with Article VII hereof, over the amount paid pursuant
to the preceding provision of this paragraph (iii).
B. Definition of a Change in Control
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall
have been satisfied:
i) any Person (as defined in this Section B) is or becomes the
Beneficial Owner (as defined in this Section B), directly or
indirectly, of securities of Energy East (not including in the
securities beneficially owned by such Person any securities
acquired directly from Energy East or its affiliates)
representing 25% or more of the combined voting power of Energy
East's then outstanding securities; or
ii) during any period of two consecutive years (not including any
period prior to May 1, 1998), individuals who at the beginning of
such period constitute the Energy East Board and any new director
(other than a director designated by a Person who has entered
into an agreement with Energy East to effect a transaction
described in paragraph (i), (iii) or (iv) of this Change in
Control definition or a director whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitations of proxies or consents
by or on behalf of a Person other than the Energy East Board)
whose election by the Energy East Board or nomination for
election by Energy East's stockholders was approved by a vote of
at least two thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
iii) the shareholders of Energy East approve a merger or
consolidation of Energy East with any other corporation, other
than (x) a merger or consolidation which would result in the
voting securities of Energy East outstanding immediately prior
thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan
of Energy East or any of its affiliates at least 75% of the
combined voting power of the voting securities of Energy East or
such surviving entity outstanding immediately after such merger
or consolidation, or (y) a merger or consolidation effected to
implement a recapitalization of Energy East (or similar
transaction) in which no Person acquires more than 50% of the
combined voting power of Energy East's then outstanding
securities; or
iv) the shareholders of Energy East approve a plan of complete
liquidation of Energy East or an agreement for the sale or
disposition by Energy East of all or substantially all of Energy
East's assets.
For purposes of the definition of Change in Control in this
Section B:
"Beneficial Owner" shall have the meaning defined in Rule 13d-3
under the Exchange Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Person" shall have the meaning given in Section 3(a) (9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof; however, a Person shall not include (i) Energy East or
any of its affiliates, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of Energy East or any
of its affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of
Energy East in substantially the same proportions as their
ownership of stock of Energy East.
XII. Plan Administration After a Change in Control
Notwithstanding any other provisions of the Plan (including,
without limitation, Articles VI (B) and X hereof), upon and after
the occurrence of a Change in Control, neither the Board, nor the
Committee shall be authorized to, and no termination, suspension,
modification or amendment of the Plan shall be permitted to,
amend or modify the terms and provisions (including, without
limitation, the payment provisions) of any incentive awards
theretofore made to Participants in any way which adversely
affects the rights of such Participants.
Isth\exec\employee\aeip99.doc
<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, 1999, 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-31-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,142,587
<OTHER-PROPERTY-AND-INVEST> 65,144
<TOTAL-CURRENT-ASSETS> 643,738
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 265,393
<TOTAL-ASSETS> 3,116,862
<COMMON> 430,057
<CAPITAL-SURPLUS-PAID-IN> 170,480
<RETAINED-EARNINGS> 33,654
<TOTAL-COMMON-STOCKHOLDERS-EQ> 634,191
25,000
10,131
<LONG-TERM-DEBT-NET> 1,363,852
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 486
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,083,202
<TOT-CAPITALIZATION-AND-LIAB> 3,116,862
<GROSS-OPERATING-REVENUE> 1,567,075
<INCOME-TAX-EXPENSE> 212,760
<OTHER-OPERATING-EXPENSES> 185,777
<TOTAL-OPERATING-EXPENSES> 1,079,835
<OPERATING-INCOME-LOSS> 487,240
<OTHER-INCOME-NET> 2,391
<INCOME-BEFORE-INTEREST-EXPEN> 0
<TOTAL-INTEREST-EXPENSE> 97,960
<NET-INCOME> 178,911
2,214
<EARNINGS-AVAILABLE-FOR-COMM> 176,697
<COMMON-STOCK-DIVIDENDS> 173,326
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 364,390
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
