SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission Registrant, State of Incorporation I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ---------------------------------- ------------------
0-25595 NIAGARA MOHAWK HOLDINGS, INC. 16-1549726
(a New York corporation)
300 Erie Boulevard West
Syracuse, New York 13202
Telephone 315.474.1511
1-2987 NIAGARA MOHAWK POWER CORPORATION 15-0265555
(a New York corporation)
300 Erie Boulevard West
Syracuse, New York 13202
Telephone 315.474.1511
Indicate by check mark whether each 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 outstanding of each of the issuer's classes of voting
stock, as of April 30, 2000, were as follows:
Shares
Registrant Title Outstanding
- ---------------------------------- ----------------------------- -----------
Niagara Mohawk Holdings, Inc. Common Stock, $0.01 par value 172,364,863
Niagara Mohawk Power Corporation Common Stock, $1.00 par value 187,364,863
(all held by Niagara Mohawk
Holdings, Inc.)
<PAGE>
FILING FORMAT
This Quarterly Report on Form 10-Q is a combined quarterly report being filed
separately by two registrants: Niagara Mohawk Holdings, Inc. ("Holdings") and
Niagara Mohawk Power Corporation ("Niagara Mohawk"). Holdings became the
holding company for Niagara Mohawk on March 18, 1999. (See Item 1. Financial
Statements - Notes to Consolidated Financial Statements - Note 1. Summary of
Significant Accounting Policies - "Holding Company Formation"). Except
where the context clearly indicates otherwise, any references in this report
to "Holdings" includes all subsidiaries of Holdings including Niagara Mohawk.
Niagara Mohawk makes no representation as to the information contained in this
report in relation to Holdings and its subsidiaries other than Niagara Mohawk.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q - For the Quarter Ended March 31, 2000
PART I. FINANCIAL INFORMATION
Glossary of Terms
Item 1. Financial Statements
Consolidated Financial Statements:
NIAGARA MOHAWK HOLDINGS, INC.
-----------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
NIAGARA MOHAWK POWER CORPORATION
--------------------------------
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Review by Independent Accountants
Independent Accountants' Report on the Limited Review of the Interim
Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
GLOSSARY OF TERMS
TERM DEFINITION
- ---- ----------
CTC Competitive transition charges: a mechanism established in the
Power Choice agreement to recover stranded costs from customers
Dth Dekatherm: one thousand cubic feet of gas with a heat content of
1,000 British Thermal Units per cubic foot
EBITDA A non-GAAP measure of cash flow which is calculated as: earnings
before interest charges, interest income, income taxes,
depreciation and amortization, amortization of nuclear fuel,
allowance for funds used during construction, MRA regulatory asset
amortization, and extraordinary items
FERC Federal Energy Regulatory Commission
GAAP Generally Accepted Accounting Principles
GRT Gross Receipts Tax
GWh Gigawatt-hour: one gigawatt-hour equals one billion watt-hours
IPP Independent Power Producer: any person that owns or operates, in
whole or in part, one or more Independent Power Facilities,
including the purchasers of Niagara Mohawk's generation assets
IPP Party Independent Power Producers that were a party to the MRA
KWh Kilowatt-hour: a unit of electrical energy equal to one kilowatt
of power supplied or taken from an electric circuit steadily for
one hour
MRA Master Restructuring Agreement - a Niagara Mohawk agreement,
including amendments thereto, which terminated, restated or
amended certain IPP Party power purchase agreements effective
June 30, 1998
MRA Recoverable costs to terminate, restate or amend IPP Party
regulatory contracts, which have been deferred and are being amortized and
asset recovered under the Power Choice agreement
MW Megawatt: one million watts
NRC Nuclear Regulatory Commission
NYISO New York Independent System Operator
Power Choice Niagara Mohawk's five-year electric rate agreement, which
incorporates the MRA agreement, approved by the PSC in an order
dated March 20, 1998, and became effective September 1, 1998
PPA Power Purchase Agreement: long-term contracts under which a
utility is obligated to purchase electricity from an IPP at
specified rates
Provider of The entity that will provide electric or gas commodity to its
last resort customers who are unable or unwilling to obtain an alternative
supplier
PRP Potentially Responsible Party
PSC New York State Public Service Commission
SFAS Statement of Financial Accounting Standards No. 71
No. 71 "Accounting for the Effects of Certain Types of Regulation"
Unit 1 Nine Mile Point Nuclear Station Unit No. 1
Unit 2 Nine Mile Point Nuclear Station Unit No. 2
<PAGE>
PART I
------
ITEM 1. FINANCIAL STATEMENTS
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- ----------
(In thousands of dollars)
<S> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . $ 924,895 $ 864,678
Gas . . . . . . . . . . . . . . . . . . . 263,599 254,407
Other . . . . . . . . . . . . . . . . . . 977 49
------------- -----------
1,189,471 1,119,134
------------- -----------
OPERATING EXPENSES:
Electricity purchased . . . . . . . . . . 375,055 175,292
Fuel for electric generation. . . . . . . 13,330 57,094
Gas purchased . . . . . . . . . . . . . . 156,986 115,258
Other operation and maintenance expenses. 219,901 206,343
Amortization of MRA regulatory asset. . . 96,625 96,625
Depreciation and amortization . . . . . . 77,950 94,816
Other taxes . . . . . . . . . . . . . . . 78,268 121,858
------------- -----------
1,018,115 867,286
------------- -----------
OPERATING INCOME. . . . . . . . . . . . . . . 171,356 251,848
Other income (deductions) . . . . . . . . . . (4,918) (1,403)
------------- -----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . 166,438 250,445
Interest charges. . . . . . . . . . . . . . . 111,332 130,275
Preferred dividend requirement of subsidiary. 7,904 9,024
------------- -----------
INCOME BEFORE FEDERAL AND FOREIGN
INCOME TAXES. . . . . . . . . . . . . . . 47,202 111,146
Federal and foreign income taxes. . . . . . . 32,728 60,314
------------- -----------
NET INCOME (NOTE 1) . . . . . . . . . . . . . $ 14,474 $ 50,832
============= ===========
Average number of shares of common stock
outstanding (in thousands). . . . . . . . 177,352 187,365
BASIC AND DILUTED EARNINGS PER AVERAGE
SHARE OF COMMON STOCK . . . . . . . . . . $ 0.08 $ 0.27
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
2000 December 31,
(UNAUDITED) 1999
------------ -------------
(In thousands of dollars)
<S> <C> <C>
UTILITY PLANT:
Electric plant . . . . . . . . . . . . . . . . . . . $ 7,241,580 $ 7,221,762
Nuclear fuel . . . . . . . . . . . . . . . . . . . . 647,244 630,321
Gas plant. . . . . . . . . . . . . . . . . . . . . . 1,272,891 1,263,168
Common plant . . . . . . . . . . . . . . . . . . . . 371,746 364,718
Construction work in progress. . . . . . . . . . . . 308,686 312,322
----------- -------------
Total utility plant . . . . 9,842,147 9,792,291
Less - Accumulated depreciation and amortization . . 3,979,146 3,904,049
----------- -------------
Net utility plant . . . . . 5,863,001 5,888,242
----------- -------------
OTHER PROPERTY AND INVESTMENTS. . . . . . . . . . . . . . . . 456,498 484,735
----------- -------------
CURRENT ASSETS:
Cash, including temporary cash investments
of $248,098 and $90,029, respectively. . . . . 294,222 116,164
Funds held for the repurchase of common stock. . . . 8,160 -
Accounts receivable (less allowance for doubtful
accounts of $67,900 and $61,400, respectively) 439,991 373,510
Materials and supplies, at average cost:
Oil for production of electricity. . . . . . . 10,005 9,263
Gas storage. . . . . . . . . . . . . . . . . . 6,941 39,166
Other. . . . . . . . . . . . . . . . . . . . . 89,152 90,605
Prepaid taxes. . . . . . . . . . . . . . . . . . . . 61,757 21,489
Other. . . . . . . . . . . . . . . . . . . . . . . . 16,833 24,042
----------- -------------
927,061 674,239
----------- -------------
REGULATORY ASSETS (NOTE 3):
MRA regulatory asset. . . . . . . . . . . . . . . . 3,596,543 3,686,019
Swap contracts regulatory asset . . . . . . . . . . 467,032 505,723
Regulatory tax asset. . . . . . . . . . . . . . . . 483,546 483,546
IPP buyout costs. . . . . . . . . . . . . . . . . . 253,911 260,873
Deferred environmental restoration costs (Note 2) . 240,000 240,000
Deferred loss on sale of assets . . . . . . . . . . 136,517 135,229
Postretirement benefits other than pensions . . . . 47,997 48,937
Unamortized debt expense. . . . . . . . . . . . . . 43,584 44,903
Other . . . . . . . . . . . . . . . . . . . . . . . 100,838 112,556
----------- -------------
5,369,968 5,517,786
----------- -------------
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 97,133 105,433
----------- -------------
$12,713,661 $ 12,670,435
=========== =============
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
2000 December 31,
(UNAUDITED) 1999
------------ --------------
(In thousands of dollars)
<S> <C> <C>
CAPITALIZATION (NOTE 1):
COMMON STOCKHOLDERS' EQUITY:
Common stock - $0.01 par value; authorized 300,000,000 shares;
issued 187,364,863 shares; outstanding 176,630,863 and
177,364,863 shares, respectively . . . . . . . . . . . . . . $ 1,874 $ 1,874
Treasury stock, at cost, 10,734,000 and 10,000,000
shares, respectively. . . . . . . . . . . . . . . . . . . . (166,748) (157,167)
Capital stock premium and expense . . . . . . . . . . . . . . . 2,546,815 2,546,630
Accumulated other comprehensive income. . . . . . . . . . . . . (26,328) (26,200)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 625,426 610,952
------------ --------------
2,981,039 2,976,089
PREFERRED STOCK OF SUBSIDIARY:
Not subject to mandatory redemption . . . . . . . . . . . . . . 440,000 440,000
Subject to mandatory redemption . . . . . . . . . . . . . . . . 61,370 61,370
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,842,580 5,042,588
------------ --------------
TOTAL CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . 8,324,989 8,520,047
------------ --------------
CURRENT LIABILITIES:
Long-term debt due within one year. . . . . . . . . . . . . . . . . 820,338 613,740
Sinking fund requirements on redeemable preferred
stock of subsidiary . . . . . . . . . . . . . . . . . . . . . . 7,620 7,620
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 236,295 288,223
Payable on outstanding bank checks. . . . . . . . . . . . . . . . . 15,982 22,067
Customers' deposits . . . . . . . . . . . . . . . . . . . . . . . . 16,659 15,255
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,689 1,408
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . 131,838 67,593
Accrued vacation pay. . . . . . . . . . . . . . . . . . . . . . . . 35,184 35,334
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,202 67,068
------------ --------------
1,351,807 1,118,308
------------ --------------
REGULATORY AND OTHER LIABILITIES (NOTE3):
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . 1,599,976 1,568,957
Liability for swap contracts. . . . . . . . . . . . . . . . . . . . 623,810 663,718
Employee pension and other benefits . . . . . . . . . . . . . . . . 225,546 226,223
Unbilled gas revenues . . . . . . . . . . . . . . . . . . . . . . . 17,352 14,552
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,181 318,630
------------ --------------
2,796,865 2,792,080
------------ --------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 3):
Liability for environmental restoration. . . . . . . . . . . . . . 240,000 240,000
------------ --------------
$12,713,661 $ 12,670,435
============ ==============
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,474 $ 50,832
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 77,950 94,816
Amortization of MRA regulatory asset . . . . . . . . . . . . . . . . 96,625 96,625
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . 6,932 9,182
Provision for deferred income taxes. . . . . . . . . . . . . . . . . 31,019 36,357
Net accounts receivable (net of changes in accounts receivable sold) (63,681) (176,668)
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . 32,355 41,444
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . (45,407) (53,394)
Accrued interest and taxes . . . . . . . . . . . . . . . . . . . . . 87,526 72,294
MRA regulatory asset . . . . . . . . . . . . . . . . . . . . . . . . (426) (7,534)
Deferral of MRA interest rate savings. . . . . . . . . . . . . . . . 5,417 8,056
Refundable federal income taxes. . . . . . . . . . . . . . . . . . . - 130,411
Change in IPP buyout costs regulatory asset. . . . . . . . . . . . . 6,962 2,254
Changes in other assets and liabilities. . . . . . . . . . . . . . . (6,327) (26,358)
------------ ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . 243,419 278,317
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39,156) (45,315)
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,923) (23,524)
------------ ----------
Acquisition of utility plant . . . . . . . . . . . . . . . . . . . . . . . . . (56,079) (68,839)
Materials and supplies related to construction . . . . . . . . . . . . . . . . 581 1,568
Accounts payable and accrued expenses related to construction. . . . . . . . . (11,352) (13,349)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,434 58,074
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,266) 1,065
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . (44,682) (21,481)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funds held for the repurchase of common stock. . . . . . . . . . . . . . . . . (8,160) -
Reductions in long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . (3,403) -
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (9,581) -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 (24)
------------ ----------
NET CASH USED IN FINANCING ACTIVITIES . . . . . . . . . . . (20,679) (24)
------------ ----------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,058 256,812
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,164 172,998
------------ ----------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 294,222 $ 429,810
============ ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,970 $ 95,485
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . . . . . . . . . $ (130) $(134,999)
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
On March 18, 1999, Holdings issued 187,364,873 shares of common stock
in a share-for-share exchange for Niagara Mohawk's outstanding common stock.
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------- -----------
(In thousands of dollars)
<S> <C> <C>
OPERATING REVENUES:
Electric. . . . . . . . . . . . . . . . . $ 823,672 $ 849,746
Gas . . . . . . . . . . . . . . . . . . . 245,107 246,275
------------- -----------
1,068,779 1,096,021
------------- -----------
OPERATING EXPENSES:
Electricity purchased . . . . . . . . . . 279,890 160,965
Fuel for electric generation. . . . . . . 13,330 57,094
Gas purchased . . . . . . . . . . . . . . 138,432 107,346
Other operation and maintenance expenses. 214,689 203,292
Amortization of MRA regulatory asset. . . 96,625 96,625
Depreciation and amortization . . . . . . 77,832 94,692
Other taxes . . . . . . . . . . . . . . . 77,263 121,723
------------- -----------
898,061 841,737
------------- -----------
OPERATING INCOME. . . . . . . . . . . . . . . 170,718 254,284
Other income (deductions) . . . . . . . . . . (7,365) (3,839)
------------- -----------
INCOME BEFORE INTEREST CHARGES. . . . . . . . 163,353 250,445
Interest charges. . . . . . . . . . . . . . . 111,332 130,275
------------- -----------
INCOME BEFORE FEDERAL AND FOREIGN
INCOME TAXES. . . . . . . . . . . . . . . 52,021 120,170
Federal and foreign income taxes. . . . . . . 31,188 60,314
------------- -----------
NET INCOME (NOTE 1) . . . . . . . . . . . . . 20,833 59,856
Dividends on preferred stock. . . . . . . . . 7,904 9,024
------------- -----------
BALANCE AVAILABLE FOR COMMON STOCK. . . . . . $ 12,929 $ 50,832
============= ===========
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
2000 December 31,
(UNAUDITED) 1999
----------- -------------
(In thousands of dollars)
<S> <C> <C>
UTILITY PLANT:
Electric plant . . . . . . . . . . . . . . . . . . . $ 7,241,580 $ 7,221,762
Nuclear fuel . . . . . . . . . . . . . . . . . . . . 647,244 630,321
Gas plant. . . . . . . . . . . . . . . . . . . . . . 1,272,891 1,263,168
Common plant . . . . . . . . . . . . . . . . . . . . 371,746 364,718
Construction work in progress. . . . . . . . . . . . 308,686 312,322
----------- -------------
Total utility plant . . . . 9,842,147 9,792,291
Less - Accumulated depreciation and amortization . . 3,979,146 3,904,049
----------- -------------
Net utility plant . . . . . 5,863,001 5,888,242
----------- -------------
OTHER PROPERTY AND INVESTMENTS. . . . . . . . . . . . . . . . 357,549 349,718
----------- -------------
CURRENT ASSETS:
Cash, including temporary cash investments
of $159,606 and $58,276, respectively. . . . . 190,236 72,479
Funds held for repurchase of Holdings' common stock. 8,160 -
Accounts receivable (less allowance for doubtful
accounts of $65,800 and $59,400, respectively) 388,681 331,222
Materials and supplies, at average cost:
Oil for production of electricity. . . . . . . 10,005 9,263
Gas storage. . . . . . . . . . . . . . . . . . 6,833 38,252
Other. . . . . . . . . . . . . . . . . . . . . 89,152 90,605
Prepaid taxes. . . . . . . . . . . . . . . . . . . . 61,757 21,489
Other. . . . . . . . . . . . . . . . . . . . . . . . 14,744 22,668
----------- -------------
769,568 585,978
----------- -------------
REGULATORY ASSETS (NOTE 3):
MRA regulatory asset. . . . . . . . . . . . . . . . 3,596,543 3,686,019
Swap contracts regulatory asset . . . . . . . . . . 467,032 505,723
Regulatory tax asset. . . . . . . . . . . . . . . . 483,546 483,546
IPP buyout costs. . . . . . . . . . . . . . . . . . 253,911 260,873
Deferred environmental restoration costs (Note 2) . 240,000 240,000
Deferred loss on sale of assets . . . . . . . . . . 136,517 135,229
Postretirement benefits other than pensions . . . . 47,997 48,937
Unamortized debt expense. . . . . . . . . . . . . . 43,584 44,903
Other . . . . . . . . . . . . . . . . . . . . . . . 100,838 112,556
----------- -------------
5,369,968 5,517,786
----------- -------------
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . 96,433 103,884
----------- -------------
$12,456,519 $ 12,445,608
=========== =============
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
2000 December 31,
(UNAUDITED) 1999
------------ --------------
(In thousands of dollars)
<S> <C> <C>
CAPITALIZATION:
COMMON STOCKHOLDERS' EQUITY:
Common stock - $1 par value; authorized 250,000,000 shares;
issued and outstanding 187,364,863 shares. . . . . . . . . $ 187,365 $ 187,365
Repurchase of Holdings' common stock, at cost. . . . . . . . . . (166,748) (157,167)
Capital stock premium and expense. . . . . . . . . . . . . . . . 2,361,324 2,361,139
Accumulated other comprehensive income . . . . . . . . . . . . . (4,873) (5,153)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 375,784 398,987
------------ --------------
2,752,852 2,785,171
------------ --------------
CUMULATIVE PREFERRED STOCK, AUTHORIZED 3,400,000 SHARES, $100 PAR VALUE:
Non-redeemable (optionally redeemable), issued 2,100,000 shares. 210,000 210,000
Redeemable (mandatorily redeemable), issued 186,000 shares . . . 16,800 16,800
CUMULATIVE PREFERRED STOCK, AUTHORIZED 19,600,000 SHARES, $25 PAR VALUE:
Non-redeemable (optionally redeemable), issued 6,200,000 shares. 230,000 230,000
Redeemable (mandatorily redeemable), issued 2,015,602 shares . . 44,570 44,570
------------ --------------
501,370 501,370
------------ --------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,842,580 5,042,588
------------ --------------
TOTAL CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . 8,096,802 8,329,129
------------ --------------
CURRENT LIABILITIES:
Long-term debt due within one year . . . . . . . . . . . . . . . . . 820,338 613,740
Sinking fund requirements on redeemable preferred stock. . . . . . . 7,620 7,620
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 197,911 244,031
Payable on outstanding bank checks . . . . . . . . . . . . . . . . . 15,982 22,067
Customers' deposits. . . . . . . . . . . . . . . . . . . . . . . . . 16,659 15,255
Accrued taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,647 6,246
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . 131,838 67,593
Accrued vacation pay . . . . . . . . . . . . . . . . . . . . . . . . 35,184 35,334
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,321 66,160
------------ --------------
1,316,500 1,078,046
------------ --------------
REGULATORY AND OTHER LIABILITIES (NOTE3):
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . . 1,606,353 1,575,335
Liability for swap contracts . . . . . . . . . . . . . . . . . . . . 623,810 663,718
Employee pension and other benefits. . . . . . . . . . . . . . . . . 225,546 226,223
Unbilled gas revenues. . . . . . . . . . . . . . . . . . . . . . . . 17,352 14,552
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,156 318,605
------------ --------------
2,803,217 2,798,433
------------ --------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 3):
Liability for environmental restoration . . . . . . . . . . . . . . 240,000 240,000
------------ --------------
$12,456,519 $ 12,445,608
============ ==============
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
----------- ----------
<S> <C> <C>
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,833 $ 59,856
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 77,832 94,692
Amortization of MRA regulatory asset . . . . . . . . . . . . . . . . 96,625 96,625
Amortization of nuclear fuel . . . . . . . . . . . . . . . . . . . . 6,932 9,182
Provision for deferred income taxes. . . . . . . . . . . . . . . . . 31,018 36,357
Net accounts receivable (net of changes in accounts receivable sold) (54,659) (176,668)
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . 31,549 41,444
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . (40,761) (53,394)
Accrued interest and taxes . . . . . . . . . . . . . . . . . . . . . 87,646 72,294
MRA regulatory asset . . . . . . . . . . . . . . . . . . . . . . . . (426) (7,534)
Deferral of MRA interest rate savings. . . . . . . . . . . . . . . . 5,417 8,056
Refundable federal income taxes. . . . . . . . . . . . . . . . . . . - 130,411
Changes in IPP buyout costs regulatory asset . . . . . . . . . . . . 6,962 2,254
Changes in other assets and liabilities. . . . . . . . . . . . . . . (7,434) (26,358)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . 261,534 287,217
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions . . . . . . . . . . . . . . . . . . . . . . . . . (39,156) (45,315)
Nuclear fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,923) (23,524)
----------- ----------
Acquisition of utility plant . . . . . . . . . . . . . . . . . . . . . . (56,079) (68,839)
Materials and supplies related to construction . . . . . . . . . . . . . 581 1,568
Accounts payable and accrued expenses related to construction. . . . . . (10,190) (13,349)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,634) 58,074
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,740) 1,189
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . (79,062) (21,357)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock dividend paid to Holdings . . . . . . . . . . . . . . . . . (36,132) -
Funds held for the repurchase of Holdings' common stock. . . . . . . . . (8,160) -
Repurchase of Holdings' common stock . . . . . . . . . . . . . . . . . . (9,581) -
Preferred dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (7,904) (9,024)
Corporate restructuring to establish holding company . . . . . . . . . . - (89,618)
Reduction in long-term debt. . . . . . . . . . . . . . . . . . . . . . . (3,403) -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 (24)
----------- ----------
NET CASH USED IN FINANCING ACTIVITIES . . . . . . . . . . . (64,715) (98,666)
----------- ----------
NET INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,757 167,194
Cash at beginning of period. . . . . . . . . . . . . . . . . . . . . . . . 72,479 172,998
----------- ----------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 190,236 $ 340,192
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,970 $ 95,485
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . . . . $ (772) $(134,999)
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
On March 18, 1999, Niagara Mohawk's outstanding common stock was exchanged
on a share-for-share basis for Holdings' common stock.
On March 31, 1999, Niagara Mohawk distributed the stock of Opinac as a
dividend to Holdings, which included cash of $89.6 million.
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HOLDING COMPANY FORMATION: On March 18, 1999, Niagara Mohawk Power Corporation
("Niagara Mohawk") was reorganized into a holding company structure in
accordance with its Agreement and Plan of Exchange between Niagara Mohawk and
Niagara Mohawk Holdings, Inc. ("Holdings"). Niagara Mohawk's outstanding common
stock was exchanged on a share-for-share basis for Holdings' common stock.
Niagara Mohawk's preferred stock and debt were not exchanged as part of the
share exchange and continue as obligations of Niagara Mohawk.
SUBSIDIARIES: On March 31, 1999, Niagara Mohawk distributed its ownership in the
stock of Opinac North America, Inc. ("Opinac") as a dividend to Holdings. As a
result, the net assets and accumulated other comprehensive income of Opinac are
no longer included in Niagara Mohawk's consolidated balance sheet. The dividend
completed the holding company structure, with Holdings owning 100 percent of the
common stock of its two subsidiaries, Niagara Mohawk and Opinac. Niagara Mohawk
and its subsidiaries manage all regulated activities and comprise 98 percent of
the assets and 90 percent of the revenues of Holdings. Opinac and its
subsidiaries consist of an energy marketing company and have investments in
energy related services businesses, a developmental stage telecommunications
company (Telergy, Inc.), and a research and development company (EVonyx, Inc.)
that has developed and intends to commercialize new fuel cell and battery
technology.
BASIS OF PRESENTATION: This Quarterly Report on Form 10-Q is a combined report
of Holdings and Niagara Mohawk, a regulated electric and gas utility subsidiary.
The Notes to the Consolidated Financial Statements apply to both Holdings and
Niagara Mohawk. Holdings' consolidated financial statements include the
accounts of Holdings and its wholly owned subsidiaries, including Niagara
Mohawk. Niagara Mohawk's consolidated financial statements include its accounts
as well as those of its wholly owned subsidiaries.
Holdings and Niagara Mohawk, in the opinion of management, have included all
adjustments (which include normal recurring adjustments) necessary for a fair
statement of the results of operations for the interim periods presented. These
financial statements for 2000 are subject to adjustment at the end of the year
when they will be audited by independent accountants. These financial
statements and notes thereto should be read in conjunction with the audited
financial statements included in Holdings and Niagara Mohawk's combined 1999
Annual Report on Form 10-K.
Niagara Mohawk's electric sales tend to be substantially higher in summer and
winter months as related to weather patterns in its service territory; gas sales
tend to peak in the winter. Notwithstanding other factors, Niagara Mohawk's
quarterly net income will generally fluctuate accordingly. Therefore, the
earnings for the three-month period ended March 31, 2000 should not be taken as
an indication of earnings for all or any part of the balance of the year.
The closing of the MRA, which occurred on June 30, 1998, and the implementation
of Power Choice on September 1, 1998 have depressed and will continue to
substantially depress earnings during the five-year term of Power Choice. The
ability of Niagara Mohawk to improve earnings in the period subsequent to Power
Choice will depend on the outcome of the regulatory process to set prices at
that time. However, operating cash flows have substantially improved. The
closing on the sale of the fossil and hydro generation assets at various times
during 1999 has also affected the comparability of the financial statements.
See Note 3 for a further discussion of the sales.
COMPREHENSIVE INCOME: Comprehensive income is the change in the equity of a
company, not including those changes that result from shareholder transactions.
While the primary component of comprehensive income is reported net income or
loss, the other components of comprehensive income relate to foreign currency
translation adjustments, additional minimum pension liability recognition, and
unrealized gains and losses associated with certain investments held as
available for sale. The primary difference in comprehensive income between
Holdings and Niagara Mohawk is the treatment of Niagara Mohawk's preferred
dividends and reported net income or loss. Total comprehensive income for the
three months ended March 31, 2000 and 1999 was as follows:
Three Months Ended
March 31,
Company: 2000 1999
- --------------- ------------------- -----
(in millions)
Holdings $14.3 $46.9
Niagara Mohawk 21.1 55.9
NEW ACCOUNTING STANDARD: In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities." The new standard requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from the changes in the
values of the derivatives will be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. Holdings and Niagara
Mohawk will be required to adopt this standard in 2001. Niagara Mohawk has
identified swap contracts, entered into as part of the MRA and generation asset
sales agreements, as derivative instruments and has recorded a liability at fair
value under SFAS No. 80, "Accounting for Futures Contracts." The swap contracts
qualify as hedges of future purchase commitments and are expected to continue to
qualify as hedges under SFAS No. 133. The financial agreement entered into as
part of the sale of the Albany oil and gas-fired generation plant will be a
derivative instrument as defined by SFAS No. 133 and will be recorded upon the
closing of the sale.
The FASB recently issued an Exposure Draft that included several amendments to
SFAS No. 133 which would limit the types and number of transactions to which the
accounting required by SFAS No. 133 would be applied. Holdings and Niagara
Mohawk continue to assess the applicability of this new standard to other
contractual obligations.
HOLDINGS' COMMON STOCK: During 1999, the PSC approved Niagara Mohawk's petition
to purchase up to $800 million of Holdings' common stock. Holdings' Board of
Directors has approved a program to repurchase 40 million shares through
December 31, 2002. Niagara Mohawk purchased 10 million shares of Holdings'
common stock through December 31, 1999 for $167 million.
During 1999, Niagara Mohawk entered into an agreement with an agent to purchase
up to five million shares of Holdings' common stock. The agent incurred
approximately $77.7 million for the 5 million shares. During the first quarter
of 2000, Niagara Mohawk placed approximately $8.2 million on deposit as
collateral for the purchases, in accordance with the provisions of the
agreement. At any time prior to the expiration (October 1, 2000) of the
agreement, Niagara Mohawk can repurchase the common stock from the agent and
is required to reimburse the agent (in stock and/or cash) for the costs
incurred to buy the stock plus a carrying charge. Niagara Mohawk has not
repurchased the shares from the agent as of March 31, 2000. The 5 million
shares remain in the number of shares outstanding in computing Holdings'
earnings per share at March 31, 2000.
Niagara Mohawk purchased 734,000 additional shares for approximately $9.6
million during the first quarter of 2000. Niagara Mohawk has subsequently
purchased 4,989,000 additional shares for approximately $68.9 million during
April and through May 10, 2000.
NOTE 2. CONTINGENCIES
ENVIRONMENTAL ISSUES: The public utility industry typically utilizes and/or
generates in its operations a broad range of hazardous and potentially hazardous
wastes and by-products. Niagara Mohawk believes it is handling identified
wastes and by-products in a manner consistent with federal, state and local
requirements and has implemented an environmental audit program to identify any
potential areas of concern and aid in compliance with such requirements.
Niagara Mohawk is also currently conducting a program to investigate and
remediate, as necessary to meet current environmental standards, certain
properties associated with former gas manufacturing and other properties which
Niagara Mohawk has learned may be contaminated with industrial waste, as well as
investigating identified industrial waste sites as to which it may be determined
that Niagara Mohawk has contributed. Niagara Mohawk has also been advised that
various federal, state or local agencies believe certain properties require
investigation and has prioritized the sites based on available information in
order to enhance the management of investigation and remediation, if necessary.
Niagara Mohawk is currently aware of 164 sites with which it may be associated,
including 86 which are Niagara Mohawk-owned. With respect to non-owned sites,
Niagara Mohawk may be required to contribute some proportionate share of
remedial costs. Although one party can, as a matter of law, be held liable for
all of the remedial costs at a site, regardless of fault, in practice costs are
usually allocated among PRPs. Niagara Mohawk has denied any responsibility at
certain of these PRP sites and is contesting liability accordingly.
Investigations at each of the Niagara Mohawk-owned sites are designed to (1)
determine if environmental contamination problems exist, (2) if necessary,
determine the appropriate remedial actions and (3) where appropriate, identify
other parties who should bear some or all of the cost of remediation. Legal
action against such other parties will be initiated where appropriate. After
site investigations are completed, Niagara Mohawk expects to determine
site-specific remedial actions and to estimate the attendant costs for
restoration. However, since investigations and regulatory reviews are ongoing
for most sites, the estimated cost of remedial action is subject to change.
Estimates of the cost of remediation and post-remedial monitoring are based upon
a variety of factors, including identified or potential contaminants; location,
size and use of the site; proximity to sensitive resources; status of regulatory
investigation and knowledge of activities at similarly situated sites.
Additionally, Niagara Mohawk's estimating process includes an initiative where
these factors are developed and reviewed using direct input and support obtained
from the DEC. Actual Niagara Mohawk expenditures are dependent upon the total
cost of investigation and remediation and the ultimate determination of Niagara
Mohawk's share of responsibility for such costs, as well as the financial
viability of other identified responsible parties since clean-up obligations are
joint and several. Niagara Mohawk has denied any responsibility at certain of
these PRP sites and is contesting liability accordingly.
As a consequence of site characterizations and assessments completed to date and
negotiations with PRPs, Niagara Mohawk has accrued a liability in the amount of
$240 million, which is reflected in both Niagara Mohawk's and Holdings'
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999. The
potential high end of the range is presently estimated at approximately $480
million, including approximately $245 million in the unlikely event Niagara
Mohawk is required to assume 100 percent responsibility at non-owned sites. The
probabilistic method was used to determine the amount to be accrued for 24 of
Niagara Mohawk's largest sites. The amount accrued for Niagara Mohawk's
remaining sites is determined through feasibility studies or engineering
estimates, Niagara Mohawk's estimated share of a PRP allocation or where no
better estimate is available, the low end of a range of possible outcomes is
used. In addition, Niagara Mohawk has recorded a regulatory asset representing
the remediation obligations to be recovered from ratepayers. Power Choice and
the gas rate settlements provide for the continued application of deferral
accounting for expense recognition resulting from this effort. As a result,
Niagara Mohawk does not believe that site investigation and remediation costs
will have a material adverse effect on its results of operations or financial
condition.
In November 1999, Niagara Mohawk submitted a revised feasibility study to the
DEC, which included the land-based portions of Niagara Mohawk's Harbor Point
site and five surrounding non-owned sites. The study indicates a range of
viable remedial approaches and associated cost estimates and recommends a
selected remedial alternative. This range consists of a high end of $70
million, with an expected value calculation of $49 million, which is included in
the amounts accrued at March 31, 2000 and December 31, 1999. The New York State
Department of Environmental Conservation ("DEC") approved this feasibility study
in January 2000 and is expected to prepare and issue a Proposed Remedial Action
Plan ("PRAP") in the summer or fall of 2000. The surface water-based portions
of Niagara Mohawk's Harbor Point site are subject to continuing feasibility
study evaluations and review by the DEC. The DEC has indicated that it plans to
issue a PRAP on the Utica Harbor/Barge Canal portion of the site in the summer
of 2000. Niagara Mohawk currently estimates the range of costs for remediation
of the surface water bodies to consist of a high end of $18 million, with an
expected value of $11 million. The ranges for the land-based and the surface
water bodies portions represent the total estimated costs to remediate the
properties and does not consider contributions from other PRPs, the amount of
which Niagara Mohawk is unable to estimate.
In May 1995, Niagara Mohawk filed a complaint pursuant to applicable federal and
New York State law in the U.S. District Court for the Northern District of New
York against several defendants seeking recovery of past and future costs
associated with the investigation and remediation of the Harbor Point and
surrounding sites. The New York State Attorney General moved to dismiss Niagara
Mohawk's claims against the state of New York, the New York State Department of
Transportation and the Thruway Authority and Canal Corporation under the
Comprehensive Environmental Response, Compensation and Liability Act. Niagara
Mohawk opposed this motion. On April 3, 1998, the Court denied the New York
State Attorney General's motion as it pertains to the Thruway Authority and
Canal Corporation, and granted the motion relative to the state of New York and
the Department of Transportation. Niagara Mohawk is engaged in settlement
negotiations with the various parties and in the event the case does not
settle, Niagara Mohawk expects the matter will go to trial later in the year.
As a result, Niagara Mohawk cannot predict the outcome of the pending
litigation against the defendants or the allocation of Niagara Mohawk's share
of the costs to remediate the Harbor Point and surrounding sites.
NOTE 3. RATE AND REGULATORY ISSUES AND CONTINGENCIES
Holdings and Niagara Mohawk's financial statements conform to GAAP, including
the accounting principles for rate-regulated entities with respect to its
regulated operations. Niagara Mohawk discontinued application of regulatory
accounting principles to its fossil and hydro generation business as of December
31, 1996. Substantively, SFAS No. 71 permits a public utility, regulated on a
cost-of-service basis, to defer certain costs, which would otherwise be charged
to expense, when authorized to do so by the regulator. These deferred costs are
known as regulatory assets, which in the case of Niagara Mohawk are
approximately $5.4 billion at March 31, 2000. These regulatory assets are
probable of recovery.
MRA REGULATORY ASSET: Under Power Choice, a regulatory asset was established for
the costs of the MRA and represents the costs to terminate, restate, or amend
IPP Party contracts. This regulatory asset is being amortized generally over
ten years, beginning September 1, 1998. Niagara Mohawk's rates under Power
Choice have been designed to permit recovery of the MRA regulatory asset.
SWAP CONTRACT REGULATORY ASSET: The swap contract regulatory asset represents
the expected future recovery of the swap contract liability. The swap contract
liability is the difference between estimated future market prices and the
contract prices for the notional quantities of power in the restated PPA
contracts with the IPPs and in the financial swaps associated with the PPAs from
the sale of the Huntley and Dunkirk coal-fired generation plants. The portion
of this regulatory asset associated with the restated IPP contracts will be
amortized over ten years ending in June 2008, in accordance with the MRA, as
notional quantities are settled. The portion of this regulatory asset
associated with the Huntley and Dunkirk PPAs will be amortized over the
remaining term of the swaps through June 2003. The amount of this regulatory
asset will fluctuate as estimates of future market and contract prices change
over the terms of the contracts. Upon the closing of the sale of the Albany oil
and gas-fired generation plant, Niagara Mohawk will record a swap contract
regulatory asset and corresponding liability in connection with the financial
agreement signed as part of the sale.
DEFERRED LOSS ON THE SALE OF ASSETS: Power Choice requires Niagara Mohawk to
divest its portfolio of fossil and hydro generation assets. During 1999,
Niagara Mohawk completed the sale of its hydroelectric generation plants, its
coal-fired generation plants and its Oswego oil and gas-fired plant for $860
million. These assets had a combined net book value of approximately $957
million (including materials, supplies and fuel) at the time of their sale. In
addition, there were purchase price adjustments of approximately $27 million,
primarily due to a lower amount of fuel being delivered to the new owners of the
Oswego generation assets than originally anticipated and provided for in the
sales agreement.
Niagara Mohawk also announced during 1999, an agreement to sell its Albany oil
and gas-fired plant to PSEG Power LLC ("PSEG") for $47.5 million. The sale of
the Albany plant is expected to be completed in the second quarter of 2000. The
Albany plant has a net book value of approximately $30.6 million (including
materials, supplies and fuel) as of March 31, 2000. Niagara Mohawk could also
receive up to an additional $11.5 million if PSEG chooses to pursue the
redevelopment of the Albany plant and the redevelopment is in service by July 1,
2003. The agreement with PSEG includes a "Post Closing Property Tax Adjustment"
to be settled on the first ten anniversaries of the closing date. If actual
annual property taxes exceed a predetermined amount, Niagara Mohawk will pay
PSEG. If the property taxes are lower, then PSEG will pay Niagara Mohawk. The
predetermined amount is based upon the taxes paid by Niagara Mohawk at the time
of the sale, which should approximate $6.7 million. During the ten years, the
predetermined amount will be lowered by $0.5 million each year. Niagara Mohawk
is pursuing a reduction in the taxes paid on the facility. No amount has been
reflected in the anticipated proceeds from the sale of Albany for the
redevelopment fee or the post closing property tax adjustment.
The sale of the Roseton Steam Station, of which Niagara Mohawk owns 25 percent,
is being pursued by Central Hudson Gas & Electric Corporation ("Central
Hudson"). Although Central Hudson has stated that it expects to sell this plant
by early 2001, to assure divestiture of this asset, Niagara Mohawk entered into
an agreement with Central Hudson, subject to regulatory approval, to sell its
interest in the plant to Central Hudson at approximately net book value by no
later than January 1, 2003. Niagara Mohawk's share of the plant has a net book
value of approximately $40.6 million (which includes materials, supplies and
fuel) as of March 31, 2000.
The Power Choice agreement provides for deferral and future recovery of net
losses, if any, resulting from the sale of the fossil and hydro generation asset
portfolio. As of March 31, 2000, Niagara Mohawk has recorded a regulatory asset
of $136.5 million for the net loss on the sale of its coal-fired generation
plants, its hydro generation assets, and its oil and gas fired plant at Oswego,
which includes $3.1 million in employee-related severance costs. The net loss
is included in Niagara Mohawk's balance sheet as "Deferred Loss on Sale of
Assets." In accordance with Power Choice, Niagara Mohawk will not earn a return
on the deferred loss during the Power Choice period. The amount of this
regulatory asset is subject to change as a result of post closing adjustments on
the sales, transaction costs, the accounting treatment relating to the hydro
PPAs, the amount of severance and other costs and the outcome of the sale of the
remaining fossil assets. Niagara Mohawk has petitioned the PSC to defer, as
part of the regulatory asset associated with the sale of the fossil and hydro
generation assets, the amount by which the actual amount incurred on the hydro
PPAs exceeds the forecasted amount reflected in Power Choice. After all the
fossil and hydro sales transactions have been completed, Niagara Mohawk
estimates that it will have a net loss (stranded costs) of approximately $150
million, including an estimate of the future deferrable hydro payments. Niagara
Mohawk is required to submit to the PSC a final accounting of the costs and
proceeds from the sale of its assets shortly after completion of the final sale.
Niagara Mohawk will begin recovery of the loss in 2003, over a period not to
exceed the average remaining life of the assets sold, estimated at 20 years.
Niagara Mohawk has earned an incentive as provided for in Power Choice of $9.0
million based on the asset sales concluded in 1999, which is reflected in income
in 1999 and is recorded as an other regulatory asset in the Consolidated Balance
Sheets. An additional incentive is expected to be earned upon the completion of
the remaining assets sales of approximately $6.0 million. Niagara Mohawk will
begin recovery of the incentive in 2001, over a period not to exceed five years.
On June 24, 1999, Niagara Mohawk announced an agreement to sell its nuclear
assets to AmerGen Energy Company, LLC ("AmerGen"), a joint venture of PECO
Energy Company and British Energy, for approximately $135 million. Along with
the asset purchase agreement, Niagara Mohawk also signed PPAs with AmerGen to
purchase energy and capacity at negotiated prices. New York State Electric and
Gas Corporation ("NYSEG") was also a party to the agreement and agreed to sell
its 18 percent share of Unit 2 to AmerGen. The sale to AmerGen was subject to a
previously existing agreement among the five co-owners of Unit 2 that gives the
co-owners the right to match a third-party purchase offer made for any share of
the plant. On December 21, 1999, RG&E, a 14 percent co-owner, submitted a
notice stating it would match the AmerGen agreement. The sale agreement was
subject to regulatory approval and was contingent upon recovery of stranded
costs, which were estimated to be in the range of $1,800 to $1,850 million.
Niagara Mohawk originally requested PSC approval by December 1999 and filed an
application with the NRC to transfer the licenses to AmerGen. On January 26,
2000, the PSC Staff informed the Administrative Law Judge ("ALJ") and all
parties, including Niagara Mohawk, that they believed the terms of the proposed
nuclear sale were not in the public interest. On April 25, 2000, the PSC deemed
Niagara Mohawk's and NYSEG's petitions with respect to the AmerGen agreement to
be withdrawn because the PSC expects a competitive process to sell the nuclear
assets to result in a substantially higher value and lower stranded costs than
the AmerGen agreement. The PSC's April 25, 2000 Order, contains the following
three key observations:
(1) the separation of generation from transmission and distribution is
consistent with the PSC's policy of supporting competition in the wholesale
generation market;
(2) the sale by the utilities at current market values would constitute
appropriate mitigation of stranded costs and would establish a basis for
the PSC to further consider the extent of the utilities' ability to recover
remaining stranded costs; and
(3) the PSC would resolve the ratemaking treatment of any sale by following
the principles established in the utilities' competitive opportunities/
restructuring orders and examining reduced utility risks.
As a result, on May 11, 2000, Niagara Mohawk, NYSEG and AmerGen terminated
their agreement in contemplation of such a competitive process. Niagara Mohawk
cannot predict the outcome of this process, but is committed to pursue the sale
of Unit 1 and Unit 2. Notwithstanding this commitment, because the competitive
process is not yet defined and because any sale will be subject to regulatory
hurdles that must be overcome, including stranded cost recovery, Niagara Mohawk
does not believe that a sale is any more likely to occur than other possible
outcomes, including the possible continued operation of the plants by Niagara
Mohawk for the remainder of the their useful lives.
In the event that the sale of the nuclear assets does not occur, Niagara Mohawk
will continue to recover the costs to run the nuclear generation plants in its
Power Choice rates. In addition, Niagara Mohawk would continue to participate
in the PSC regulatory proceeding regarding the future of nuclear assets in New
York State.
Because of the uncertainty as to whether the PSC will approve any sale of the
nuclear generating plants on terms acceptable to Niagara Mohawk, and the outcome
of other regulatory approvals, Niagara Mohawk has continued to utilize its best
estimate of cash flows based on a held-and-used (regulated) model for purposes
of assessing whether an asset impairment existed as of March 31, 2000. Under
this assumption, the nuclear generating plants are not impaired.
If, and when, Niagara Mohawk concludes that its best estimate of future cash
flows is from the sale of the power plants, the impairment test will be
performed taking into consideration the expected cash flows from operations
until sale, expected cash proceeds from the sale of the assets, less amounts
required to pre-fund the nuclear decommissioning trust funds.
At March 31, 2000, the net book value of Niagara Mohawk's nuclear generation
assets (including materials, supplies and nuclear fuel) was approximately $1.6
billion, excluding the reserve for decommissioning. In addition, Niagara Mohawk
has other nuclear-related assets of approximately $0.5 billion. These assets
include the decommissioning trusts and regulatory assets, primarily related to
the flow-through to customers of prior income tax benefits.
SFAS NO. 71 AND OTHER ACCOUNTING MATTERS: The EITF of the FASB reached a
consensus on Issue No. 97-4 "Deregulation of the Pricing of Electricity - Issues
Related to the Application of SFAS No. 71 and SFAS No. 101" in July 1997. EITF
97-4 does not require a company to earn a return on regulatory assets that arise
from a deregulating transition plan in assessing the applicability of SFAS No.
71. Niagara Mohawk believes that the regulated cash flows to be derived from
prices it will charge for electric service over the next ten years, including
the Competitive Transition Charge ("CTC") assuming no unforeseen reduction in
demand or bypass of the CTC or exit fees, will be sufficient to recover the MRA
regulatory asset and to provide recovery of and a return on the remainder of its
assets, as appropriate. In the event Niagara Mohawk determines, as a result of
lower than expected revenues and/or higher than expected costs, that its net
regulatory assets are not probable of recovery, it can no longer apply the
principles of SFAS No. 71 and would be required to record an after-tax, non-cash
charge against income for any remaining unamortized regulatory assets and
liabilities. If Niagara Mohawk could no longer apply SFAS No. 71, the resulting
charge would be material to Holdings and Niagara Mohawk's reported financial
condition and results of operations and adversely affect Niagara Mohawk's, and
therefore Holdings' ability to pay dividends.
Under Power Choice, Niagara Mohawk's remaining electric business (electric
transmission, distribution and nuclear business) will continue to be
rate-regulated on a cost-of-service basis and, accordingly, Niagara Mohawk
continues to apply SFAS No. 71 to these businesses. Also, Niagara Mohawk's IPP
contracts, including those restructured under the MRA, as well as the PPAs
entered into in connection with the generation divestiture, will continue to be
the obligations of the regulated business.
NOTE 4. SEGMENT INFORMATION
Holdings is organized between regulated and unregulated activities. Within the
regulated business, Niagara Mohawk, which has 98 percent of total assets and 90
percent of total revenues, there are two principal business units: Energy
Delivery and Nuclear. As discussed in Note 3 above, Niagara Mohawk is in the
process of selling its remaining fossil and nuclear generation assets. Although
there are two identified business units, financial performance and resource
allocation are measured and managed at the regulated business level.
Holdings and Niagara Mohawk use a shareholder value based management system.
The measure of shareholder value creation is Economic Value Added ("EVA"). EVA
is the financial measure used to evaluate projects, allocate resources and
report and provide performance incentives.
Holdings' unregulated activities do not meet the reporting thresholds of SFAS
No. 131, but comprise a substantial portion of "other" in the accompanying
table.
<TABLE>
<CAPTION>
(In thousands of dollars)
For the three months ended Total Economic Identifiable
March 31, Revenues Value Added Assets
- -------------------------- ---------------- ------------- --------------
<S> <C> <C> <C>
2000
----
REGULATED. . . . . . . . . $ 1,068,779 $ (126,152) $ 12,456,519
OTHER. . . . . . . . . . . 120,748 (6,058) 257,142
ELIMINATIONS . . . . . . . (56) - -
---------------- ------------- --------------
TOTAL CONSOLIDATED . $ 1,189,471 $ (132,210) $ 12,713,661
========================== ================ ============= ==============
1999
----
Regulated. . . . . . . . . $ 1,096,021 $ (130,805) $ 13,803,479
Other. . . . . . . . . . . 23,385 (7,878) 123,418
Eliminations . . . . . . . (272) - (343)
---------------- ------------- --------------
Total Consolidated . $ 1,119,134 $ (138,683) $ 13,926,554
========================== ================ ============= ==============
</TABLE>
EVA( is calculated as Net Operating Profit after Taxes less a charge for the use
of capital employed. The capital charge is determined by applying a rate
representing an estimate of investors' expected return given the risk of the
business and a targeted capital structure. The rate is not the same as the
embedded cost of capital, and in particular, does not reflect the return on
equity that may be established in a rate proceeding. Certain adjustments to
accounting data are made to more closely reflect operating or economic results.
For the three months ending March 31, 2000 and 1999, an adjustment is made to
include the recognition of the liability for remaining future over-market
contracts with IPPs and the corresponding recognition of imputed interest on
that liability.
EVA( is further segmented between EVA( from Operations and EVA( related to the
IPPs. This distinction is used to allow management to focus on operating
performance separate from the consequences of the IPP contracts, the MRA
regulatory asset and finance decisions related to managing the capitalization of
Holdings.
A reconciliation of total segment EVA( to total consolidated net income for the
three months ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(in thousands of dollars) 2000 1999
- ------------------------------------- ----------- ----------
<S> <C> <C>
Economic Value Added:
Operations. . . . . . . . . . . . $ (32,619) $ (11,221)
IPP - Related . . . . . . . . . . (99,591) (127,462)
----------- ----------
Total Economic Value Added. . . . . . (132,210) (138,683)
Charge for Use of Investor's Capital. 236,971 299,414
Adjustments for Significant Items . . (10,200) (14,634)
Interest Charges (net of taxes) . . . (72,183) (86,241)
Niagara Mohawk Preferred Dividends. . (7,904) (9,024)
----------- ----------
Consolidated Net Income (Loss) . . $ 14,474 $ 50,832
=========== ==========
</TABLE>
EVA( is a registered trademark of Stern Stewart & Co.
<PAGE>
REVIEW BY INDEPENDENT ACCOUNTANTS
Niagara Mohawk Holdings, Inc.'s and Niagara Mohawk Power Corporation's
independent accountants, PricewaterhouseCoopers LLP, have applied limited
procedures in accordance with professional standards for a review of the
unaudited Consolidated Balance Sheets of Niagara Mohawk Holdings, Inc. and its
subsidiary companies, as of March 31, 2000 and 1999, and the related unaudited
consolidated statements of income and of cash flows for the three-month periods
ended March 31, 2000 and 1999, and the unaudited Consolidated Balance Sheets of
Niagara Mohawk Power Corporation and its subsidiary companies as of March 31,
2000 and 1999, and the related unaudited Consolidated Statements of Income and
of cash flows for the three-month periods ended March 31, 2000 and 1999. The
report of PricewaterhouseCoopers LLP dated May 11, 2000, regarding their limited
reviews of the financial statements of Niagara Mohawk Holdings and its
subsidiaries and Niagara Mohawk Power Corporation and its subsidiaries appears
on the next page. PricewaterhouseCoopers LLP's report does not express an
opinion on the interim unaudited consolidated financial information.
Accordingly, the degree of reliance on the report of PricewaterhouseCoopers LLP
on such financial information should be restricted in the light of the limited
nature of the review procedures applied. PricewaterhouseCoopers LLP has not
carried out any significant or additional audit tests beyond those which would
have been necessary if their report had not been included. Accordingly,
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited financial
information because such report is not a "report" or "part of the Registration
Statement" within the meaning of Sections 7 and 11 of the Securities Act of
1933.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
We have reviewed the condensed consolidated balance sheets of Niagara Mohawk
Holdings, Inc. and its subsidiaries as of March 31, 2000 and 1999 (not presented
herein), and the related condensed consolidated statements of income and cash
flows for the three month periods ended March 31, 2000 and 1999, and the
condensed consolidated balance sheets of Niagara Mohawk Power Corporation and
its subsidiaries as of March 31, 2000 and 1999 (not presented herein), and the
related condensed consolidated statements of income and of cash flows for the
three month periods ended March 31, 2000 and 1999. These financial statements
are the responsibility of Niagara Mohawk Holdings, Inc.'s management and Niagara
Mohawk Power Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheets of Niagara Mohawk Holdings, Inc. and Niagara
Mohawk Power Corporation as of December 31, 1999, and the related consolidated
statements of income, and retained earnings, of cash flows and of comprehensive
income for the year then ended (not presented herein), and in our report dated
January 27, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheets as of December 31, 1999, is
fairly stated, in all material respects, in relation to the consolidated balance
sheets from which it has been derived.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
Syracuse, New York
May 11, 2000
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements included in this Quarterly Report on Form 10-Q are
forward-looking statements as defined in Section 21E of the Securities Exchange
Act of 1934 that involve risk and uncertainty, including the improvement in
Holdings and Niagara Mohawk's cash flow upon the implementation of the MRA and
Power Choice, the timing and outcome of the proposed future sale of Niagara
Mohawk's remaining fossil and nuclear generation assets, the planned repayment
of debt, the timing of the reversal of the increased gas costs as a result of
the gas costs adjustment mechanism, the outcome of rate and reconciliation
issues with the NYISO, the effects of Niagara Mohawk's transition to a new
customer service system, and the collection of accounts receivable and the
corresponding bad debt expense. These forward-looking statements are based upon
a number of assumptions, including assumptions regarding the Power Choice
agreement and regulatory actions to continue to support such an agreement.
Actual future results and developments may differ materially depending on a
number of factors, including regulatory changes either by the federal government
or the PSC, uncertainties regarding the ultimate impact on Holdings and Niagara
Mohawk as the regulated electric and gas industries are further deregulated and
electricity and gas suppliers gain open access to Niagara Mohawk's retail
customers, challenges to the Power Choice agreement under New York laws, the
timing and extent of changes in commodity prices and interest rates, the effects
of weather, the length and frequency of outages at Niagara Mohawk's two nuclear
plants, the results from Niagara Mohawk's proposed sale of its remaining
generation assets, the effects of transition to a new customer service system,
including efforts made by Niagara Mohawk to collect from customers, and the
economic conditions of Niagara Mohawk's service territory.
RESTRUCTURING OF THE REGULATED ELECTRIC UTILITY BUSINESS
POWER CHOICE: The PSC approved Niagara Mohawk's Power Choice agreement on March
20, 1998 and the rate plan was implemented beginning September 1, 1998. The
Power Choice agreement outlined Niagara Mohawk's future structure in the
regulated electric business.
The Power Choice agreement established a five-year rate plan that reduces class
average residential and commercial prices by an aggregate of 3.2 percent over
the first three years, beginning September 1, 1998. On September 1, 1999,
Niagara Mohawk implemented its second phase of rate reductions. The reduction
in prices includes certain savings that result from approved reductions of the
GRT. Industrial customers are currently receiving average reductions of 25
percent relative to 1995 tariffs; this decrease includes discounts currently
offered to some industrial customers through optional and flexible rate
programs. As part of Power Choice, Niagara Mohawk has retained the flexibility
to address specific competitive challenges for energy intensive customers
through individual rate negotiations.
Effective August 1, 1999, all of Niagara Mohawk's customers were able to choose
their electricity supplier. As of March 31, 2000, 8,023 (5.12 percent) of
Niagara Mohawk's commercial and industrial customers or approximately 19.94
percent of eligible load, and 5,176 (0.37 percent) residential customers or
approximately 0.43 percent of eligible load, have chosen an electricity supplier
other than Niagara Mohawk. Niagara Mohawk will continue to distribute
electricity through its transmission and distribution systems for all customers,
regardless of supplier, and will be provider of last resort for those customers
who are unable or unwilling to obtain an alternative electricity supplier. If a
customer chooses an alternative supplier, Niagara Mohawk, as allowed under Power
Choice, will continue to charge the customer for delivery of the energy and for
a non-bypassable CTC charge. Niagara Mohawk will also give a credit to the
customer for any services provided by the alternative energy supplier that were
provided by Niagara Mohawk in the past. On March 21, 2000, the PSC issued an
order instituting a "Proceeding on Motion of the Commission Regarding Provider
of Last Resort Responsibilities, the Role of Utilities in Competitive Energy
Markets, and Fostering the Development of Retail Competitive Opportunities."
Niagara Mohawk will actively participate in this proceeding, which will consider
the future state of the gas and electric industries in New York State and the
role of the regulated utilities.
GENERATION ASSET SALES: In its written Order dated May 6, 1998, the PSC approved
Niagara Mohawk's plan to divest all of its fossil and hydro generation assets,
which is a key component in its Power Choice agreement to lower average
electricity prices and provide customer choice. During 1999, Niagara Mohawk
completed the sale of its coal-fired generation plants, its hydro assets and its
oil and gas-fired plant at Oswego. See Holdings and Niagara Mohawk's combined
Form 10-K for fiscal year ended December 31, 1999, Part II, Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
"PowerChoice and the Restructuring of the Regulated Electric Utility Business -
Generation Asset Sales" for discussion of the sales completed during 1999.
During 1999, Niagara Mohawk also announced an agreement to sell its oil and
gas-fired plant at Albany. The sale of the Albany plant is expected to be
completed during the second quarter of 2000. Niagara Mohawk also entered into
an agreement during 1999 with Central Hudson to sell its interest in the plant
to Central Hudson. See Item 1. Financial Statements - Note 3. - Rate and
Regulatory Issues and Contingencies for a discussion of the Albany sale, the
agreement with Central Hudson, and the regulatory treatment of the fossil and
hydro generation asset sales.
In connection with the pending sale of the Albany plant, Niagara Mohawk has
entered into a contract with the new owner that is intended to compensate PSEG
in the near term for the costs of running the plant. The contract is a
financial agreement with an exchange of payments that are based on the market
price of energy and expires on September 30, 2003. No actual energy will be
delivered to Niagara Mohawk, but a quantity of energy, referred to as the call
amount, is used to calculate the payment. The call amount is capped each year
and totals 1,300 GWh for the life of the contract. The contract is a derivative
instrument and will be recorded as a financial agreement at the time of the
closing on the sale. Each month, Niagara Mohawk will pay PSEG a fixed monthly
charge plus the call amount times a contract price. The contract price
approximates the cost of fuel for the plant and will fluctuate as fuel prices
change. PSEG will pay Niagara Mohawk the same call amount times the current
market price for energy. This market price will be determined by the NYISO.
Niagara Mohawk has the sole option, within certain limits stated in the
contract, to decide what the call amount will be. This combination of a swap
with one party having an option is called a swaption. If the market price is
expected to be higher than the contract price, Niagara Mohawk would likely
exercise the option, elect a call amount, and PSEG will make a swap payment to
Niagara Mohawk. If the market price is expected to be below the contract price,
Niagara Mohawk would not likely choose to name a call amount, in which case
Niagara Mohawk would only be required to make the fixed monthly payment. For
Niagara Mohawk, this contract will serve as a hedge against rising energy
prices. Niagara Mohawk expects to account for this contract as a hedge of
future purchase commitments upon the closing of the sale, expected to occur in
the second quarter of 2000. The costs associated with the Albany contract are
recoverable under Niagara Mohawk's Power Choice rates.
The Power Choice agreement stipulated that absent a statewide solution, Niagara
Mohawk would file a detailed plan for analyzing other proposals regarding its
nuclear assets, including the feasibility of an auction, transfer and/or
divestiture of such facilities, within 24 months of Power Choice. On June 24,
1999, Niagara Mohawk announced an agreement to sell its nuclear generation
assets to AmerGen. NYSEG was also a party to the agreement and agreed to sell
its share of Unit 2 to AmerGen. The sale to AmerGen was subject to a previously
existing agreement among the five co-owners of Unit 2 that gives the co-owners
the right to match a third-party purchase offer. On December 21, 1999, RG&E, a
14 percent co-owner of Unit 2, submitted a notice stating it would match the
AmerGen offer. On January 26, 2000, the PSC Staff had informed the ALJ and all
parties, including Niagara Mohawk, that they believed the terms of the proposed
nuclear sale were not in the public interest. On April 25, 2000, the PSC deemed
Niagara Mohawk's and NYSEG's petitions with respect to the AmerGen agreement to
be withdrawn because the PSC expects a competitive process to sell the nuclear
assets to result in a substantially higher value and lower stranded costs than
the AmerGen agreement. The PSC's April 25, 2000 Order, contains the following
three key observations:
(1) the separation of generation from transmission and distribution is
consistent with the PSC's policy of supporting competition in the wholesale
generation market;
(2) the sale by the utilities at current market values would constitute
appropriate mitigation of stranded costs and would establish a basis for
the PSC to further consider the extent of the utilities' ability to
recover remaining stranded costs; and
(3) the PSC would resolve the ratemaking treatment of any sale by following
the principles established in the utilities' competitive
opportunities/restructuring orders and examining reduced utility risks.
As a result, on May 11, 2000, Niagara Mohawk, NYSEG and AmerGen terminated
their agreement in contemplation of such a competitive process. Niagara Mohawk
cannot predict the outcome of this process, but is committed to pursue the sale
of Unit 1 and Unit 2. Notwithstanding this commitment, because the competitive
process is not yet defined and because any sale will be subject to regulatory
hurdles that must be overcome, including stranded cost recovery, Niagara Mohawk
does not believe that a sale is any more likely to occur than other possible
outcomes, including the possible continued operation of the plants by Niagara
Mohawk for the remainder of the their useful lives.
For a further discussion regarding the details of the nuclear sale agreement,
the status of the sale and the treatment under Power Choice in the event a sale
does not occur, see Item 1. Financial Statements - Note 3. - Rate and Regulatory
Issues and Contingencies.
STRANDED COST RECOVERY: In approving Power Choice, the PSC authorized changes to
Niagara Mohawk's Retail Tariff providing for the recovery of stranded costs in
the case of municipalization regardless of whether the new municipal utility
requires transmission service from Niagara Mohawk. The calculation of stranded
costs is governed by this Retail Tariff, which became effective on April 6,
1998. A number of communities served by Niagara Mohawk are considering
municipalization and have requested an estimate of their stranded cost
obligation.
The village of Lakewood ("Lakewood") is considering municipalization. In August
1997, Niagara Mohawk provided Lakewood with an estimate of its stranded cost
obligation in response to a formal request under FERC Order 888. In June 1998,
Lakewood filed a petition with FERC seeking a determination that it would not be
responsible for any of Niagara Mohawk's stranded costs if it created a new
municipal electric system.
On December 11, 1998, the FERC issued an order granting Niagara Mohawk's request
for clarification that Order 888 does not preempt the exit fee provision of the
Retail Tariff and directing that the Lakewood case be held in abeyance pending
the resolution of Lakewood's stranded cost obligation under Niagara Mohawk's
Retail Tariff.
During 1999, the PSC established a formal proceeding in this matter. Niagara
Mohawk filed its direct case on September 3, 1999, which supported a revised
estimate of exit fees of $18 million. Lakewood filed its direct case on October
18, 1999, which supported an exit fee of approximately $5 million. The PSC
Staff filed their direct case on October 25, 1999, which supported an exit fee
of $15.6 to $16.7 million. Rebuttal testimony was filed on November 10, 1999
and a hearing for the purpose of cross-examination of all testimony was held on
December 1 and 2, 1999. The recommended decision of the ALJ was issued on
February 23, 2000 and supported an exit fee of approximately $14.9 million. The
parties to the case entered into a number of stipulations prior to the
litigation phase that subjects the exit fee calculation to a true up based on
the resolution of certain issues presented in other proceedings or forums.
These include stipulations which call for ultimate determinations outside this
case of the amortization period for regulatory assets, and return on Niagara
Mohawk's regulatory assets for nuclear stranded costs, the MRA and loss on the
sale of the fossil and hydro generation assets. Niagara Mohawk expects the PSC
to render a decision by the second quarter of 2000. Niagara Mohawk is unable to
predict the outcome of this matter.
While the municipalization of Lakewood would not have a material impact on
Niagara Mohawk's results of operations and financial position, the outcome of
this matter will likely define the methodology to determine exit fees. There
have been other challenges to the determination and recovery of stranded costs
through the application of CTCs and exit fees as follows:
In early October 1998, the Alliance for Municipal Power ("AMP"), a group of 21
towns and villages in St. Lawrence and Franklin Counties pursuing
municipalization, and Alfred P. Coppola ("Coppola"), a Councilman from the city
of Buffalo, commenced a proceeding in Albany County Supreme Court that
challenged the PSC's decision to approve Power Choice and the PSC's decision
that denied the petitions of Alliance for Municipal Power and Coppola for
rehearing before the Commission. The proceeding sought to vacate the decision
of the PSC approving Power Choice provisions relating to the determination and
recovery of strandable costs through the application of a competitive transition
charge and exit fees. The PSC has made a motion to dismiss the proceeding in
this matter. On March 11, 1999, the Albany County Supreme Court dismissed in
its entirety the petition of Coppola and also dismissed AMP's petition to the
extent that it challenged the determination and recovery of stranded costs
through the application of CTCs and exit fees. However, the Court did order the
PSC to respond to AMP's claim that the PSC failed to act on discovery requests
seeking information about exit fees. Niagara Mohawk has provided AMP with an
updated exit fee estimate of $150 million (PSC method) to $272 million (FERC
method). The range is dependent on whether the formula prescribed by the PSC in
Power Choice or the method defined by FERC is used. During the first quarter of
1999, AMP filed a motion to re-argue with the Supreme Court and has also filed a
notice of appeal from the decision of the lower court. On June 29, 1999, the
Albany County Supreme Court denied AMP's motion to re-argue and renew the case.
AMP failed to perfect on a timely basis, which failure may be excused by the
court for good reason. Niagara Mohawk is unable to predict what future actions,
if any AMP will take with respect to this matter. If these 21 communities
withdrew from Niagara Mohawk's system, Niagara Mohawk would experience a
potential revenue loss of approximately 2 percent per year. In addition, the
impact on Niagara Mohawk's electric margin is considered to be immaterial.
However, suspension of Power Choice or renegotiation of its material terms could
have a material adverse effect on Holdings and Niagara Mohawk's results of
operations, financial condition, and future cash flows.
During February 2000, the Griffiss Local Development Corporation ("Griffiss")
filed a petition with the PSC for certification as a separate electricity
provider that would own and operate the existing electrical plant at the
Griffiss and Business Technology Park. Griffiss claims that it is a wholesale
purchaser under FERC rules and should fall under FERC jurisdiction, which would
exempt it from paying exit fees to Niagara Mohawk. Niagara Mohawk filed a
petition with the PSC opposing the Griffiss petition and has calculated an exit
fee of approximately $12 million. Since February, Griffiss has filed responsive
testimony and has calculated an exit fee of $180,000, and the PSC outlined an
exit fee of approximately $7 million in its testimony. A substantial portion of
the difference between the Niagara Mohawk estimate and the PSC estimate relates
to future anticipated load to be served by Griffiss. Evidentiary hearings
before the ALJ are scheduled to begin May 16, 2000. If Griffiss withdrew from
Niagara Mohawk's system, the impact on Niagara Mohawk's electric revenue and
margin would be considered immaterial.
Niagara Mohawk has also prepared exit fee stranded cost estimates for several
other municipalities and customers. Niagara Mohawk is unable to predict whether
these other municipalities or customers will pursue a withdrawal from Niagara
Mohawk's system or the amount of stranded costs it may receive as a result of
any withdrawals.
GAS MULTI-YEAR RATE AND RESTRUCTURING PROPOSAL
Niagara Mohawk filed a three-year gas rate and restructuring proposal on March
11, 1999, in anticipation of the expiration of its 1996 three-year gas rate
settlement agreement, which expired on November 1, 1999. On March 20, 2000,
Niagara Mohawk reached an oral settlement agreement with the PSC Staff and is
working towards finalizing the agreement in the second quarter of 2000. Niagara
Mohawk is unable to predict the final outcome of this proceeding, but does not
anticipate any material adverse impact on its results of operations.
NUCLEAR OPERATIONS
UNIT 2: The scheduled refueling and maintenance outage at Unit 2 began on March
3, 2000. Unit 2 was returned to service on April 20, 2000 with no significant
problems noted. Niagara Mohawk's incremental costs associated with the entire
outage were approximately $11.7 million, net of expenditures deferred.
FINANCIAL POSITION
Holdings and Niagara Mohawk's capital structure at March 31, 2000 and December
31, 1999, was as follows:
<TABLE>
<CAPTION>
MARCH 31, December 31,
% 2000 1999
- ------------------------------ --------- ------------
<S> <C> <C>
HOLDINGS:
Long-term debt . . . . . . . . 61.9 61.9
Preferred stock of subsidiary. 5.5 5.5
Common equity. . . . . . . . . 32.6 32.6
NIAGARA MOHAWK:
Long-term debt . . . . . . . . 63.5 63.3
Preferred stock. . . . . . . . 5.6 5.6
Common equity. . . . . . . . . 30.9 31.1
</TABLE>
The closing of the MRA significantly increased the leverage of Niagara Mohawk
and Holdings. However, the increased operating cash flow resulting from the MRA
and Power Choice, including the proceeds from the sale of the fossil and hydro
generation assets, will allow both entities to reduce the leverage in the
capital structure. Book value of Holdings' common stock was $16.88 per share at
March 31, 2000, as compared to $16.78 at December 31, 1999.
EBITDA for the 12 months ended March 31, 2000, was $1,159 million for Holdings.
EBITDA has improved since 1998, and is derived primarily from the impacts of the
MRA and Power Choice. EBITDA represents earnings before interest charges,
interest income, income taxes, depreciation and amortization, amortization of
nuclear fuel, allowance for funds used during construction, MRA regulatory asset
amortization, and extraordinary items. EBITDA is a non-GAAP measure of cash
flows and is presented to provide additional information about Holdings and
Niagara Mohawk's ability to meet its future requirements for debt service.
EBITDA should not be considered an alternative to net income as an indicator of
operating performance or as an alternative to cash flows, as presented on the
Consolidated Statement of Cash Flows, as a measure of liquidity.
During 1999, the PSC approved Niagara Mohawk's petition to purchase up to $800
million of Holdings' common stock. Holdings' Board of Directors has approved a
program to repurchase 40 million shares through December 31, 2002. Niagara
Mohawk purchased 10 million shares of Holdings' common stock through December
31, 1999 for $167 million.
During 1999, Niagara Mohawk entered into an agreement with an agent to purchase
up to 5 million shares of Holdings' common stock. The agent incurred
approximately $77.7 million for the 5 million shares. During the first quarter
of 2000, Niagara Mohawk placed approximately $8.2 million on deposit as
collateral for the purchases, in accordance with the provisions of the
agreement. At any time prior to the expiration (October 1, 2000) of the
agreement, Niagara Mohawk can repurchase the common stock from the agent and
is required to reimburse the agent (in stock and/or cash) for the costs
incurred to buy the stock plus a carrying charge. Niagara Mohawk has not
repurchased the shares from the agent as of March 31, 2000. The 5 million
shares remain in the number of shares outstanding in computing Holdings'
earnings per share at March 31, 2000.
Niagara Mohawk purchased 734,000 additional shares for approximately $9.6
million during the first quarter of 2000. Niagara Mohawk has subsequently
purchased 4,989,000 additional shares for approximately $68.9 million during
April and through May 10, 2000.
During the first quarter of 2000, Niagara Mohawk paid approximately $36 million
in cash dividends to Holdings.
LIQUIDITY AND CAPITAL RESOURCES
(See Holdings and Niagara Mohawk's combined Form 10-K for fiscal year ended
December 31, 1999, Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Financial Position, Liquidity
and Capital Resources").
As of March 31, 2000, Niagara Mohawk has $275 million of borrowing capability
under the senior bank facility that expires on June 1, 2000. As a result, the
amount outstanding on this facility at March 31, 2000, $105 million, is shown as
a current liability on both Holdings and Niagara Mohawk's balance sheets.
During April 2000, Niagara Mohawk subsequently paid down $50 million on the
amount outstanding on the senior bank facility. Niagara Mohawk is currently
negotiating a new financing arrangement with a bank group and believes it will
be in place prior to the expiration of the senior bank facility on June 1, 2000.
Opinac has a $50 million bank facility secured by certain assets of Opinac. The
facility provides for letters of credit and a $10 million line of credit. The
facility expires September 30, 2000 and as of March 31, 2000, supports
approximately $38 million in letters of credit. Opinac is working to extend the
facility beyond September 30, 2000.
Niagara Mohawk has the ability to issue first mortgage bonds to the extent that
there have been maturities since June 30, 1998. Through March 31, 2000, Niagara
Mohawk had $60 million in first mortgage bond maturities.
Niagara Mohawk is obligated to use 85 percent of the proceeds of the sale of its
generation assets to reduce debt outstanding. To date, Niagara Mohawk has
received approximately $860 million for the completed fossil and hydro
generation assets sales and has used the required amount of the proceeds to
reduce its debt. See Item 1. Notes to Consolidated Financial Statements - Note
3. - Rate and Regulatory Issues and Contingencies - Deferred loss on the sale of
assets, for a further discussion of the Albany sale.
The PSC issued an order effective May 1, 2000 that approved Niagara Mohawk's
petition to issue up to an aggregate of $400 million in debt to address its
financial needs arising from the recent and prospective termination or
restructuring of additional IPP contracts. On May 8, 2000, Niagara Mohawk
priced for issuance $200 million in senior notes at 8 7/8 percent for a period
of 7 years, which are scheduled to close on May 12, 2000. The senior notes
will have an effective rate of 8.919 percent and will be redeemable in whole
or in part, at any time at Niagara Mohawk's option.
Niagara Mohawk has established a single-purpose, financing subsidiary, NM
Receivables ("NMR") whose business consists of the purchase and resale of an
undivided interest in a designated pool of Niagara Mohawk customer receivables,
including accrued unbilled revenues. During January, February, and March 2000,
NMR was not in compliance with a certain statistical ratio relating to the pool
of receivables sold. The purchaser has granted waivers for these periods.
While NMR is working to return to compliance with this ratio, a non-compliance
condition could continue to exist. NMR is unable to predict whether further
waivers would be granted. The amount of receivables sold at March 31, 2000 was
$165.1 million. See Holdings and Niagara Mohawk's combined Form 10-K for fiscal
year ended December 31, 1999, Part II, Item 8. Financial Statements and
Supplementary Data, Note 8. - Commitments and Contingencies, for a further
discussion of this customer receivables program.
NET CASH PROVIDED BY OPERATING ACTIVITIES decreased $34.9 million for Holdings
and $25.7 million for Niagara Mohawk in the three months ended March 31, 2000
primarily due to Niagara Mohawk's receipt of federal income tax refunds in
January 1999 totaling approximately $135 million. During 2000, there has been
an increase in accounts receivable sold through cash management which has offset
the decrease in cash provided by operating activities.
Holdings and Niagara Mohawk's NET CASH USED IN INVESTING ACTIVITIES increased
$23.2 and $57.7 million, respectively in the three months ended March 31, 2000
as compared to the same period in 1999. Holdings' increase is primarily due to
Opinac's investment in EVonyx, Inc. of $42.7 million during the first quarter of
2000. Niagara Mohawk's increase is due to having Opinac's investment activity
included in its first quarter 1999 cash flow activity.
Holdings NET CASH USED IN FINANCING ACTIVITIES increased by $20.7 million as
compared to the same period in 1999, primarily due to the repurchase of Holdings
common stock and the repayment of debt.
Niagara Mohawk's NET CASH USED IN FINANCING ACTIVITIES decreased by $34.0
million as compared to the same period in 1999, primarily due to the corporate
restructuring which involved the transfer of Opinac's cash balance of $89.6
million to Holdings in 1999. However, Niagara Mohawk paid Holdings a common
stock dividend of $36.1 million during the first quarter of 2000.
RESULTS OF OPERATIONS
The following discussion presents the material changes in results of operations
for the three months ended March 31, 2000 in comparison to the same period in
1999. The results of operations reflect the seasonal nature of the business,
with peak electric loads in summer and winter periods. Gas sales peak
principally in the winter. The earnings for the three-month period should not
be taken as an indication of earnings for all or any part of the balance of the
year. Furthermore, future results of operations will be different from the past
in view of the June 30, 1998 termination, restatement or amendment of IPP
contracts, the implementation of Power Choice and the sale of the generation
assets. With the consummation of the MRA and the implementation of Power Choice
effective September 1, 1998, Holdings and Niagara Mohawk expect reported
earnings for the five years subsequent to the implementation of Power Choice to
be substantially depressed as a result of the regulatory treatment of the MRA
regulatory asset. The anticipated effect of the seasonality factor, when
coupled with the impact of the MRA and Power Choice, would be to record a
significantly higher percentage of income earned in the first quarter compared
to earnings for the balance of each year. This discussion should also be read
in conjunction with other financial and statistical information appearing
elsewhere in this report.
THREE MONTHS ENDED MARCH 31, 2000 VERSUS THREE MONTHS ENDED MARCH 31, 1999
- --------------------------------------------------------------------------
Holdings:
- ---------
Earnings for the first quarter of 2000 were $14.5 million or 8 cents per share,
as compared with earnings of $50.8 million or 27 cents per share for the first
quarter of 1999. First quarter earnings for 2000, as compared with the first
quarter of 1999, have been negatively impacted by the following items:
- - Higher regulated gas purchased costs of approximately $34.6 million or 13
cents per share due to higher gas prices and higher purchased gas costs and
certain other items recognized and recovered through the regulated gas cost
adjustment mechanism. The higher gas purchased costs reflect in part, timing
differences that should reverse over the year as discussed further below.
- - NYISO ancillary charges of approximately $11.0 million (net of those
charges passed on to market based rate customers and net of other credits
and deferrals) or 4 cents per share.
- - Higher NYISO energy costs of $11.0 million or 4 cents per share that were
billed at higher rates than anticipated. See below for a further discussion
of Niagara Mohawk's electric purchased power costs.
- - Implementation of Niagara Mohawk's second phase of rate reductions in
September 1999 under Power Choice, which reduced regulated electric revenues
by $7 million or 3 cents per share.
- - Higher nuclear operating costs of approximately $7.7 million or 3 cents
per share through March 31, 2000, primarily as a result of the maintenance
and refueling outage at Unit 2.
Earnings for the first quarter were positively impacted by lower interest
expense of approximately $18.9 million or 7 cents per share due to the early
repayment of debt during 1999.
Niagara Mohawk:
- ---------------
Niagara Mohawk had earnings of $20.8 million for the first quarter of 2000. The
preferred dividend requirement reduced the balance available for common stock to
earnings of $12.9 million. These earnings as compared to the same period in
1999 are explained above in the discussion of Holdings' earnings for the same
period.
CUSTOMER SERVICE SYSTEM
----------------------
In mid-February 1999, Niagara Mohawk implemented a new Customer Service System
("CSS"). The CSS replaced existing order, billing, collection and other
infrastructural systems and is designed to provide real-time information as well
as a more flexible and streamlined billing system. The new CSS provided the
retail access and unbundled bill functionality required under Power Choice and
also addressed Year 2000 compliance. These capabilities could not be developed
in the previous systems.
Niagara Mohawk, like other companies that have implemented similar CSS projects,
has experienced a transition period, characterized by significantly higher
customer call volumes and complaints, billing and data accumulation issues, and
other problems that impact productivity and costs. The transition was also
complicated by changes in the information and choices provided to customers
pursuant to Power Choice. Niagara Mohawk has taken steps prior to and during
the transition period to prioritize and respond to problems. Although the more
significant billing and data accumulation issues concerning customers have been
addressed, resolution of the remaining transition issues will continue into
2000.
The CSS transition period presents several financial exposures. Outstanding
accounts receivables have increased, and Niagara Mohawk's bad debt expense for
1999 was $64.0 million as compared to $31.7 million in 1998, with the increase
in 1999 primarily attributable to the added exposure to collection risk. Bad
debt expense for the first quarter of 2000 was $16.5 million, compared to $19.7
million in the comparable period in 1999. Niagara Mohawk is taking aggressive
action to reduce its outstanding accounts receivable balance relating to this
transition period, so that the reserve for bad debts can be returned to a level
appropriate in the normal course of business. However, the actions available to
Niagara Mohawk are more limited during the heating season (beginning November 1
through April 15), since under the law, it cannot disconnect service to
residential customers unless a 72-hour notice is given to the residential
customer.
The PSC has been evaluating the development and implementation costs of the CSS
project, as well as Niagara Mohawk's response to the transition problems
incurred during implementation. The PSC issued an order in January 2000
directing that certain billing related problems identified by the PSC Staff be
corrected, with emphasis on estimated bills, by March 31, 2000. Niagara Mohawk
has addressed the PSC Staff's concerns regarding estimated bills by adding 45
new meter reader positions to increase the number of customers whose meters are
read monthly from approximately 800,000 meters to 1.6 million meters. Niagara
Mohawk anticipates having these improvements in place by June 1, 2000. Further
enhancements to CSS were designed to improve the quality of estimates and the
ability to provide customers greater information about the preparation of an
estimate. Other concerns raised by the PSC Staff in the order were addressed in
a response filed by Niagara Mohawk in early February and further updated in a
report on May 1, 2000. In the May 1, 2000 report, Niagara Mohawk identified
that customer complaints regarding billing issues has significantly decreased in
the first quarter of 2000 as compared to 1999. The PSC has required Niagara
Mohawk to issue a final report outlining the results achieved from the
enhancements made by November 1, 2000. Niagara Mohawk cannot predict the
outcome or financial consequences, if any, of the continuing PSC inquiry.
REVENUES AND SALES
- ------------------
REGULATED ELECTRIC REVENUES decreased $26.1 million or 3.1 percent from the
first quarter of 1999. The decrease in regulated electric revenues is primarily
due to lower sales to residential and commercial customers and due to the lower
rates implemented in September 1999 in accordance with Power Choice. The new
CSS system converted, in February 1999, all customers previously billed on a
bi-monthly basis to a monthly basis, which has resulted in a decrease in accrued
unbilled revenues. Miscellaneous revenues have increased in the first three
months of 2000, due to a decrease in accrued unbilled revenues. In accordance
with Power Choice, Niagara Mohawk recognizes changes in accrued unbilled revenue
in its results of operations. Revenues from the distribution of energy continue
to increase as the number of customers switching to other electricity suppliers
increase as a result of open access. For the same reason there is a reduction
in total regulated revenues to ultimate consumers. Net total regulated revenues
also decline as customers switch, as Niagara Mohawk no longer bills for the
commodity cost.
THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
ELECTRIC REVENUE (THOUSANDS) SALES (GWH)
--------------------------------------- ----------------------------
% %
2000 1999 Change 2000 1999 Change
------------- ------------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
REGULATED:
Residential. . . . . . $ 336,221 $ 375,145 (10.4) 2,838 3,097 (8.4)
Commercial . . . . . . 259,925 316,059 (17.8) 2,549 3,109 (18.0)
Industrial . . . . . . 110,158 103,645 6.3 1,514 1,446 4.7
Industrial - Special . 15,350 16,386 (6.3) 1,047 988 6.0
Other. . . . . . . . . 10,050 11,965 (16.0) 49 52 (5.8)
------------- ----------- ------ ------- ------ ------
Regulated Total to
Ultimate Consumers. . 731,704 823,200 (11.1) 7,997 8,692 (8.0)
Other Electric Systems 13,119 12,291 6.7 367 531 (30.9)
Distribution of Energy 42,161 16,111 161.7 - - -
Transmission of Energy 22,994 22,390 2.7 - - -
Miscellaneous. . . . . 13,694 (24,246) 156.5 - - -
------------- ----------- ------ ------- ------ ------
Total Regulated . . . . . 823,672 849,746 (3.1) 8,364 9,223 (9.3)
UNREGULATED:
Wholesale & Retail . . 101,223 14,932 577.9 2,558 600 326.3
------------- ----------- ------ ------- ------ ------
TOTAL . . . . . . . . . . $ 924,895 $ 864,678 7.0 10,922 9,823 11.2
============= ============ ====== ======= ====== =======
</TABLE>
REGULATED ELECTRIC SALES to ultimate consumers were approximately 8.0 billion
KWh in the first quarter of 2000, an 8.0 percent decrease from 1999, primarily
as a result of warmer weather and customers switching to other electricity
suppliers as a result of open access. In addition, regulated retail sales in
the first quarter of 1999 included the one-time impact of billing customers on a
monthly basis rather than i-monthly.
UNREGULATED ELECTRIC REVENUES increased $86.3 million or 577.9 percent from the
first quarter of 1999 primarily as a result of Niagara Mohawk Energy, Inc.
("Niagara Mohawk Energy") having increased activity in the competitive energy
market.
UNREGULATED ELECTRIC SALES were 2.6 billion or a 326.3 percent increase from the
first quarter of 1999 primarily as a result of an increase in retail sales and
sale to other marketers.
REGULATED GAS REVENUES decreased $1.2 million or 0.5 percent in the first
quarter of 2000 from the comparable period in 1999, primarily as a result of
lower sales to ultimate consumers.
REGULATED GAS SALES to ultimate consumers were 35.0 million Dth or a 6.6 percent
decrease from the first quarter of 1999. This decrease is partially a result of
warmer weather in the first quarter of 2000 as compared to the same period in
1999. In addition, the decrease is also due to the conversion of customers in
the first quarter of 1999 from a bi-monthly billing to a monthly billing
schedule as part of the conversion to the new CSS system.
THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
GAS REVENUE (THOUSANDS) SALES (THOUSANDS OF DTH)
------------------------------------- ---------------------------
% %
2000 1999 Change 2000 1999 Change
------------ ----------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
REGULATED:
Residential . . . . . $ 169,029 $ 168,980 0.0 26,536 27,408 (3.2)
Commercial. . . . . . 51,874 56,238 (7.8) 8,252 9,824 (16.0)
Industrial. . . . . . 1,070 1,194 (10.4) 206 237 (13.1)
------------ ----------- ------ ------- ------- ------
Regulated Total to
Ultimate Consumers . 221,973 226,412 (2.0) 34,994 37,469 (6.6)
Transportation of
Customer-Owned Gas 20,798 16,344 27.3 39,938 37,472 6.6
Spot Market Sales . . 1,604 286 460.8 592 158 274.7
Miscellaneous . . . . 732 3,233 (77.4) - - -
------------ ----------- ------ ------- ------ -------
Total Regulated. . . . . 245,107 246,275 (0.5) 75,524 75,099 0.6
UNREGULATED:
Wholesale & Retail. . 18,492 8,132 127.4 5,839 2,845 105.2
------------ ----------- ------ ------- ------- ------
TOTAL. . . . . . . . . . $ 263,599 $ 254,407 3.6 81,363 77,944 4.4
============ =========== ====== ======= ======= ======
</TABLE>
UNREGULATED GAS SALES increased 3.0 million Dth or 105.2 percent in the first
quarter of 2000 from the comparable period in 1999, primarily as a result of an
increase in retail sales and sales to other gas marketers. As a result of the
increase in sales, UNREGULATED GAS REVENUES increased $10.4 million or 127.4
percent in the first quarter of 2000 from the comparable period in 1999.
OPERATING EXPENSES
- ------------------
THREE MONTHS ENDED MARCH 31,
(NIAGARA MOHAWK ONLY)
<TABLE>
<CAPTION>
GWH COST (MILLIONS) CENTS/KWH
-------------------------- --------------------------- -------------
2000 1999 % Chg 2000 1999 % Chg 2000 1999
----- ------ ------- ------- ------- ------- ---- ----
REGULATED FUEL FOR ELECTRIC GENERATION:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Coal. . . . . . . . . . . . . . . . . - 1,859 (100.0) $ - $ 28.0 (100.0) - 1.5
Oil . . . . . . . . . . . . . . . . . 84 516 (83.7) 4.0 14.0 (71.4) 4.8 2.7
Natural Gas . . . . . . . . . . . . . 23 37 (37.8) 0.7 0.8 (12.5) 3.0 2.2
Nuclear . . . . . . . . . . . . . . . 1,883 2,342 (19.6) 8.6 11.3 (23.9) 0.5 0.5
Hydro . . . . . . . . . . . . . . . . - 728 (100.0) - - - - -
----- ------ ------- ------- ------- ------- ---- ----
1,990 5,482 (63.7) 13.3 54.1 (75.4) 0.7 1.0
Deferral. . . . . . . . . . . . . . . - - - - 3.0 (100.0) - -
----- ------ ------- ------- ------- ------- ---- ----
Total electric generation. . . . 1,990 5,482 (63.7) 13.3 57.1 (76.7) 0.7 1.0
----- ------ ------- ------- ------- ------- ---- ----
REGULATED ELECTRICITY PURCHASED:
IPPs:
Capacity. . . . . . . . . . . . - - - 4.0 3.7 8.1 - -
Energy and taxes. . . . . . . . 1,373 2,105 (34.8) 74.9 105.8 (29.2) 5.5 5.0
----- ------ ------- -------- ------- ------- ---- ----
Total IPP purchases. . . . . 1,373 2,105 (34.8) 78.9 109.5 (27.9) 5.7 5.2
----- ------ ------- -------- ------- ------- ---- ----
Fossil/Hydro PPAs:
Capacity. . . . . . . . . . . . - - - 10.8 - 100.0 - -
Energy and taxes. . . . . . . . 894 - 100.0 18.7 - 100.0 2.1 -
----- ------ ------- -------- ------- ------- ----- ----
Total Fossil/Hydro purchases 894 - 100.0 29.5 - 100.0 3.3 -
----- ------ ------- -------- ------- ------- ----- ----
NYISO - energy purchases . . . . . 2,745 - 100.0 93.4 - 100.0 3.4 -
NYISO - ancillary charges. . . . . - - - 25.5 - 100.0 - -
Other purchases. . . . . . . . . . 2,209 2,074 6.5 36.2 29.3 23.5 1.6 1.4
Swap payments. . . . . . . . . . . - - - 17.6 21.9 (19.6) - -
----- ------ ------- -------- ------- ------- ----- ----
Sub-total regulated purchases . 7,221 4,179 72.8 281.1 160.7 74.9 3.9 3.8
----- ------ ------- -------- ------- ------- ---- ----
Deferral . . . . . . . . . . . . . - - - (1.2) 0.3 (500.0) - -
----- ------ ------- -------- ------- ------- ----- ----
Total regulated purchases. . . . 7,221 4,179 72.8 279.9 161.0 73.9 3.9 3.9
----- ------ ------- -------- ------- ------- ----- ----
Total generated and purchased. . . . . . 9,211 9,661 (4.7) 293.2 218.1 34.4 3.2 2.3
Losses/Niagara Mohawk use. . . . . . . . 847 438 93.4 - - - - -
----- ------ ------- -------- ------- ------- ----- ----
8,364 9,223 (9.3) $ 293.2 $218.1 34.4 3.5 2.4
===== ====== ======= ======== ======= ======= ===== ====
</TABLE>
Niagara Mohawk's ELECTRICITY PURCHASED increased $118.9 million or 73.9 percent
in the first quarter of 1999, primarily as a result of the sale of Niagara
Mohawk's fossil and hydro generation assets. However, the sale of the fossil
and hydro generation assets has lowered Niagara Mohawk's operating costs from
running these plants, including labor, fuel, real estate taxes and depreciation.
The decrease in IPP purchases is primarily the additional IPP contract buyouts
made during 1999. To compensate for the sale of Niagara Mohawk's generation
assets and the reduced purchases from the IPPs, Niagara Mohawk purchased its
remaining load requirements through the NYISO or other parties. See Holdings
and Niagara Mohawk's combined Form 10-K for fiscal year ended December 31, 1999,
Part II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Power Choice and the Restructuring of the Regulated
Electric Utility Business - FERC Order 888" for a further discussion on the
implementation of the NYISO. Included in the NYISO ancillary charges above is
approximately $18 million for an operating reserve charge. This charge is based
on market prices, which significantly increased during the month of February
2000. However, approximately one-half of the operating reserve charges were
hedged through contracts or passed on to market rate based customers. The NYISO
and Niagara Mohawk, among others, have petitioned the FERC to revise the
calculation of this charge and the NYISO has temporarily set a price cap on the
charge, which went into effect in March 2000. It is uncertain at this time what
the FERC will determine as an appropriate calculation and rate. Niagara Mohawk
also believes that it was billed for energy it did not require (at higher rates
than anticipated) by the NYISO for a portion of its energy purchases and
believes it may receive a refund for a portion of these charges when the NYISO
performs its Load Serving Entity Balancing Study as required. While the higher
NYISO costs experienced by Niagara Mohawk are primarily related to start-up
issues at the NYISO, Niagara Mohawk expects that as the bulk power market
matures, these issues will be resolved. However, Niagara Mohawk cannot estimate
at this time what, if any, portion may be refunded.
As a result of Niagara Mohawk's sale of its fossil and hydro generation asset
sales, FUEL FOR ELECTRIC GENERATION decreased $43.8 million as compared to the
first quarter in 1999. Niagara Mohawk's nuclear generation decreased as
compared to the first quarter of 1999 due to the scheduled refueling and
maintenance outage, which began on March 3, 2000 at Unit 2. In accordance with
Power Choice, the electric fuel adjustment clause was discontinued. However,
during the first quarter of 1999, Niagara Mohawk recorded a $3.0 million
liability to customers resulting from PSC audit adjustments of prior years fuel
costs.
Holdings' FUEL FOR ELECTRIC GENERATION and ELECTRICITY PURCHASED is explained by
Niagara Mohawk's activity, as well as an increase in unregulated supply costs of
$80.1 million or 564.2 percent in the first quarter of 2000, primarily due to
higher unregulated electric sales.
Niagara Mohawk's GAS PURCHASED expense increased $31.1 million in the first
quarter of 2000. This was a result of a $17.2 million increase in purchased gas
costs and certain other items recognized and recovered through the regulated gas
commodity cost adjustment clause, a 17.6 percent increase in the average cost
per Dth purchased ($17.4 million), and a $1.3 million increase in spot market
sales (sales for resale), which are generally from higher priced gas, and
therefore, yield margins that are substantially lower than traditional sales to
ultimate customers. These increases were offset by a 1.8 million decrease in
Dth purchased and withdrawn from storage for ultimate consumer sales ($4.8
million). Niagara Mohawk's net cost per Dth sold, as charged to expense,
excluding spot market purchases, increased to $3.28 in 2000 from $2.79 in 1999.
The increase in the purchased gas costs and certain other items recognized and
recovered through the regulated gas cost adjustment mechanism was primarily due
to a change in the accounting for these costs in accordance with Niagara
Mohawk's temporary gas rate agreement that has been in place since the
expiration of the 1996 rate agreement on November 1, 1999. Niagara Mohawk now
recovers these costs based upon the volume of gas sales versus a straight-line
amortization throughout the year. The result of this change in recovery method
will cause Niagara Mohawk to experience a lower gas margin during high volume
periods, such as in the winter months, and a higher gas margin during low volume
periods, such as in the summer months. Although the negative first quarter
2000 earnings impact from this timing difference is expected to reverse during
the year, annual gas margins for 2000 are expected to be lower because
certain cost saving incentives earned in 1999 are no longer available under
the temporary gas rate agreement in effect.
Holdings' GAS PURCHASED expense reflects Niagara Mohawk's activity, as well as
an increase of $10.6 million in the first quarter of 2000 primarily as a result
of higher unregulated gas sales.
OTHER OPERATION AND MAINTENANCE EXPENSES for both Holdings and Niagara Mohawk
have increased in the first quarter of 2000 as compared to the same period in
1999, due to (1) a $7.7 million increase in nuclear costs incurred primarily for
the scheduled refueling and maintenance outage at Unit 2; (2) increased
transmission expenses of $5.2 million charged by the NYISO; and (3) increased
amortization of the IPP buyout costs of $6.4 million. These increases were
partially offset by a decrease in labor costs of $8.0 million due to the sale of
the fossil and hydro generation assets.
The decrease in DEPRECIATION AND AMORTIZATION for both Holdings and Niagara
Mohawk is primarily due to the sale of Niagara Mohawk's coal-fired generation
plants, its hydro generation plants, and its oil and gas-fired plant at Oswego
during 1999.
The decrease in OTHER TAXES for both Holdings and Niagara Mohawk is partly due
to lower real estate taxes resulting from the sale of Niagara Mohawk's
coal-fired generation plants, its hydro generation plants, and its oil and
gas-fired plant at Oswego during 1999. Other taxes are also lower due to lower
GRT rates and an increase in GRT credits received due to an increase in the
customers in Niagara Mohawk's service territory that participate in New York
State's Power for Jobs program.
Holdings and Niagara Mohawk's INTEREST CHARGES decreased by $18.9 million mainly
due to the repayment of approximately $1.1 billion in debt during 1999.
The decrease in Holdings and Niagara Mohawk's FEDERAL AND FOREIGN INCOME TAXES
of approximately $27.6 and $29.1 million, respectively, is due to lower first
quarter book taxable income offset in part by a higher effective tax rate. The
primary differences between the effective tax rate and the statutory federal
income tax rate elate to investment tax credit amortization and flow-through
tax costs. The significant changes in the effective tax rate are more a
function of lower pre-tax income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There were no material changes in Holdings market risk or market risk strategies
during the quarter ended March 31, 2000. For a detail discussion of market
risk, see Holdings and Niagara Mohawk's combined Form 10-K for fiscal period
ended December 31, 1999, Part II, Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
FOURTH BRANCH LITIGATION
- ------------------------
In November 1993, Fourth Branch Associates Mechanicville ("Fourth Branch")
filed an action against Niagara Mohawk and several of its officers and employees
in the New York State Supreme Court, seeking compensatory damages of $50
million, punitive damages of $100 million, and injunctive and other related
relief. The lawsuit grows out of Niagara Mohawk's termination of a contract for
Fourth Branch to operate and maintain a hydroelectric plant Niagara Mohawk owned
in the town of Halfmoon, New York. Fourth Branch's complaint also alleges
claims based on the inability of Fourth Branch and Niagara Mohawk to agree on
terms for the purchase of power from a new facility that Fourth Branch hoped to
construct at the Mechanicville site. In January 1994, Niagara Mohawk filed a
motion to dismiss Fourth Branch's complaint. By order dated November 7, 1995,
the Court granted Niagara Mohawk's motion to dismiss the complaint in its
entirety. Fourth Branch filed an appeal from the Court's order. On January
30, 1997, the Appellate Division modified the November 7, 1995 court decision
by reversing the dismissal of the fourth and fifth causes of action set forth
in Fourth Branch's complaint. Discovery proceedings are in progress with
respect to the two causes of action.
Niagara Mohawk and Fourth Branch had also entered into negotiations under a
FERC mediation process. As a result of these negotiations, Niagara Mohawk had
proposed to sell the hydroelectric plant to Fourth Branch for an amount which
would not be material. In addition, the proposal included a provision that
would require the discontinuance of all litigation between the parties.
Attempts to implement this proposal were unsuccessful, and Niagara Mohawk
informed FERC that its participation in the mediation efforts was concluded. On
January 14, 1997, the FERC ALJ issued a report to FERC recommending that the
mediation proceeding be terminated, leaving outstanding a Fourth Branch
complaint to FERC that alleges anti-competitive conduct by Niagara Mohawk.
Niagara Mohawk has made a motion to dismiss Fourth Branch's antitrust complaint
before the FERC, which motion was opposed by Fourth Branch.
During July 1998, Fourth Branch commenced a condemnation proceeding in Federal
District Court to obtain title to the project property and also has made a
unilateral offer of settlement before FERC. Niagara Mohawk served an answer
with various affirmative defenses. On July 30, 1998, Fourth Branch moved for
Summary Judgment. Niagara Mohawk opposed Fourth Branch's motion and cross-moved
for summary judgment in favor of Niagara Mohawk. The Court granted Niagara
Mohawk's motion for summary judgment on September 1, 1999.
On September 10, 1999, Fourth Branch filed an amended unilateral offer of
settlement with FERC. On September 30, 1999, Niagara Mohawk filed its response
and objection to the amended offer of settlement. On November 23, 1999, FERC
issued a comprehensive order rejecting Fourth Branch's unilateral offer of
settlement, dismissing Fourth Branch's complaint of anti-competitive conduct
against Niagara Mohawk and determining that there has been an implied surrender
by Fourth Branch and Niagara Mohawk of the FERC license for the Mechanicville
Project. On December 23, 1999, Fourth Branch filed a petition for rehearing of
the Commission's decision. On March 16, 2000, FERC denied the petition for
rehearing.
Niagara Mohawk is unable to predict the ultimate disposition of the lawsuit and
FERC case referred to above. However, Niagara Mohawk believes it has
meritorious defenses and intends to defend them vigorously. No provision for
liability, if any, that may result from this lawsuit has been made in Niagara
Mohawk's financial statements.
PULP LITIGATION
- ---------------
In July 1998, the Public Utility Law Project of New York, Inc. (PULP) and others
sought a declaratory judgment, declaring Niagara Mohawk's Power Choice agreement
unlawful, null and void and injunctive relief in the Supreme Court of the State
of New York, Albany County against the PSC and Niagara Mohawk to enjoin the
defendants to halt all their actions and expenditures to implement the rules for
the provision of retail energy services contained in the Power Choice agreement.
The PSC and Niagara Mohawk filed motions seeking to dismiss this action. By a
decision dated March 2, 2000, Albany County Supreme Court granted the motions to
dismiss PULP's action. On March 31, 2000, PULP filed a notice of appeal of the
decision with the Appellate Division, Third Department. Niagara Mohawk is
unable to predict the outcome of this matter.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Computation of the Average Number of Shares of Common Stock
Outstanding for the Three Months Ended March 31, 2000 and 1999.
Exhibit 12a - Statement Showing Computation of Ratio of Earnings to Fixed
Charges for the Twelve Months Ended March 31, 2000 for Niagara Mohawk
Holdings, Inc.
Exhibit 12b - Statement Showing Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends for the Twelve Months Ended March 31, 2000 for Niagara Mohawk
Power Corporation.
Exhibit 15 - Accountants' Acknowledgement Letter.
Exhibit 27a - Financial Data Schedule for Niagara Mohawk Holdings, Inc.
Exhibit 27b - Financial Data Schedule for Niagara Mohawk Power Corporation
In accordance with Paragraph 4(iii) of Item 601(b) of Regulation S-K, the
Company agrees to furnish to the Securities and Exchange Commission, upon
request, a copy of the agreements comprising the $804 million senior debt
facility that the Company completed with a bank group during March 1996
and subsequently amended (effective June 30, 1998). The total amount of
long-term debt authorized under such agreement does not exceed 10 percent
of the total consolidated assets of the Company and its subsidiaries.
(b) Reports on Form 8-K:
NIAGARA MOHAWK HOLDINGS, INC.
-----------------------------
Form 8-K Reporting Date - February 4, 2000
Items reported:
(1) Item 5. Other Events.
Holdings filed a press release relating to its annual and fourth quarter
earnings for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 99 - Press release of Holdings issued on February 4, 2000,
relating to its annual and fourth quarter earnings for 1999.
Form 8-K Reporting Date - February 10, 2000
Items reported:
(1) Item 5. Other Events.
Holdings and Niagara Mohawk filed Part II of its Form 10-K Annual
Report for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 11 - Holdings - Computation of Average Number of Shares of
Common Stock Outstanding
Exhibit 12a - Holdings - Statement Showing Computation of Ratios of
Earnings to Fixed Charges
Exhibit 12b - Niagara Mohawk - Statement Showing Computation of
Ratios of Earnings to Fixed Charges and Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends
Exhibit 23 - Consent of Independent Accountants
Form 8-K Reporting Date - May 1, 2000
Items reported:
(1) Item 5. Other Events.
Holdings filed a press release relating to its first quarter earnings
for 2000.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 99 - Press release of Holdings issued on May 1, 2000, relating
to its first quarter earnings
NIAGARA MOHAWK POWER CORPORATION
--------------------------------
Form 8-K Reporting Date - February 4, 2000
Items reported:
(1) Item 5. Other Events.
Holdings filed a press release relating to its annual and fourth
quarter earnings for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 99 - Press release of Holdings issued on February 4, 2000,
relating to its annual and fourth quarter earnings for 1999.
Form 8-K Reporting Date - February 10, 2000
Items reported:
(1) Item 5. Other Events.
Holdings and Niagara Mohawk filed Part II of its Form 10-K Annual Report
for 1999.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 11 - Holdings - Computation of Average Number of Shares of
Common Stock Outstanding
Exhibit 12a - Holdings - Statement Showing Computation of Ratios of
Earnings to Fixed Charges
Exhibit 12b - Niagara Mohawk - Statement Showing Computation of Ratio
of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends
Exhibit 23 - Consent of Independent Accountants
Form 8-K Reporting Date - May 1, 2000
Items reported:
(1) Item 5. Other Events.
Holdings filed a press release relating to its first quarter earnings
for 2000.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 99 - Press release of Holdings issued on May 1, 2000, relating
to its first quarter earnings.
Form 8-K Reporting Date - May 8, 2000
Items reported:
(1) Item 5. Other Events.
Niagara Mohawk filed an exhibit, which shows the computation of its
ratio of earnings to fixed charges and ratio of earnings to fixed
charges and preferred stock dividends for the twelve months ended
March 31, 2000.
(2) Item 7. Financial Statements and Exhibits.
Exhibit 12 - Statement showing the computation of Niagara Mohawk's
ratio of earnings to fixed charges and ratio of earnings to fixed
charges and preferred stock dividends for the twelve months ended
March 31, 2000.
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
NIAGARA MOHAWK HOLDINGS, INC.
(Registrant)
Date: May 11, 2000 By: /s/Steven W. Tasker
-----------------------------
Steven W. Tasker
Vice President-Controller and
Principal Accounting Officer
NIAGARA MOHAWK POWER CORPORATION
(Registrant)
Date: May 11, 2000 By: /s/Steven W. Tasker
-----------------------------
Steven W. Tasker
Vice President-Controller and
Principal Accounting Officer
<PAGE>
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
11 NIAGARA MOHAWK HOLDINGS, INC.
Computation of the Average Number of Shares
of Common Stock Outstanding for the Three
Months Ended March 31, 2000 and 1999.
12a NIAGARA MOHAWK HOLDINGS, INC.
Statement Showing Computation of Ratio of
Earnings to Fixed Charges for the Twelve Months Ended
March 31, 2000.
12b NIAGARA MOHAWK POWER CORPORATION
Statement Showing Computation of Ratio of
Earnings to Fixed Charges and Ratio of
Earnings to Fixed Charges and Preferred Stock
Dividends for the Twelve Months Ended
March 31, 2000.
15 Accountants' Acknowledgement Letter.
27a NIAGARA MOHAWK HOLDINGS, INC.
Financial Data Schedule.
27b NIAGARA MOHAWK POWER CORPORATION
Financial Data Schedule.
<PAGE>
EXHIBIT 11
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
Computation of the Average Number of Shares of Common Stock Outstanding
For the Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
(4)
Average Number of
Shares Outstanding
As Shown on the
Consolidated
(1) (2) (3) Statement of
Shares of Number of Share Income
Common Days Days (3 divided by number
For The Three Months Ended Stock Outstanding (2 x 1) of Days in Period)
- ----------------------------- --------- ----------- --------------- ------------------
<C> <C> <C> <C>
JANUARY 1 - MARCH 31, 2000 177,364,863 91 16,140,202,533
SHARES REPURCHASED BY
NIAGARA MOHAWK 734,000 (a) 1,174,000
----------- ---------------
176,630,863 16,139,028,533 177,351,962
=========== =============== ===========
January 1 - March 18, 1999 187,364,863 77 14,427,094,451
March 18 - March 31, 1999 (b) 187,364,863 13 2,435,743,219
----------- ---------------
187,364,863 16,862,837,670 187,364,863
=========== ============== ===========
</TABLE>
(a) Number of days outstanding not shown as shares represent an accumulation
of purchases of Holdings' common stock by Niagara Mohawk during the first
quarter of 2000. Share days for the shares repurchased are based on the
total number of days each share was repurchased during the quarter.
(b) On March 18, 1999, the common stock of Niagara Mohawk was exchanged
on a share-for-share basis with Holdings.
Note: Earnings per share calculated on both a primary and fully diluted
basis are the same due to the effects of rounding.
<PAGE>
EXHIBIT 12a
NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
Statement Showing Computation of Ratio of Earnings to Fixed Charges
for the Twelve Months Ended March 31, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
A. Net Income (Loss) . . . . . . . . . . . . . . . $ (71,446)
B. Taxes Based on Income or Profits . . . . . . . (21,225)
----------
C. Earnings Before Income Taxes . . . . . . . . . (92,671)
D. Fixed Charges (a) . . . . . . . . . . . . . . . 532,040
----------
E. Earnings Before Income Taxes and Fixed Charges $ 439,369
==========
F. Ratio of Earnings to Fixed Charges (E / D). . . 0.83 (b)
==========
</TABLE>
(a) Includes a portion of rentals deem representative of the interest factor
of $25,488 and earnings required to cover subsidiary preferred stock
dividends of $35,688.
(b) Fixed charges exceed earnings before income taxes and fixed charges by
$92.7 million.
<PAGE>
EXHIBIT 12b
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
Statement Showing Computation of Ratio of Earnings to Fixed
Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
for the Twelve Months Ended March 31, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
A. Net Income (Loss) . . . . . . . . . . . . . . . $ (41,084)
B. Taxes Based on Income or Profits. . . . . . . . (23,062)
----------------
C. Earnings Before Income Taxes . . . . . . . . . (64,146)
D. Fixed Charges (a). . . . . . . . . . . . . . . 496,352
----------------
E. Earnings Before Income Taxes and Fixed Charges. $ 432,206
================
Preferred Dividend Factor:
H. Preferred Dividend Requirements . . . . . . . . $ 35,688
I. Ratio of Pre-tax Income to Net Income (C / A) . NOT APPLICABLE
----------------
J. Preferred Dividend Factor (H x I) . . . . . . . 35,688
K. Fixed Charges as Above (D). . . . . . . . . . . 496,352
----------------
L. Fixed Charges and Preferred Dividends Combined. $ 532,040
================
M. Ratio of Earnings to Fixed Charges (E / D). . . 0.87 (b)
================
N. Ratio of Earnings to Fixed Charges and
Preferred Dividends Combined (E / L) . . . . 0.81 (c)
================
</TABLE>
(a) Includes a portion of rentals deem representative of the interest factor
of $25,488.
(b) Fixed charges exceed earnings before income taxes and fixed charges by
$64.1 million.
(c) Fixed charges and preferred dividends combined, exceed earnings before
income taxes and fixed charges by $99.8 million.
<PAGE>
EXHIBIT 15
May 11, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that our report dated May 11, 2000 on our review of interim
financial information of Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power
Corporation as of and for the period ended March 31, 2000 and included in
Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power Corporation quarterly
report on Form 10-Q for the quarter then ended is incorporated by reference in
Niagara Mohawk Holdings, Inc. Registration Statement on Form S-8 (No. 333-13781)
and in the Registration Statement on Form S-3 (No. 333-55923); and incorporated
by reference in Niagara Mohawk Power Corporation Registration Statements on Form
S-8 (Nos. 33-36189 and 33-42771) and in the Registration Statements on Form S-3
(Nos. 33-50703, 33-54827, 33-55546, and 333-33826) and in the Registration
Statement on Form S-4 (No.333-49769).
/s/PricewaterhouseCoopers LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, AND
CONSOLIDATED STATEMENT OF CASH FLOWS OF NIAGARA MOHAWK HOLDINGS, INC.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001079182
<NAME> Niagara Mohawk Holdings, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5863001
<OTHER-PROPERTY-AND-INVEST> 456498
<TOTAL-CURRENT-ASSETS> 927061
<TOTAL-DEFERRED-CHARGES> 5369968
<OTHER-ASSETS> 97133
<TOTAL-ASSETS> 12713661
<COMMON> 1874
<CAPITAL-SURPLUS-PAID-IN> 2520487
<RETAINED-EARNINGS> 625426
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2981039
61370
440000
<LONG-TERM-DEBT-NET> 4842580
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 820338
7620
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3560714
<TOT-CAPITALIZATION-AND-LIAB> 12713661
<GROSS-OPERATING-REVENUE> 1189471
<INCOME-TAX-EXPENSE> 32728
<OTHER-OPERATING-EXPENSES> 1018115
<TOTAL-OPERATING-EXPENSES> 1018115
<OPERATING-INCOME-LOSS> 171356
<OTHER-INCOME-NET> (4918)
<INCOME-BEFORE-INTEREST-EXPEN> 166438
<TOTAL-INTEREST-EXPENSE> 111332
<NET-INCOME> 14474
7904
<EARNINGS-AVAILABLE-FOR-COMM> 14474
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 243419
<EPS-BASIC> .08
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME, AND
CONSOLIDATED STATEMENT OF CASH FLOWS OF NIAGARA MOHAWK POWER CORPORATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000071932
<NAME> Niagara Mohawk Power Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 5863001
<OTHER-PROPERTY-AND-INVEST> 357549
<TOTAL-CURRENT-ASSETS> 769568
<TOTAL-DEFERRED-CHARGES> 5369968
<OTHER-ASSETS> 96433
<TOTAL-ASSETS> 12456519
<COMMON> 187365
<CAPITAL-SURPLUS-PAID-IN> 2356451
<RETAINED-EARNINGS> 375784
<TOTAL-COMMON-STOCKHOLDERS-EQ> 2752852
61370
440000
<LONG-TERM-DEBT-NET> 4842580
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 820338
7620
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3531759
<TOT-CAPITALIZATION-AND-LIAB> 12456519
<GROSS-OPERATING-REVENUE> 1068779
<INCOME-TAX-EXPENSE> 31188
<OTHER-OPERATING-EXPENSES> 898061
<TOTAL-OPERATING-EXPENSES> 898061
<OPERATING-INCOME-LOSS> 170718
<OTHER-INCOME-NET> (7365)
<INCOME-BEFORE-INTEREST-EXPEN> 163353
<TOTAL-INTEREST-EXPENSE> 111332
<NET-INCOME> 20833
7904
<EARNINGS-AVAILABLE-FOR-COMM> 12929
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 261534
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
