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Filed Pursuant to Rule 424(b)(5)
PROSPECTUS SUPPLEMENT Registration File No. 333-33826
MAY 9, 2000
(TO PROSPECTUS DATED APRIL 3, 2000)
LOGO
NIAGARA MOHAWK POWER CORPORATION
$200,000,000
8 7/8% SENIOR NOTES DUE 2007
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THE COMPANY:
- We are engaged principally in the regulated energy delivery business in
areas of central, northern and western New York State.
- Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
(315) 474-1511
THE SENIOR NOTES AND THE OFFERING:
- - Maturity: May 15, 2007.
- - Interest Payments: Semi-annually on November 15 and May 15, commencing on
November 15, 2000.
- - Ranking: Senior unsecured obligations.
- - Use of Proceeds: General corporate purposes.
- - Closing: May 12, 2000.
<TABLE>
<CAPTION>
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Per Note Total
<S> <C> <C>
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Public offering price: 99.773% $199,546,000
Underwriting fees: 0.625% $ 1,250,000
Proceeds to Company: 99.148% $198,296,000
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE S-4.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved any of the securities offered by this
prospectus supplement or the attached prospectus or determined if this
prospectus supplement or the attached prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Forward-Looking Information................................. S-1
Niagara Mohawk Power Corporation............................ S-2
Recent Developments......................................... S-2
Use Of Proceeds............................................. S-3
Risk Factors................................................ S-4
Selected Consolidated Financial Information................. S-8
Capitalization.............................................. S-12
Description Of The Notes.................................... S-13
Description Of Our Outstanding Senior Notes................. S-15
Underwriting................................................ S-18
Validity Of The Notes....................................... S-19
Where You Can Find More Information......................... S-20
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
About This Prospectus....................................... 1
About Niagara Mohawk Power Corporation...................... 1
Use of Proceeds............................................. 1
Ratio of Earnings to Fixed Charges.......................... 2
Description of Securities We May Offer...................... 2
Description of New Bonds.................................... 3
Description of New Debentures............................... 7
Regarding the Trustees...................................... 11
Description of Terms Common to New Bonds and New
Debentures................................................ 11
Global Securities........................................... 13
Plan of Distribution........................................ 14
Validity of Debt Securities................................. 14
Experts..................................................... 14
Where You Can Find More Information......................... 15
</TABLE>
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FORWARD-LOOKING INFORMATION
This prospectus supplement, the prospectus that accompanies it, and the
documents that are incorporated by reference in them contain statements that are
not exclusively statements of historical fact. These statements are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.
You can find many of these statements by looking for words such as
"believe," "expect," "anticipate," "estimate," or similar expressions. These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by us in those statements. The risks and uncertainties
include those risks and uncertainties identified, among other places, under the
heading "Risk Factors" in this prospectus supplement and elsewhere in the
accompanying prospectus and in the documents that are incorporated by reference
in them.
These statements include our statements regarding the following:
- the impact of our substantial leverage on our future competitiveness;
- the potential for decreased sales due to the ability of our current
customers to obtain electricity from other sources;
- general economic conditions in our service area;
- liability related to the ownership and operation of nuclear facilities;
- the impact of government regulation;
- the impact of the Master Restructuring Agreement, which we will refer to
as the "MRA," on our reported earnings;
- the impact of environmental laws on our operations; and
- our ability to recover in our rates all of our regulatory assets, as well
as challenges to our ability to collect exit fees from customers who
attempt to bypass our system.
Because forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by such
statements. You are cautioned not to place undue reliance on such statements.
The cautionary statements contained or referred to in this section should
be considered in connection with any subsequent written or oral forward-looking
statements that we or persons acting on our behalf may issue. We undertake no
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this prospectus supplement or to
reflect the occurrence of unanticipated events.
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The following information should be read in conjunction with the more
detailed information and the financial statements, including the accompanying
notes, appearing elsewhere (or incorporated by reference) in this prospectus
supplement and the accompanying prospectus. You are encouraged to read this
prospectus supplement and the accompanying prospectus and the documents
incorporated by reference in them.
NIAGARA MOHAWK POWER CORPORATION
We were organized in 1937 under the laws of New York State and are engaged
principally in the regulated energy delivery business in New York State. We
provide electric service, and we sell, distribute and transport natural gas, to
over 1.6 million electric and 560 thousand gas customers in areas of central,
northern and western New York State.
On March 18, 1999, we were reorganized into a holding company structure in
accordance with the Agreement and Plan of Exchange between Niagara Mohawk
Holdings, Inc. and us. Our outstanding common stock was exchanged on a
share-for-share basis for Holdings' common stock. Our debt and preferred stock
were not exchanged as part of the share exchange and continue as our
obligations. See "Where You Can Find More Information" for how you can find more
information about the reorganization and about us.
RECENT DEVELOPMENTS
The electricity generation business is becoming deregulated. A key
component in our Power Choice agreement to lower average electricity prices and
provide customer choice is the divestiture of our generation assets.
Since 1998, we have divested approximately 3,500 MW of capacity for
approximately $860 million, representing the majority of our fossil and hydro
generating assets. We expect to close the sale of our Albany oil and gas-fired
generation plant for $47.5 million in the second quarter of 2000, and we have an
agreement with Central Hudson Gas & Electric to sell our interest in our Roseton
facility by no later than January 1, 2003.
On June 24, 1999, we announced an agreement to sell our nuclear assets to
AmerGen Energy Company, LLC, which we will refer to as "AmerGen," a joint
venture of PECO Energy Company and British Energy, for approximately $135
million. Along with the asset purchase agreement, we also signed a power
purchase agreement with AmerGen to purchase energy and capacity at negotiated
prices. New York State Electric and Gas Corporation, which we will refer to as
"NYSEG," was also a party to the agreement and agreed to sell its 18% share of
Nine Mile Point Unit 2 to AmerGen. The sale to AmerGen was subject to a
previously existing agreement among the five co-owners of Nine Mile Point 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, Rochester Gas & Electric, a
14% co-owner, submitted a notice stating it would match the AmerGen agreement.
The sale agreement was subject to regulatory approval and was contingent upon
the receipt of satisfactory regulatory treatment of our stranded costs, which we
estimated to be in the range of $1.8 to $1.85 billion.
We originally requested approval from the New York State Public Service
Commission, which we will refer to as the "PSC," by December 1999 and filed an
application with the Nuclear Regulatory Commission, which we will refer to as
the "NRC," to transfer the licenses to AmerGen. On January 26, 2000, the staff
of the PSC informed the administrative law judge, which we will refer to as the
"ALJ," and all parties including us, that they believed the terms of the
proposed nuclear
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sale were not in the public interest. On April 25, 2000, the PSC deemed NYSEG's
and our 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
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 their 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.
We cannot predict the outcome of this process, but are committed to pursue
the sale of Nine Mile Point Unit 1 and Nine Mile Point 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, we do not believe that a sale is any more likely to
occur than other possible outcomes, including the possible continued operation
of the plants by us for the remainder of their useful lives.
USE OF PROCEEDS
We will use the proceeds from the sale of the notes for general purposes.
Our general corporate purposes may include:
- financing of our construction program;
- refunding existing long term debt and preferred stock;
- refunding short term debt;
- financing of termination or restructuring of power purchase agreements
with independent power producers; and
- repurchasing common stock of Niagara Mohawk Holdings, Inc.
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RISK FACTORS
WE ARE SUBSTANTIALLY LEVERAGED AND, ACCORDINGLY, HAVE LIMITED FINANCIAL
FLEXIBILITY
We have substantial leverage and significant debt service obligations. As
of March 31, 2000, we have outstanding approximately $5.4 billion of senior
indebtedness, consisting primarily of $2.4 billion of First Mortgage Bonds,
which are secured by a lien on substantially all of our utility property, $0.5
billion of borrowings under our senior bank facility, which are secured with
First Mortgage Bonds, and $2.5 billion of senior unsecured debt (which will
increase to $2.7 billion as a result of the offering of the notes). We also have
available additional borrowings of $275 million under our senior bank facility.
The degree to which we are leveraged could have important consequences to
you, including the following:
- our substantial leverage may place us at a competitive disadvantage,
hinder our ability to adjust rapidly to changing market conditions, and
make us more vulnerable in the event of a downturn in general economic
conditions or our business; and
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or other corporate purposes will be limited in
the future.
DECREASED SALES AND AN ECONOMIC DOWNTURN IN OUR SERVICE AREA MAY ADVERSELY
AFFECT OUR ELECTRIC REVENUES AND PROFITABILITY
Under our regulatory agreement with the PSC, we have established rates
intended to create sufficient cash flow to at least cover our operating
expenses, satisfy our fixed obligations and recover allowable stranded costs.
Our rate design is based on estimates of future electricity usage and the number
of customers connected to our distribution system. The level of electric
revenues can be adversely affected by lower than projected sales to retail
customers and by customer bypass of the system. Economic conditions in our
service area could result in lower sales due to the relocation of customers.
Because of the relatively high cost of our electricity, customers could seek to
bypass our distribution system through self-generation or to replace us with a
municipal or other utility. Our regulatory agreement requires, with limited
exceptions, the payment of an exit fee or access charge in these circumstances.
Several affected customers and competitors have said they may challenge our
right to collect these fees, or the appropriate level of these fees. The Village
of Lakewood is seeking to avoid the payment of exit fees and has initiated
proceedings at the Federal Energy Regulatory Commission, which we will refer to
as "FERC," and the PSC. We expect the PSC to render a decision by the second
quarter of 2000. There can be no assurance that we will prevail in this or other
proceedings. If revenues are significantly lower than those anticipated in our
rate design, our profitability could be materially and adversely affected.
WE MAY INCUR SUBSTANTIAL LIABILITY FROM OUR OWNERSHIP AND OPERATION OF NUCLEAR
FACILITIES
On June 24, 1999, we announced an agreement to sell our nuclear assets to
AmerGen. NYSEG was also a party to the agreement and agreed to sell its 18%
share of Nine Mile Point Unit 2 to AmerGen. The sale to AmerGen was subject to a
previously existing agreement among the five co-owners of Nine Mile Point 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, Rochester Gas & Electric, a
14% co-owner, submitted a notice stating it would match the AmerGen agreement.
On January 26, 2000, the staff of the PSC informed the ALJ and all parties that
they believed the terms of the proposed nuclear sale were not in the public
interest. On April 25, 2000, the PSC deemed NYSEG's and our
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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
substantially higher values and lower stranded costs than the AmerGen agreement.
We cannot predict the outcome of this process, but are committed to pursue
the sale of Nine Mile Point Unit 1 and Nine Mile Point 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, we do not believe that a sale is any more likely to
occur than other possible outcomes, including the possible continued operation
of the plants by us for the remainder of the their useful lives.
In the event that a sale of the nuclear assets does not occur, we will
continue to recover the costs to run the nuclear generation plants in our Power
Choice rates. In addition, we 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 us, and the outcome of
other regulatory approvals, we have continued to utilize our 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, we conclude that our 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 our nuclear generation assets
(including materials, supplies and nuclear fuel) was approximately $1.6 billion,
excluding the reserve for decommissioning. In addition, we have 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.
Risks of substantial liability arise from the ownership and operation of
nuclear facilities, including, among others, mechanical or structural problems
at a nuclear facility, the storage, handling and disposal of radioactive
materials, limitations on the amounts and types of insurance coverages
commercially available and uncertainties with respect to the technological and
financial aspects of decommissioning nuclear facilities at the end of their
useful lives. Our Nine Mile Point Unit 1 nuclear facility is one of the oldest
in operation in the United States, having commenced operations in 1969. On
September 24, 1999, we announced that we began a comprehensive program to
enhance the operating performance of our two nuclear plants, Nine Mile Point
Unit 1 and Nine Mile Point Unit 2. Previous internal and external performance
reviews, including a review by the NRC, outline the need for operational
improvements. We have implemented a phased performance improvement program
designed to strengthen organizational capability to improve more rapidly and
address challenges more effectively. We have also established a contractual
partnership with PECO Energy to provide additional management and expertise. We
incurred expenses of approximately $1.0 million during 1999 for this performance
improvement program. We have budgeted an additional $5.9 million in expense and
$2.8 million for capital improvements for the six months ending June 30, 2000.
The delay in the timing of the sale of Nine Mile Point Unit 1 and Nine Mile
Point Unit 2 will probably affect the cost of the improvement program.
In the event of an extended outage of either Nine Mile Point Unit 1 or Nine
Mile Point Unit 2 at Nine Mile Point, we would be required to purchase power in
the open market to replace the power
S-5
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normally produced by these facilities. Such purchases would subject us to the
risk of increased energy prices and, depending on the length of the outage and
the level of market prices, could have a material adverse effect on our cash
flow. Under our regulatory agreement, we are not entitled to pass along these
increased costs to customers in the form of higher electric rates. If the
facilities were to have material problems with their physical condition, it
could affect their sale and if so, we would then evaluate the economic
justification of continuing to operate the facilities. The PSC can review the
prudence of our decision to close a facility to determine whether we should be
allowed to recover its incremental costs, including replacement power costs.
These costs would likely be significant to us.
OUR BUSINESS IS SUBJECT TO EXTENSIVE REGULATION BY THE PSC AND THE FEDERAL
GOVERNMENT
We are subject to extensive regulation by the PSC. While the most material
aspects of our rate structure for the next three years have been established,
the PSC is likely to continue to assess competitive consequences in considering
future rate increases even if we experience revenue shortfalls or increased
expenses. In addition, many aspects of our operations, including our electric
transmission and distribution systems, the operation and maintenance of our
nuclear facilities, our gas distribution operations and the issuance of our
securities will continue to be subject to extensive regulation by both the
federal government and the PSC. Changes in these regulations or in their
application to us could adversely affect our business and financial condition.
Further, uncertainty exists regarding the ultimate impact on us as the electric
industry is further deregulated and electricity suppliers gain open access to
our retail customers.
THE MASTER RESTRUCTURING AGREEMENT ADVERSELY AFFECTS OUR REPORTED EARNINGS
Because of the regulatory accounting treatment afforded the MRA which we
completed in June 1998, our reported net income has, as anticipated, been
significantly depressed. The $4 billion of compensation paid to the independent
power producers pursuant to the MRA was recorded as a regulatory asset and is
being amortized over ten years. Financing such compensation by means of our June
1998 offering of $3.45 billion in debt securities has also increased our
interest expense. The recovery of these significant costs through our prices
puts continued pressure on us to absorb any increases in operating costs in
order to maintain or reduce our prices and thereby improve our competitive
position.
OUR OPERATIONS ARE SUBJECT TO A WIDE RANGE OF ENVIRONMENTAL LAWS
Our operations are subject to a wide range of environmental laws and
regulations relating to, among other matters, air emissions, wastewater
discharges, landfill operations and hazardous waste management. Compliance with
these laws and regulations is an important factor in our business. In order to
meet current environmental standards, we are conducting a program to remediate,
as necessary, certain properties associated with our former gas manufacturing
process and other properties which we have learned may be contaminated with
industrial waste, as well as investigating identified industrial waste sites as
to which it may be determined that we contributed waste. We have also been
advised that various federal, state or local agencies believe certain properties
require investigation and we have prioritized the sites based on available
information in order to enhance the management of investigation and remediation,
if necessary. In addition, we recently informed the New York State Department of
Environmental Conservation of 24 additional sites which may require other
investigation and remediation in response to an October 1999 request for
information. We believe it is probable that we will continue to recover
environmental compliance and remediation costs in our rates, and we have
recorded a regulatory asset for recovery of these costs. However, additional
expenses associated with remedial costs or compliance with proposed and future
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environmental laws and regulations may have a material adverse effect on our
future operations and financial condition.
The New York State Department of Environmental Conservation has commenced a
state-wide investigation of coal-fired electric power plants to determine
compliance with certain new source review requirements or new source performance
standards under the Clean Air Act. We have provided documents in response to a
subpoena issued in January 2000. Although we believe that the resolution of this
matter should not have a material adverse effect on our future operations and
financial condition, the New York State Department of Environmental Conservation
may impose monetary penalties or other sanctions.
DISCONTINUING THE APPLICATION OF CERTAIN ACCOUNTING PRINCIPLES COULD ADVERSELY
AFFECT US
We continue to apply the accounting principles set forth in Statement of
Financial Accounting Standards No. 71, which we will refer to as "SFAS No. 71,"
to our electric transmission and distribution, nuclear and gas operations, based
on the terms of our regulatory agreement. SFAS No. 71 permits a utility to defer
certain costs which would otherwise be expensed when authorized to do so by the
relevant regulatory authorities. As of March 31, 2000, we had $5.4 billion of
regulatory assets. In the event that we determine, either as a result of lower
than expected revenues or higher than expected costs, that our regulatory assets
are not in fact recoverable, we could no longer apply the principles of SFAS No.
71 and would be required to record a non-cash charge against income in the
amount of the remaining unamortized regulatory assets. The resulting charge
would be material to our financial condition and adversely affect our ability to
pay dividends.
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SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table contains certain consolidated financial information
about us for the periods presented. The financial information below for each of
the five years ended December 31, 1999 has been derived from our audited
financial statements and should be read in conjunction with the financial
statements, including the related notes, which are included in our Annual Report
on Form 10-K for each of the respective years. The selected consolidated
financial information as of and for the three months ended March 31, 1999 and
2000 has been derived from our unaudited consolidated financial statements,
which in the opinion of our management reflect all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly, in accordance with
generally accepted accounting principles, the information contained therein. See
"Where You Can Find More Information" in this prospectus supplement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
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1995 1996 1997 1998 1999 1999 2000
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues:
Electric.................. $3,335,548 $3,308,979 $3,309,441 $ 3,261,144 $ 3,247,757 $ 849,746 $ 823,672
Gas....................... 581,790 681,674 656,963 565,229 579,583 246,275 245,107
---------- ---------- ---------- ----------- ----------- ---------- ----------
3,917,338 3,990,653 3,966,404 3,826,373 3,827,340 1,096,021 1,068,779
---------- ---------- ---------- ----------- ----------- ---------- ----------
Operating expenses:
Fuel for electric
generation.............. 165,929 181,486 179,455 239,982 189,657 57,094 13,330
Electricity purchased..... 1,137,937 1,182,892 1,236,108 1,001,991 807,038 160,965 279,890
Gas purchased............. 276,232 370,040 345,610 272,141 266,723 107,346 138,432
Other operation and
maintenance............. 817,897 928,224 835,282 937,798 889,100 203,292 214,689
Power Choice Charge....... -- -- -- 263,227 -- -- --
Amortization of MRA
Regulatory Asset........ -- -- -- 128,833 386,499 96,625 96,625
Depreciation and
amortization............ 317,831 329,827 339,641 355,417 344,930 94,692 77,832
Other taxes............... 517,478 475,846 471,469 459,961 411,842 121,723 77,263
---------- ---------- ---------- ----------- ----------- ---------- ----------
3,233,304 3,468,315 3,407,565 3,659,350 3,295,789 841,737 898,061
---------- ---------- ---------- ----------- ----------- ---------- ----------
Operating income.......... 684,034 522,338 558,839 167,023 531,551 254,284 170,718
Other income
(deductions)............ 3,069 35,943 24,997 42,602 (5,682) (3,839) (7,365)
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income before interest
charges................. 687,103 558,281 583,836 209,625 525,869 250,445 163,353
Interest charges.......... 279,674 278,033 273,906 397,178 485,240 130,275 111,332
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income (loss) before
federal and foreign
income taxes............ 407,429 280,248 309,930 (187,553) 40,629 120,170 52,021
Federal and foreign income
taxes................... 159,393 102,494 126,595 (66,728) 18,883 60,314 31,188
---------- ---------- ---------- ----------- ----------- ---------- ----------
Income (loss) before
extraordinary item...... 248,036 177,754 183,335 (120,825) 21,746 59,856 20,833
Extraordinary item........ -- (67,364) -- -- (23,807) -- --
---------- ---------- ---------- ----------- ----------- ---------- ----------
Net income (loss)......... 248,036 110,390 183,335 (120,825) (2,061) 59,856 20,833
Dividends on preferred
stock................... 39,596 38,281 37,397 36,555 36,808 9,024 7,904
---------- ---------- ---------- ----------- ----------- ---------- ----------
Balance available for
common stock............ $ 208,440 $ 72,109 $ 145,938 $ (157,380) $ (38,869) $ 50,832 $ 12,929
========== ========== ========== =========== =========== ========== ==========
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
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1995 1996 1997 1998 1999 1999 2000
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOW DATA:
Cash flows provided by/
(used in):
Operating activities...... $ 700,005 $ 700,402 $ 537,575 $(3,240,455) $ 798,730 $ 287,217 $ 261,534
Investing activities...... (277,004) (331,611) (393,971) (447,091) 596,497 (21,357) (79,062)
Financing activities...... (363,856) (196,868) (90,770) 3,482,312 (1,496,196) (98,666) (64,715)
OTHER OPERATING DATA:
EBITDA(1)................. $ 929,100 $ 957,500 $ 961,500 $ 990,500 $ 1,262,500 $ 443,900 $ 342,800
Net cash interest(2)...... 260,500 244,500 226,900 345,500 404,700 109,700 91,600
Capital expenditures(3)... 345,804 352,049 290,757 392,200 298,081 70,928 56,343
Ratio of EBITDA to net
cash interest(4)........ 3.6x 3.9x 4.2x 2.9x 3.1x 3.0x 3.1x
Ratio of earnings to fixed
charges(5).............. 2.3x 1.6x 2.0x 0.6x 1.0x 1.0x 0.9x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
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1995 1996 1997 1998 1999 1999 2000
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net utility plant.... $7,007,853 $6,957,615 $6,868,044 $ 6,877,959 $ 5,888,242 $ 6,844,090 $ 5,863,001
Total assets......... 9,477,869 9,427,635 9,584,141 13,861,187 12,445,608 13,803,479 12,456,519
Total long-term
debt............... 3,647,478 3,525,963 3,484,476 6,729,465 5,656,328 6,738,224 5,662,918
Preferred stock...... 546,000 535,600 526,730 516,610 508,990 516,610 508,990
Common stockholder's
equity............. 2,513,952 2,585,572 2,727,527 3,170,142 2,785,171 3,097,763 2,752,852
</TABLE>
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(1) EBITDA represents 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. EBITDA is presented to provide additional information
about our ability to meet requirements for preferred and debt service and
capital spending. EBITDA should not be considered an alternative to net
income as an indicator of operating performance or an alternative to cash
flows as a measure of liquidity.
(2) Net cash interest reflects interest charges plus allowance for funds used
during construction less the non-cash impact of the net amortization of
discount on long-term debt and interest accrued on the Nuclear Waste Policy
Act disposal liability less interest income.
(3) Capital expenditures consist of amounts for our construction program related
to utility operations including the amounts incurred by us to comply with
the Clean Air Act and other environmental requirements.
(4) For purposes of determining the ratio of EBITDA to net cash interest, EBITDA
and net cash interest are calculated as described above in notes (1) and
(2). The ratio of EBITDA to net cash interest is presented to provide
additional information about our ability to meet future requirements for
preferred stock and debt service. See the Consolidated Statements of Cash
Flows incorporated by reference in this prospectus supplement. The ratios
for the periods ending March 31, 1999 and 2000 were calculated using data
for the twelve month period then ended.
(5) For purposes of determining the ratio of earnings to fixed charges
requirements, (i) earnings consist of income before federal and foreign
income taxes plus fixed charges and (ii) fixed charges consist of interest
charges on all indebtedness, including the portion of rental expense that is
representative of the interest factor. The ratios for the periods ending
March 31, 1999 and 2000 were calculated using data for the twelve month
period then ended. Fixed charges exceed earnings before income taxes and
fixed charges by $187.5 million in 1998 and by $64.1 million for the period
ended March 31, 2000.
S-9
<PAGE> 12
In 1998, we implemented two related agreements which provided for the
restructuring of our financial condition: the Power Choice agreement and the
MRA. In exchange for cash and shares of our common stock, worth approximately $4
billion in the aggregate, 14 independent power producers agreed to terminate,
restate or amend 27 power purchase agreements, which represented in excess of
75% of our estimated above-market power purchase obligation at the time. We
financed the cash portion of this transaction by issuing senior unsecured debt
totaling approximately $3.45 billion and approximately $300 million of common
stock. Using improved cash flows from the restructuring, we have since retired
approximately $1.2 billion of indebtedness and we have received regulatory
approval for an $800 million repurchase program of our holding company's common
stock over a six-year period. The holding company's board has approved the
repurchase of 40 million shares through December 31, 2002, and we have
repurchased 10.7 million shares through March 31, 2000.
The Power Choice agreement requires us to lower our electric rates during a
three-year phase-in period which began in September 1998 which would reduce our
annual electric revenue by approximately 3% once fully phased in. In addition,
we established a regulatory asset of approximately $4 billion related to the MRA
payment that will be amortized over a period not to exceed ten years. Our rates
under Power Choice have been designed to permit recovery of the MRA regulatory
asset. In approving Power Choice, the regulators limited the estimated value of
the MRA regulatory asset that could be recovered, which resulted in an after-tax
charge to the second quarter of 1998 earnings of $171 million upon the closing
of the MRA.
The Power Choice agreement also required us to divest our fossil and
hydroelectric generation facilities. This program is substantially complete.
During 1999, we completed the sales of our hydroelectric generation plants, our
coal-fired generation plants and our Oswego oil and gas-fired plant for $860
million. We expect to close the sale of our Albany oil and gas-fired generation
plant for $47.5 million in the second quarter of 2000, and we have an agreement
with Central Hudson to sell our interest in our last remaining fossil plant,
Roseton, by no later than January 1, 2003.
The cumulative effect of these transactions is generally to reduce our
revenues while substantially lowering our cash operating costs, resulting in
increased operating cash flow. As a result of these transactions, our financial
results for any particular period are not comparable to those results for any
other period.
RECENT OPERATING RESULTS
We reported earnings for the first quarter of 2000 of $12.9 million, as
compared to $50.8 million for the first quarter of 1999. Earnings in the first
quarter of 2000 were down primarily as a result of lower gas gross margin, which
reduced earnings for the quarter by approximately $22.5 million. Gas gross
margins were lower in part because of a change in the regulatory adjustment
mechanism used to record gas costs, the effect of which should reverse over the
remainder of the year.
Earnings for the first quarter of 2000 were also impacted by increased
costs associated with the operation of the newly formed New York Independent
System Operator, which we will refer to as the "NYISO," which reduced earnings
by approximately $14.3 million. The NYISO, which began formal operations on
December 1, 1999, replaced the New York Power Pool and now manages the bulk
transmission system in New York State. We experienced higher NYISO costs related
to ancillary service charges and energy purchases. We and the NYISO have
petitioned the FERC regarding the magnitude of NYISO charges for ancillary
services and have asked the FERC to order a refund of some of those charges. We
are unable to predict the FERC's response. In addition, we believe that some
portion of the NYISO charges will be reversed as the NYISO performs load
reconciliations for the first quarter of 2000. The higher NYISO costs we
experienced are primarily related to start-up
S-10
<PAGE> 13
issues at the NYISO and we expect that as the bulk power market matures these
issues will be resolved.
Additionally, earnings in the first quarter of 2000 were reduced by
approximately $5 million by costs related to the Nine Mile Point Unit 2
refueling outage and by approximately $5 million as a result of the second phase
of electric price reductions implemented as part of our electric regulatory
agreement.
First quarter earnings reductions were partially offset by $12.3 million in
decreased interest expense due to the retirement of over $1 billion in debt in
1999.
Our electric revenues in the first quarter of 2000 were $823.7 million,
down 3.1% from the first quarter of 1999. Retail sales of electricity decreased
8.0% for the three months ended March 31, 2000 as compared to the same period in
1999. Retail sales in the first quarter of 1999 include the one-time impact of
billing customers on a monthly basis rather than bi-monthly. Retail revenues
declined in part as more customers chose to buy energy from other companies
under retail choice, as well as due to warmer weather and lower prices.
Our natural gas revenues in the first quarter of 2000 were $245.1 million,
down 0.5% from the first quarter of 1999. Retail sales of natural gas decreased
6.6% for the three months ended March 31, 2000 as compared to the same period in
1999. Total gas deliveries, which includes the transportation of customer-owned
gas, were down 6.2% for the three months ended March 31, 2000 as compared to the
same period in 1999.
S-11
<PAGE> 14
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000 and
as adjusted to give effect to the consummation of the offering of the notes. The
following data should be read in conjunction with the consolidated financial
statements and notes thereto included in the documents incorporated herein by
reference.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------
ACTUAL AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock par value $1.00 per share, 250,000,000 shares
authorized 187,364,863 shares issued................... $ 187,365 $ 187,365
Repurchase of common stock of Niagara Mohawk Holdings,
Inc., at cost.......................................... (166,748) (166,748)
Capital stock premium and expense......................... 2,361,324 2,361,324
Accumulated other comprehensive income.................... (4,873) (4,873)
Retained earnings......................................... 375,784 375,784
---------- ----------
Total common equity............................... 2,752,852 2,752,852
---------- ----------
PREFERRED STOCK:
Cumulative preferred stock, par value $100 per share,
3,400,000 shares authorized:
Mandatorily redeemable. Issued and outstanding 186,000
shares................................................ 18,600 18,600
Non-redeemable. Issued and outstanding 2,100,000
shares................................................ 210,000 210,000
Cumulative preferred stock, par value $25 per share,
19,600,000 shares authorized:
Mandatorily redeemable. Issued and outstanding
2,015,602 shares...................................... 50,390 50,390
Non-redeemable. Issued and outstanding 6,200,000
shares................................................ 230,000 230,000
---------- ----------
508,990 508,990
Less sinking fund requirements......................... 7,620 7,620
---------- ----------
Total preferred stock............................. 501,370 501,370
---------- ----------
Preference stock, par value $25 per share, 8,000,000
shares authorized None issued and outstanding.......... -- --
LONG-TERM DEBT:
Long-term debt............................................ 5,662,918 5,862,918
Less long-term debt due in one year.................... 820,338 820,338
---------- ----------
Total long-term debt...................................... 4,842,580 5,042,580
---------- ----------
Total capitalization.............................. $8,096,802 $8,296,802
========== ==========
</TABLE>
S-12
<PAGE> 15
DESCRIPTION OF THE NOTES
You should read the following information concerning the notes in
conjunction with the statements under "Description of the New Debentures,"
"Description of Terms Common to New Bonds and New Debentures" and "Global
Securities" in the accompanying prospectus.
We will issue the notes as a separate series of debt securities under an
indenture to be dated as of May 12, 2000 between us and The Bank of New York, as
trustee. We will issue notes with an aggregate principal amount of $200,000,000.
We will issue the notes in denominations of $1,000 or in multiples of $1,000.
The notes will mature on May 15, 2007. Interest on the notes will accrue
from May 12, 2000 at a rate of 8 7/8% per annum, computed on the basis of a
360-day year of twelve 30-day months. Interest will be payable semi-annually on
May 15 and November 15 in each year, commencing November 15, 2000. We will make
each interest payment to the persons in whose names the notes are registered at
the close of business on the May 1 or November 1 immediately preceding the
interest payment date.
We will issue the notes in the form of one or more global securities, which
will be deposited with The Depository Trust Company ("DTC") and registered in
the name of DTC's nominee. Information regarding DTC's book-entry system is set
forth under "Global Securities" in the accompanying prospectus.
OPTIONAL REDEMPTION
The notes will be redeemable in whole or in part, at any time at our option
at a redemption price equal to 100% of the principal amount, plus accrued and
unpaid interest through the redemption date, plus the Make Whole Premium.
The "Make Whole Premium" with respect to any note means an amount equal to
the excess of
- the aggregate present value as of the redemption date of the expected
future cash flows that would have been payable in respect of that note if
such redemption had not been made, determined by discounting such amounts
at a rate equal to the Treasury Rate plus 0.30%; over
- the aggregate principal amount of that note.
"Treasury Rate" means
- the yield reported on page C4 of the Bloomberg Financial Markets Service
(or, if not available, any other nationally recognized trading screen
reporting on-line intraday trading in United States government
securities) at 11:00 A.M. (New York, New York time) for those actively
traded United States government securities having a maturity (rounded to
the nearest month) corresponding to the remaining term to maturity of the
notes; or
- if no nationally recognized trading screen reporting on-line intraday
trading in United States government securities is available, Treasury
Rate means the weekly average of the yield to maturity on the United
States Treasury obligations with a constant maturity (as compiled by and
published in the most recently published issue of the United States
Federal Reserve Statistical Release H.15(519)) most nearly equal to the
remaining term to maturity of the notes.
S-13
<PAGE> 16
LIMITATION ON LIENS
Under the terms of the notes, we will agree that we and our Restricted
Subsidiaries will not, directly or indirectly, secure any other indebtedness
with a Lien on our property or assets unless we make effective provision for
securing the notes:
- in case of a Lien securing senior indebtedness, on an equal and ratable
basis with that Lien; and
- in case of a Lien securing subordinated indebtedness, on a basis senior
in priority to that Lien.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or adverse claim affecting title or resulting in a charge
against real or personal property, or a security interest of any kind in respect
of that asset.
This covenant will have exceptions, under which we will be permitted to
refinance the full amount of:
- our First Mortgage Bonds outstanding on June 30, 1998, which aggregated
$2.8 billion principal amount;
- our existing $804 million bank credit facility; and
- our existing $300 million trade receivables financing;
in each case without securing the notes. We will also be permitted to enter into
a Securitization Transaction without securing the notes.
"Securitization Transaction" means a transaction pursuant to PSC or other
governmental authorization, in which we transfer rights or other property to a
special purpose entity in conjunction with a financing based on our right to
collect a non-bypassable wires or similar fee.
Our "Restricted Subsidiaries" means all of our subsidiaries except any
subsidiary that is designated by our Board of Directors as not restricted, but
only if the designated subsidiary:
- has no indebtedness that is recourse to us;
- deals with us and our other Restricted Subsidiaries only on an
arms-length basis;
- is not a subsidiary in which we or another Restricted Subsidiary is
obligated to make equity investments, or maintain its financial condition
or operating results; and
- has not guaranteed or otherwise provided credit support for any of our
indebtedness or indebtedness of another Restricted Subsidiary.
S-14
<PAGE> 17
DESCRIPTION OF OUR OUTSTANDING SENIOR NOTES
We have $2.5 billion of Senior Notes outstanding that were issued in June
1998. The Senior Notes have interest rates ranging from 7% to 8 1/2% and
maturities ranging from 2000 to 2010. The Senior Notes are redeemable at any
time at our option at prices that include a Make Whole Premium. Defined Terms
used in the "Description of Notes" above have the same meaning under the
Indenture governing the Senior Notes.
The Indenture governing the Senior Notes contains covenants which, at the
date hereof, continue to restrict our ability to:
- incur liens;
- agree to restrictions on dividend or other payments from our Restricted
Subsidiaries; and
- merge, consolidate or sell substantially all of our assets.
PROCEEDS OF CERTAIN ASSET SALES
The Indenture governing the Senior Notes also provides that we and our
Restricted Subsidiaries will not engage in:
- a Permitted Asset Swap unless we or the Restricted Subsidiary receives
property or assets with a fair value at least equal to the fair value of
the property or assets swapped; or
- a Sale of Assets unless,
(1) we or the Restricted Subsidiary receives consideration at least
equal to the fair value of the assets or equity interest issued or
sold or otherwise disposed of; and
(2) in the case of a Securitization Transaction, at least 75% of the
consideration we receive is in the form of cash or cash equivalents.
In addition,
- within 180 days after the receipt of any net proceeds from a
Securitization Transaction, we are required to apply the cash portion of
the net proceeds in accordance with the relevant statutory or regulatory
requirements that govern such transaction or, if there are no such
requirements, to reduce senior indebtedness; and
- within 180 days after the receipt of any net proceeds from a sale or
other disposition of Generating Assets, we are required to use not less
than 85% of the cash portion of such net proceeds to reduce senior
indebtedness.
"Generating Assets" means our nuclear, fossil and hydroelectric generation
plants, and any related asset necessary for the operation of any such plant and
any associated license or permit.
"Permitted Asset Swap" means any swap by us of our utility property or
assets for other property or assets that will be used in or in connection with
our utility business.
"Sale of Assets" means
- a sale, lease, conveyance, or other disposition of assets (including by
way of a sale and leaseback) by us or any of our Restricted Subsidiaries
other than sales of inventory or other current assets in the ordinary
course of business consistent with past practice that have a fair value
or result in net proceeds in excess of $25.0 million;
- the issue or sale by us or any of our Restricted Subsidiaries of equity
interests of any of our Restricted Subsidiaries that have a fair value or
result in net proceeds in excess of $25.0 million;
S-15
<PAGE> 18
- the sale or other disposition (but not any spin-off or other distribution
to our shareholders) of the Generating Assets; or
- a Securitization Transaction.
Notwithstanding the foregoing, the following will not be deemed to be a
Sale of Assets:
- a transfer of assets by us to a wholly-owned Restricted Subsidiary or by
a wholly-owned Restricted Subsidiary to us or to another wholly-owned
Restricted Subsidiary;
- an issuance of equity interests by a wholly-owned Restricted Subsidiary
to us or to another wholly-owned Restricted Subsidiary;
- sales of property or equipment that have become worn out, obsolete or
damaged or otherwise unsuitable for use in connection with our business;
- transactions involving the license, lease or sublease of any real or
personal property in the ordinary course of business;
- the making of specified investments;
- the transfer, sale or assignment of assets to a single purpose entity in
connection with the Receivables Financing; and
- a Permitted Asset Swap.
TRANSACTIONS WITH AFFILIATES
The Indenture governing our Senior Notes also provides that we and our
subsidiaries may not make any payments to, or sell, lease, transfer or otherwise
dispose of any of our properties or assets to an affiliate. Also, we may not
purchase any property or assets from an affiliate or enter into or make any
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of any of our affiliates, unless:
- the transaction with the affiliate is on an arms-length basis; and
- if the transaction is in excess of $10 million, it must be approved by a
majority of the disinterested members of the board of directors; and
- if the transaction is in excess of $50 million, we will deliver to the
trustee an opinion of a nationally recognized expert as to the fair value
of the assets being sold and that the transaction is fair to us.
The restrictions will not apply to a Securitization Transaction or any
transaction between us and Niagara Mohawk Holdings, Inc. approved by the PSC.
CHANGE OF CONTROL
If a Change of Control Triggering Event occurs, each holder of Senior Notes
will have the right to require us to repurchase those Senior Notes at a price
equal to 101% of the aggregate principal amount (or accreted value, as
applicable), plus accrued and unpaid interest.
Our ability to pay cash to the holders of the Senior Notes upon a
repurchase may be limited by our then existing financial resources. There can be
no assurance that we will have sufficient funds to repurchase the Senior Notes
following a Change of Control Triggering Event.
S-16
<PAGE> 19
"Change of Control" means the occurrence of any of the following:
- the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation) of all or substantially all of our assets
and the assets of our Restricted Subsidiaries taken as a whole;
- the adoption of a plan relating to our liquidation or dissolution;
- the consummation of any transaction which results in any person or group
becoming the beneficial owner of more than 50% of the total voting power
of all classes of our Capital Stock then outstanding; or
- the first day on which a majority of the members of our Board of
Directors are not Continuing Directors.
"Change of Control Triggering Event" means the occurrence of a Change of
Control that is accompanied by a decline in the ratings of the Senior Notes by
at least one gradation by a ratings agency, or the withdrawal of any such
rating.
"Continuing Directors" means any member of our Board of Directors who
- was a member of such Board of Directors on the date the Senior Notes were
issued; or
- was nominated for election or elected with the approval of a majority of
the Continuing Directors who were then members of the Board.
S-17
<PAGE> 20
UNDERWRITING
The underwriters named below have severally agreed, subject to the terms
and conditions of the underwriting agreement with us, to purchase the principal
amount of notes set forth below opposite their respective names. The
underwriters are committed to purchase all of the notes if any are purchased.
Under certain circumstances, the commitments of non-defaulting underwriters may
be increased.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..... $125,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................... 25,000,000
J.P. Morgan Securities Inc.............................. 25,000,000
Salomon Smith Barney Inc................................ 25,000,000
------------
Total......................................... $200,000,000
============
</TABLE>
The underwriters propose to offer the notes in part directly to the public
at the initial public offering price set forth on the cover page of this
prospectus supplement and in part to certain securities dealers at such price
less a concession of 0.375% of the principal amount of the notes. The
underwriters may allow, and such dealers may reallow, a concession not to exceed
0.250% of the principal amount of the notes to certain brokers or dealers. If
all the notes are not sold at the initial offering price, the underwriters may
change the offering price and the other selling terms.
In connection with the offering of the notes, the underwriters may engage
in overallotment, stabilizing transactions and short covering transactions in
accordance with Regulation M under the Securities and Exchange Act of 1934.
Overallotment involves sales in excess of the offering size, which create short
positions for the underwriters. Stabilizing transactions involve bids to
purchase the notes in the open market for the purpose of pegging, fixing or
maintaining the price of the notes. Short covering transactions involve
purchases of the notes in the open market after distribution has been completed
in order to cover short positions. These stabilizing transactions and short
covering transactions may cause the price of the notes to be higher than it
would otherwise be in the absence of such transactions. Such activities, if
commenced, may be discontinued at any time.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the underwriters have repurchased notes sold by
or for the account of such underwriter in stabilizing transactions or
short-covering transactions.
We do not intend to apply for listing of the notes on a national securities
exchange. We have been advised by the underwriters that they intend to make a
market in the notes, but they are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the notes.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
In the ordinary course of their respective business, the underwriters and
their affiliates perform investment banking, commercial banking and other
financial services for us.
S-18
<PAGE> 21
We estimate that we will spend approximately $285,000 for printing, rating
agency, trustee, accounting and legal fees and other expenses relating to the
offering.
VALIDITY OF THE NOTES
The validity of the notes will be passed upon for us by Sullivan &
Cromwell, New York, New York, our counsel, and for the underwriters by Davis
Polk & Wardwell, New York, New York, counsel for the several underwriters.
S-19
<PAGE> 22
WHERE YOU CAN FIND MORE INFORMATION
This section replaces the section entitled "Incorporation of Certain
Information by Reference" in the accompanying prospectus.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any documents that we file at:
- SEC Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549;
- Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2411; or
- Seven World Trade Center
Suite 1300
New York, New York 10048.
You may also obtain copies of these documents at prescribed rates from the
Public Reference Section of the SEC at its Washington address.
Please call the SEC at 1-800-SEC-0330 for further information.
Our filings are also available to the public through:
- The SEC web site at http://www.sec.gov
- The New York Stock Exchange
20 Broad Street
New York, New York 10005
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which information incorporated by reference is considered to be
part of this prospectus supplement and the accompanying prospectus, and later
information that we file with the SEC will automatically update and supersede
that information as well as the information included in this prospectus
supplement and the accompanying prospectus. We incorporate by reference the
documents listed in the box below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 filed
prior to the termination of this offering.
Annual Report on Form 10-K for the year ended December 31, 1999.
Current Reports on Form 8-K filed May 1, 2000 and May 8, 2000.
We will provide without charge a copy of these filings, other than any
exhibits unless the exhibits are specifically incorporated by reference into
this prospectus supplement and the accompanying prospectus. You may request your
copy by writing or telephoning us at the following address:
Leon T. Mazur
Director, Investor Relations
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
(315) 428-5876
S-20
<PAGE> 23
$500,000,000
NIAGARA MOHAWK POWER CORPORATION
FIRST MORTGAGE BONDS
UNSECURED DEBT SECURITIES
-------------------------
By this prospectus, Niagara Mohawk Power Corporation may offer from time to
time up to $500,000,000 of its debt securities. These securities may be either
First Mortgage Bonds, secured by a mortgage on our assets, or unsecured debt
securities. When we offer these securities, we will provide you with a
prospectus supplement describing the terms of the specific issue, including the
offering price and whether the securities are secured.
You should read this prospectus and the prospectus supplement carefully
before you invest.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
Niagara Mohawk Power Corporation may sell these securities to underwriters,
through agents or directly to other purchasers. The prospectus supplement will
include the names of any underwriters or agents.
This prospectus is dated April 3, 2000
<PAGE> 24
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf process, we may sell
the securities described in this prospectus in one or more offerings up to a
total dollar amount of $500,000,000. This prospectus provides you with a general
description of the First Mortgage Bonds and unsecured debt securities we may
offer.
Each time we sell Securities, we will provide a "PROSPECTUS SUPPLEMENT"
that will contain specific information about the terms of that offering. The
prospectus supplement may also add, update or change information contained in
this prospectus. You should read both this prospectus and any prospectus
supplement together with additional information described under the heading
"Where You Can Find More Information" on page 15.
For more detail, you may read the exhibits, financial statements, notes and
schedules filed with our registration statement.
ABOUT NIAGARA MOHAWK POWER CORPORATION
NIAGARA MOHAWK POWER CORPORATION
We were organized in 1937 under the laws of New York State and are engaged
principally in the regulated energy delivery business in New York State. We
provide electric service, and we sell, distribute and transport natural gas to
approximately 1,600,000 electric and 560,000 gas customers in areas of central,
northern and western New York State.
On March 18, 1999, we were reorganized into a holding company structure in
accordance with the Agreement and Plan of Exchange between Niagara Mohawk
Holdings, Inc. and us. Our outstanding common stock was exchanged on a
share-for-share basis for the common stock of Niagara Mohawk Holdings, Inc. Our
debt and preferred stock were not exchanged as a part of the share exchange and
continue as our obligations. See "Where You Can Find More Information" for how
you can find more information about the reorganization and about us.
RECENT DEVELOPMENT
In 1999, the New York State Public Service Commission approved our petition
to purchase up to $800 million of Niagara Mohawk Holdings, Inc. common stock. In
July 1999, the board of directors of Niagara Mohawk Holdings, Inc. approved a
program to repurchase 20 million shares through December 31, 2001 and in March
2000 the board of directors authorized and approved the repurchase of an
additional 20 million shares through December 31, 2002. As of December 31, 1999,
we repurchased 10 million shares of the common stock of Niagara Mohawk Holdings,
Inc. Additional 5 million shares were repurchased by an agent on our behalf, but
were not paid for by us (with the exception of $1.4 million in carrying charges)
and remain in the number of shares outstanding in computing the earnings per
share of Niagara Mohawk Holdings, Inc.
USE OF PROCEEDS
Unless we state otherwise in the prospectus supplement, we will use the
proceeds from the sale of the Securities offered under this prospectus and the
prospectus supplement for general corporate purposes. Our general corporate
purposes may include:
- the finance of our construction program;
- refund existing long term-debt and preferred stock;
- refund short term debt;
- the finance of termination or restructuring of Power Purchase Agreements
with Independent Power Producers; and
- repurchase common stock of Niagara Mohawk Holdings, Inc.
1
<PAGE> 25
RATIOS OF EARNINGS TO FIXED CHARGES
Our consolidated ratios of earnings to fixed charges for each of the fiscal
years ended December 31, 1995 through 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C>
x1.01 x.57 x2.02 x1.57 x2.29
</TABLE>
For purposes of computing these ratios, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of: (a) interest expenses
and amortization of debt expenses as reported in our consolidated financial
statements; (b) dividends on preferred stock of subsidiary companies; (c) the
portion of net rental expense which is deemed representative of the interest
factor inherent in rents and (d) the cumulative effect of accounting changes.
DESCRIPTION OF SECURITIES WE MAY OFFER
The Securities issued under this prospectus are governed by documents
called the "INDENTURES". The Indenture governing the First Mortgage Bonds is a
contract between us and HSBC. The Indenture governing our unsecured debt
securities is a contract between us and The Bank of New York. Each of these
banks currently acts as "TRUSTEE" under the Indenture to which it is a party.
Each Trustee has two main roles:
- First, the Trustee can enforce your rights against us if we default.
There are some limitations on the extent to which the Trustee acts on
your behalf, which we describe later under "Description of New
Bonds -- Events of Default" and "Description of New Debentures -- Events
of Default."
- Second, the Trustee performs administrative duties for us, which include
sending you interest payments, transferring your debt securities to a new
buyer if you sell and sending you notices.
In this description, we refer to the First Mortgage Bonds as "NEW BONDS"
and the unsecured debt securities as the "NEW DEBENTURES." When we say "BOND" we
mean any bond that has been, or will be, delivered under the Indenture that
governs the New Bonds. When we say "Securities" we collectively refer to the New
Bonds and the New Debenture. A copy of each Indenture is filed as an exhibit to
the registration statement relating to the Securities.
Each Indenture permits us to issue different series of Securities from time
to time. We may issue securities in such amounts, at such times and on such
terms as we wish. The Securities may differ from one another in their terms.
Securities may be sold at prices substantially below their face value, and
may be denominated in foreign currencies. The prospectus supplement will
describe:
- special United States federal income tax or other considerations, if any,
with respect to Securities sold at original issue discount.
- special United States federal income tax and other considerations, if
any, with respect to Securities which are denominated in a currency or
currency unit other than United States dollars.
Unless otherwise indicated in the prospectus supplement, the covenants
contained in the Indentures and the Securities will not afford holders of the
Securities protection in the event of a sudden decline in credit rating that
might result from a recapitalization, restructuring, or other highly leveraged
transaction.
THIS SECTION IS ONLY A SUMMARY
The Indentures and their associated documents, including your Securities,
contain the full legal text of the matters described in this section. A copy of
each Indenture has been filed with the SEC as part of our registration
statement. See "Where You Can Find More
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Information" on page 15 for information on how to obtain a copy.
This section summarizes the material terms that will apply generally to the
Securities. Each particular series of Securities will have financial and other
terms specific to it, and these specific terms will be described in the
prospectus supplement. As you read this section, therefore, please remember that
the specific terms of your Securities as described in your prospectus supplement
will supplement and, if applicable, may modify or replace the general terms
described in this section. The statements we make in this section may not apply
to your Securities.
IN THE REMAINDER OF THIS DESCRIPTION "YOU" MEANS DIRECT HOLDERS AND NOT
"STREET NAME" OR OTHER INDIRECT HOLDERS OF DEBT SECURITIES. INDIRECT
HOLDERS SHOULD READ THE SUBSECTION ON PAGE 12 ENTITLED "STREET NAME" AND
OTHER INDIRECT HOLDERS".
DESCRIPTION OF NEW BONDS
TERMS OF THE NEW BONDS
You should refer to the prospectus supplement for the following information
about a particular series of New Bonds:
- the designation and principal amounts of the New Bonds;
- the date on which the New Bonds mature;
- the interest rate;
- when the interest on the New Bonds accrues and is payable;
- the dates on which interest on the New Bonds will be payable;
- whether, when and at what price we can redeem the New Bonds; and
- any other specific terms of the New Bonds.
THE MORTGAGE
The New Bonds are secured by a "MORTGAGE" which will create a direct first
lien on substantially all gas and electric properties that we now own or use or
are useful in the operation of our properties as an integrated system. The
mortgage lien will also extend to all property of the same nature we acquire
after the effective date of the Mortgage. The Mortgage will not extend to
property that we acquire through merger or consolidation or a purchase of
substantially all the assets of other corporations, unless we decide otherwise.
This lien DOES NOT EXTEND to:
- revenues and profits of the mortgaged property;
- any bills;
- notes;
- accounts receivable;
- cash (except cash deposited with the trustee);
- agreements;
- securities;
- materials and supplies; and
- all oil, gas and other minerals and the right to this removal.
This lien is SUBJECT TO:
- liens for taxes and assessments not due and payable or being contested in
good-faith;
- obligations to public authorities as to any franchise, consent, grant,
license or permit;
- leases and other rights of tenants and of licensees; and
- the rights of others to property acquired after the effective date of the
Mortgage for transmission or distribution systems
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or right-of-way purposes (Granting Clause of the Mortgage).
The direct lien on our properties is also subject to other minor types of
encumbrances which do not materially interfere with the operation of our
business. These encumbrances may include:
- rights and claims of third parties in possession which are not disclosed
of record;
- any facts that can only be disclosed by an accurate survey;
- the effect of zoning ordinances;
- rights of public in the use of streets, roads and waterways; and
- leases, covenants, easements.
RANKING
The New Bonds will rank on an equal basis with all other mortgage Bonds
issued under the Mortgage.
CREDIT ENHANCEMENT
We will provide you further information in the prospectus supplement if any
series of New Bonds shall be entitled to the benefits of a surety bond or other
form of credit enhancement.
ADDITIONAL NEW BONDS
The Mortgage provides that we may not create any securities which will rank
senior to the New Bonds as to security. However, we may acquire property which
is subject to other liens and mortgage after-acquired property which is not
subject to the lien of the property.
Additional New Bonds which will rank equally as to security with the New
Bonds including prior lien New Bonds may be issued under the Mortgage in an
unlimited amount only as follows:
1. additional New Bonds may be issued in a principal amount equal to
60% of the net (which was in excess of $300 million on December 31, 1999)
of property additions that are not subject to an unfunded prior lien;
2. we may issue additional New Bonds in exchange for bonds
outstanding under the Mortgage or in substitution for bonds that were
retired (which was in excess of $1.0 billion on December 31, 1999); and
3. additional New Bonds may be issued in a principal amount equal to
the amount of cash we deposit with the Trustee for that purpose.
Additional New Bonds described in paragraphs 1 and 3 above MAY NOT be
issued unless our net earnings over a certain period (12 out of the 15 preceding
months) that are available for interest, after a provision for depreciation but
before income taxes, are at least 1.75 times the annual interest charges on all
Bonds and prior lien bonds then outstanding or applied for.
We expect to offer the New Bonds on the basis of property additions, cash
deposited with the Trustee or Bonds that have been retired or will be retired or
purchased pursuant to sinking fund payments.
RELEASES OF PROPERTY
We may release property subject to the lien of the Mortgage, other than
cash and prior lien bonds, upon any sale, exchange, condemnation or
expropriation of the property subject to the Mortgage without furnishing notice
to the bondholders. Any property, other than cash or securities, we received
upon the release of mortgaged property shall be subject to the lien of the
Mortgage, and any cash or securities received shall, unless we use it to satisfy
some prior lien, become part of the security for the Bonds issued under the
mortgage.
We may withdraw monies received by the Trustee as proceeds of released
property to reimburse us for retirement of Bonds and certain prior lien bonds,
or to pay, purchase or redeem these Bonds or prior lien bonds. We may also
withdraw cash in an amount equal to 166 2/3% of the principal amount of Bonds
which
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we could issue under the Mortgage in respect of Additional Property, provided we
forgo the right to issue these Bonds. In the ordinary course of business and
otherwise, we regularly obtain from the Trustee the release of various
properties from the lien of the Mortgage. In the case of exchanges of property,
no exchange shall be made if our Funded Indebtedness is increased as a result.
(Mortgage, Articles Sixth and Seventh.)
When we say "Additional Property" we refer to any property that we acquired
after July 31, 1937, that is used or useful in our business and which will
become subject to the first mortgage lien. Additional property will not include:
- property which is generally charged by us to operating expenses in
accordance with our accounting practices;
- equipment, material and supplies we acquire for the purpose of resale in
the usual course of business;
- goodwill, franchises or governmental permits;
- property we acquire as a substitute for a released property that is
subject to the Mortgage, but only to the extent of the consideration
received for the mortgaged property;
- cash, accounts receivables, stocks, bonds and other evidence of
indebtedness; and
- any insurance proceeds we receive from the Trustee as reimbursement for
loss or damage to property, but only to the extent of the insurance
proceeds received.
When we say "funded indebtedness" we refer to the aggregate unpaid
principal amount at any particular time of the Company's:
- issued and outstanding Bonds that we issue under the Mortgage, including
the additional Bonds that are about to be issued;
- all issued and outstanding bonds secured by a lien which is ranked prior
to, or equally with, the first mortgage lien; and
- all issued and outstanding bonds that are secured by any other lien and
are not subject to the first mortgage lien.
MAINTENANCE FUND PROVISIONS
We are required within 90 days after the close of each fiscal year, to (a)
certify the Costs of Additional Property (b) deposit with the Trustee cash,
Bonds or certain prior lien bonds; or (c) waive our right to the authentication
and delivery of the principal amount of Bonds to which we are then entitled
under the Mortgage, to the extent that the aggregate amount of expenditure for
maintenance, repairs, renewals and replacements for the period commencing
January 1, 1977 is less than the sum of 2.25% of our depreciable property (as
defined) on January 1 of each year during such period (Mortgage, Article Fifth,
section 22).
RESTRICTION ON COMMON STOCK DIVIDEND
To the extent that the aggregate amount of expenditure for maintenance and
repairs, plus the aggregate amount credited to depreciation, retirements and
other like reserves, for the period commencing January 1, 1977 is less than the
sum of 2.25% of our depreciable property on January 1 of each year during that
period, we must reserve an equivalent amount of surplus and hold it unavailable
for distribution as a dividend on our common stock. (Mortgage, Article Fifth,
section 23).
MERGERS AND SIMILAR EVENTS
We are generally permitted to consolidate or merge with another company or
sell substantially all of our assets to another company as long as the following
conditions are met:
- we are not in default under the Mortgage;
- the terms of the merger or consolidation or sale of the our assets may
not impair the lien, the security of the Mortgage, the rights and powers
of the Trustee or the rights and powers of the bondholders;
- if we are not the surviving corporation, or in the case of a sale of our
assets, the
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successor corporation assumes by supplemental indenture our obligations
under the Mortgage.
MODIFICATION
From time to time, we may unilaterally modify the Mortgage by entering into
a supplemental indenture with the Trustee to:
- correct property descriptions;
- modify the Mortgage or form of bonds and coupons to facilitate stock
exchange listing requirements; or
- cure any ambiguity or errors in the Mortgage;
but only if the amendments are not inconsistent with the terms of the Mortgage
and shall not impair the security of the Bonds.
The Mortgage also permits us and the Trustee to modify the Mortgage in any
manner whatsoever. A vote of the holders of Bonds owning 66 2/3% of the
principal amount of the total amount of outstanding Bonds, excluding Bonds owned
by us or by our affiliates, is required to effect this change to the Mortgage.
However, we and the Trustee may not modify the Mortgage in the following
ways without the consent of the holder of each outstanding Bonds:
- alter or impair our obligation to pay the principal and interest on the
Bonds;
- create a mortgage or a lien in the nature of a mortgage that ranks prior
to, or equally with, the first mortgage lien;
- any change to the Mortgage that adversely affects your rights; or
- reduce the percentage of bondholders that is required to consent to a
modification to the Mortgage.
We may not modify the Mortgage without the consent of the Trustee if the
Trustee is affected by the modification.
EVENTS OF DEFAULT
You will have special rights if an Event of Default occurs and is not
cured, as described later in this subsection.
The term "EVENT OF DEFAULT" for the New Bonds means any of the following:
- we do not pay the principal of or any premium on a New Bond on its due
date;
- we do not pay interest on a New Bond within 60 days after its Due Date;
- we do not deposit any sinking, improvement, maintenance or similar fund
payment on its due date;
- we remain in breach of a covenant of the Mortgage for 90 days after we
receive a notice of default stating we are in breach. The notice must be
sent by the Trustee in its discretion or upon the written request of 25%
of the bondholders; and
- we file for bankruptcy, insolvency or reorganization events that involve
us.
If an Event of Default has occurred and has not been cured within 90 days,
the Trustee will notify the bondholders as to our default. The Mortgage allows
the Trustee to withhold notice of default if the Trustee determines in good
faith that withholding the notice is in the interests of the bondholders. The
Trustee may not withhold notice of any default in the payment of principal,
interest, installments upon retirement or any sinking or purchase fund.
Prior to exercising his powers to enforce the Mortgage, the Trustee is
entitled to reasonable protection from expenses and liability (called an
"INDEMNITY").
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW TO GIVE NOTICE OR DIRECTION TO OR MAKE A
REQUEST OF THE TRUSTEE.
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The Mortgage does not require us to furnish periodic evidence to the
trustee as to the absence of default or as to our compliance with the terms of
the mortgage. However, the Mortgage requires that as a condition to the issuance
of additional Bonds, including New Bonds, we will be in compliance with any
covenant contained in the mortgage.
DESCRIPTION OF THE NEW DEBENTURES
TERMS OF THE NEW DEBENTURES
You should refer to the prospectus supplement for the following information
about a particular series of New Debentures:
- the designation and principal amounts of the New Debentures;
- the date on which the New Debentures mature;
- the interest rate;
- when the interest on the New Debentures accrues and is payable;
- the dates on which interest on the New Debentures will be payable;
- whether, when and at what price we can redeem the New Debentures; and
- any other specific terms of the New Debentures.
CONVERSION
Your New Debentures may be convertible into or exchangeable for common
stock or other securities if your prospectus supplement so provides. If your New
Debentures are convertible or exchangeable, your prospectus supplement will
include provisions as to:
- whether the New Debentures are convertible or exchangeable into our
common stock or other securities we issue or into common stock or other
securities of other issuers;
- whether the conversion or exchange is mandatory, at your option or our
option;
- whether adjustments may be made in the number of shares of common stock
or other securities to be received by you upon conversion or exchange.
MERGERS AND SIMILAR EVENTS
We are generally permitted to consolidate or merge with another company or
sell substantially all of our assets to another company as long as the following
conditions are met:
- we are not in default under the Indenture;
- where we merge out of existence or sell our assets, the other firm may
not be organized under a foreign country's laws (that is, it must be a
corporation, partnership, trust or other entity organized under the laws
of a State or the District of Columbia or under federal law); and
- if we are not the surviving corporation, or in the case of a sale of our
assets, the successor corporation assumes by supplemental indenture our
obligations under the Indenture.
MODIFICATION AND WAIVER
There are three types of changes we can make to the Indenture and the New
Debentures.
CHANGES REQUIRING YOUR APPROVAL. First, there are changes that cannot be
made to your New Debentures without your specific approval.
Following is a list of those types of changes:
- change the Stated Maturity of the principal of or interest on any New
Debenture;
- reduce any amounts due on any New Debenture;
- reduce the amount of principal payable upon acceleration of the Maturity
of any New Debenture following a default;
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- change the place or currency of payment on any New Debenture;
- impair your right to sue for payment;
- reduce the percentage of holders of New Debentures whose consent is
needed to modify or amend the Indenture;
- reduce the percentage of holders of New Debentures whose consent is
needed to waive compliance with certain provisions of the Indenture or to
waive certain defaults; and
- modify any other aspect of the provisions dealing with modification and
waiver of the Indenture. (Section 902)
CHANGES REQUIRING A MAJORITY VOTE. The second type of change to the
Indenture and the New Debentures is the kind that requires a vote in favor by
holders of New Debentures owning a majority amount of the particular series
affected. Most changes fall into this category, except for changes noted above
as requiring your specific vote, and, as we note below, changes which do not
require your approval. The same vote would be required for us to obtain a waiver
of any past defaults. However, we cannot obtain a waiver of a payment default or
any other aspect of the Indenture or the New Debentures listed in the first
category described above under "-- Changes Requiring Your Approval" unless we
obtain your individual consent to the waiver. (Section 513)
CHANGES NOT REQUIRING APPROVAL. The third type of change does not require
any approval by holders of New Debentures. This type is limited to
clarifications and certain other changes that would not adversely affect holders
of the New Debentures.
FURTHER DETAILS CONCERNING VOTING. When taking a vote, we will use the
following rules to decide how much principal amount to attribute to a New
Debenture:
- For Original Issue Discount Securities, we will use the principal amount
that would be due and payable on the voting date if the Maturity of the
New Debentures were accelerated to that date because of a default.
- For New Debentures whose principal amount is not known (for example,
because it is based on an index), we will use a special rule for that New
Debentures described in the prospectus supplement.
- For New Debentures denominated in one or more foreign currencies or
currency units, we will use the U.S. dollar equivalent.
New Debentures will not be considered outstanding, and therefore are not
eligible to vote, if we have deposited or set aside in trust for you money for
their payment or redemption. New Debentures will also not be eligible to vote if
they have been fully defeased as described later on page 11 under "Full
Defeasance". (Section 101)
We generally will be entitled to set any day as a record date for the
purpose of determining the holders of outstanding New Debentures that are
entitled to vote or take other action under the Indenture. In certain limited
circumstances, the Trustee will be entitled to set a record date for action by
holders. If we or the Trustee set a record date for a vote or other action to be
taken by holders of a particular series, that vote or action may be taken only
by persons who are holders of outstanding New Debentures of that series on the
record date and must be taken within 180 days following the record date or a
shorter period that we may specify (or as the Trustee may specify if it sets the
record date). We may shorten or lengthen (but not beyond 180 days) this period
from time to time. (Section 104)
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW APPROVAL MAY BE GRANTED OR DENIED IF WE
SEEK TO CHANGE THE INDENTURE OR THE DEBT SECURITIES OR REQUEST A WAIVER.
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COVENANTS
The prospectus supplement for your series of New Debentures may set forth
restrictive covenants with respect to your New Debentures.
DEFEASANCE
The following discussion of full defeasance and covenant defeasance will be
applicable to your series of New Debentures only if we choose to have them apply
to that series. If we do so choose, we will inform you of this decision in the
prospectus supplement. (Section 1301)
FULL DEFEASANCE. If there is a change in federal tax law, as described
below, we can legally release ourselves from any payment or other obligations on
the New Debentures (called "FULL DEFEASANCE") if we put in place the following
other arrangements for you to be repaid:
- We must deposit in trust for your benefit and the benefit of all other
direct holders of the New Debentures a combination of money and U.S.
government or U.S. government agency notes or bonds that will generate
enough cash to make interest, principal and any other payments on the New
Debentures on their various due dates.
- There must be a change in current federal tax law or an IRS ruling that
lets us make the above deposit without causing you to be taxed on the New
Debentures any differently than if we did not make the deposit and just
repaid the New Debentures ourselves. (Under current federal tax law, the
deposit and our legal release from the New Debentures would be treated as
though we took back your New Debentures and gave you your share of the
cash and notes or bonds deposited in trust. In that event, you could
recognize gain or loss on the New Debentures you give back to us.)
- We must deliver to the Trustee a legal opinion of our counsel confirming
the tax law change described above. (Sections 1302 and 1304)
- If we ever did accomplish full defeasance, as described above, you would
have to rely solely on the trust deposit for repayment on the New
Debentures. You could not look to us for repayment in the unlikely event
of any shortfall. Conversely, the trust deposit would most likely be
protected from claims of our lenders and other creditors if we ever
become bankrupt or insolvent.
COVENANT DEFEASANCE. Under current federal tax law, we can make the same
type of deposit described above and be released from some of the restrictive
covenants in the New Debentures that may be described in the applicable
prospectus supplement. This is called "COVENANT DEFEASANCE". In that event, you
would lose the protection of those restrictive covenants but would gain the
protection of having money and securities set aside in trust to repay the New
Debentures. In order to achieve covenant defeasance, we must do the following:
- We must deposit in trust for your benefit and the benefit of all other
direct holders of the New Debentures a combination of money and U.S.
government or U.S. government agency notes or bonds that will generate
enough cash to make interest, principal and any other payments on the New
Debentures on their various due dates.
- We must deliver to the Trustee a legal opinion of our counsel confirming
that under current federal income tax law we may make the above deposit
without causing you to be taxed on the New Debentures any differently
than if we did not make the deposit and just repaid the New Debentures
ourselves.
If we accomplish covenant defeasance, the following provisions of the
Indenture and the New Debentures would no longer apply:
- Covenants applicable to the series of New Debentures and described in the
prospectus supplement.
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- The Events of Default relating to breach of covenants and acceleration of
the maturity of other debt, described later under "What Is an Event of
Default?"
If we accomplish covenant defeasance, you can still look to us for
repayment of the New Debentures if there is a shortfall in the trust deposit. In
fact, if one of the remaining Events of Default occurs (such as our bankruptcy)
and the New Debentures become immediately due and payable, there may be such a
shortfall. Depending on the event causing the default, you may not be able to
obtain payment of the shortfall. (Sections 1303 and 1304)
EVENTS OF DEFAULT
You will have special rights if an Event of Default occurs and is not
cured, as described later in this subsection.
WHAT IS AN EVENT OF DEFAULT? The term "EVENT OF DEFAULT" for the New
Debentures means any of the following:
- We do not pay the principal of or any premium on New Debenture on its due
date.
- We do not pay interest on New Debenture within 30 days of its due date.
- We do not deposit any sinking fund payment on its due date.
- We remain in breach of a covenant of the Indenture for 60 days after we
receive a notice of default stating we are in breach. The notice must be
sent by either the Trustee or holders of 10% of the principal amount of
New Debentures of the affected series.
- We file for bankruptcy or certain other events in bankruptcy, insolvency
or reorganization occur.
- Any other Event of Default described in the prospectus supplement occurs.
(Section 501)
REMEDIES IF AN EVENT OF DEFAULT OCCURS. If an Event of Default has occurred
and has not been cured, the Trustee or the holders of 25% in principal amount of
the New Debentures of the affected series may declare the entire principal
amount of all the New Debentures of that series to be due and immediately
payable. If an Event of Default occurs because of certain events in bankruptcy,
insolvency or reorganization, the principal amount of all the New Debentures of
that series will be automatically accelerated, without any action by the Trustee
or any holder. A declaration of acceleration of maturity may be canceled by the
holders of at least a majority in principal amount of the New Debentures of the
affected series. (Section 502)
Except in cases of default where the Trustee has some special duties, the
Trustee is not required to take any action under the Indenture at the request of
any holders unless the Holders offer the Trustee an indemnity. If reasonable
indemnity is provided, the holders of a majority in principal amount of the
outstanding New Debentures of the relevant series may direct the time, method
and place of conducting any lawsuit or other formal legal action seeking any
remedy available to the Trustee. These majority holders may also direct the
Trustee in performing any other action under the Indenture. (Section 512)
Before you bypass the Trustee and bring your own lawsuit or other formal
legal action or take other steps to enforce your rights or protect your
interests relating to the New Debentures, the following must occur:
- You must give the Trustee written notice that an Event of Default has
occurred and remains uncured.
- The holders of 25% in principal amount of all outstanding New Debentures
of the relevant series must make a written request that the Trustee take
action because of the default, and must offer reasonable indemnity to the
Trustee against the cost and other liabilities of taking that action.
- The Trustee must have not taken action for 60 days after receipt of the
notice and offer of indemnity. (Section 507)
However, you are entitled at any time to bring a lawsuit for the payment of
money due
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on your New Debenture on or after its due date. (Section 508)
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW TO GIVE NOTICE OR DIRECTION TO OR MAKE A
REQUEST OF THE TRUSTEE AND TO MAKE OR CANCEL A DECLARATION OF
ACCELERATION.
We will furnish to the Trustee every year a written statement of certain of
our officers certifying that to their knowledge we are in compliance with the
Indenture and the New Debentures, or else specifying any default. (Section 1004)
REGARDING THE TRUSTEES
The Trustee under the Mortgage for the New Bonds is HSBC, with whom we
maintain normal banking arrangements. HSBC has also extended a line of credit to
us. We maintain bank accounts, borrow money and have other customary banking
relationships with HSBC in the ordinary course of business.
The Trustee under the Indenture for the New Debentures is The Bank of New
York, which has extended a line of credit to us and with whom we also maintain
normal banking arrangements.
If an event of default (or an event that would be an event of default if
the requirements for giving us default notice or for our default having to exist
for a specific period of time were disregarded) occurs, one or both of the
Trustees may be considered to have a conflicting interest for purposes of the
Trust Indenture Act of 1939 with respect to the Securities. In that case, one or
both of the Trustees may be required to resign as trustee and we would be
required to appoint one or more successor trustees.
DESCRIPTION OF TERMS COMMON TO NEW BONDS AND NEW DEBENTURES
Unless we provide otherwise in the prospectus supplement, the following
provisions apply equally to, both, New Bonds and New Debentures.
FORM, EXCHANGE AND TRANSFER
The Securities will be issued:
- only in fully registered form;
- without interest coupons; and
- in denominations that are multiples of $1,000.
You may have your Securities broken into more Securities of smaller
denominations or combined into fewer Securities of larger denominations, as long
as the total principal amount is not changed. This is called an "EXCHANGE".
You may exchange or transfer Securities at the office of the entity
performing the role of maintaining the list of registered holders, known as the
"SECURITY REGISTRAR", or at the office of any transfer agent designated by us
for that purpose.
You will not be required to pay a service charge to transfer or exchange
Securities, but you may be required to pay for any tax or other governmental
charge associated with the exchange or transfer. The transfer or exchange will
only be made if the Security Registrar or transfer agent, as applicable, is
satisfied with your proof of ownership.
If the Securities are redeemable and we redeem less than all of the
Securities of a particular series, we may block the transfer or exchange of
Securities during the period beginning 15 days before the day we mail the notice
of redemption and ending on the day of that mailing, in order to freeze the list
of holders to prepare the mailing. We may also refuse to register transfers or
exchanges of Securities
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selected for redemption, except that we will continue to permit transfers and
exchanges of the unredeemed portion of any Securities being partially redeemed.
PAYMENT AND PAYING AGENTS
We will pay interest to you if you are a direct holder listed in the
records of the Security Registrar at the close of business on the "REGULAR
RECORD DATE." The prospectus supplement will specify the Regular Record Dates
for the Securities.
We will pay interest, principal and any other money due on the Securities
at the corporate trust offices of each of the designated Trustees. You must make
arrangements to have your payments picked up or wired from that office. We may
also choose to pay interest by mailing checks.
"STREET NAME" AND OTHER INDIRECT HOLDERS SHOULD CONSULT THEIR BANKS OR
BROKERS FOR INFORMATION ON HOW THEY WILL RECEIVE PAYMENTS.
We may also arrange for additional payment offices and may cancel or change
those offices, including our use of the corporate trust offices of each of the
designated Trustees. These offices are called "PAYING AGENTS". We are required
to maintain a Paying Agent in each Place of Payment for the Securities. We must
notify you of changes in the Paying Agents for the Securities.
LEGAL OWNERSHIP
"STREET NAME" AND OTHER INDIRECT HOLDERS
Investors who hold Securities in accounts at banks or brokers will
generally not be recognized by us as legal holders of Securities. This is called
holding in "STREET NAME". Instead, we would recognize only the bank or broker,
or the financial institution the bank or broker uses to hold its securities.
These intermediary banks, brokers and other financial institutions pass along
principal, interest and other payments on the securities, either because they
agree to do so in their customer agreements or because they are legally required
to forfeit these securities payments. If your New Securities are in "Street
Name," you should check with your own institution to find out:
- How it handles securities payments and notices.
- Whether it imposes fees or charges.
- How it would handle voting if ever required.
- Whether and how you can instruct it to send you Debt Securities
registered in your own name so you can be a direct holder as described
below.
- How it would pursue rights under the Debt Securities if there were a
default or other event triggering the need for holders to act to protect
their interests.
DIRECT HOLDERS
Our obligations, as well as the obligations of the Trustee and those of any
third parties employed by us or either Trustee, run only to Persons who are
registered as holders of Securities. As noted above, we do not have obligations
to you if you hold in "Street Name" or other indirect means, either because you
choose to hold Securities in that manner or because the Securities are issued in
the form of Global Securities as described below. For example, once we make
payment to the registered holder, we have no further responsibility for the
payment even if that holder is legally required to pass the payment along to you
as a "Street Name" customer but does not fulfill this obligation.
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GLOBAL SECURITIES
WHAT IS A GLOBAL SECURITY? A Global Security is a special type of
indirectly-held Security, as described above under "Street Name' and Other
Indirect Holders". We may choose to issue some or all of the Securities in the
form of Global Securities, in which case the ultimate beneficial owners can only
be indirect holders. We do this by requiring that the Global Security be
registered in the name of a financial institution we select and by requiring
that the Securities included in the Global Security not be transferred to the
name of any other direct holder unless the special circumstances described below
occur. The financial institution that acts as the sole direct holder of the
Global Security is called the "Depositary". Any person wishing to own a Global
Security must do so indirectly through an account with a broker, bank or other
financial institution that in turn has an account with the Depositary. The
prospectus supplement will indicate whether your series of Securities will be
issued only in the form of Global Securities.
SPECIAL INVESTOR CONSIDERATIONS FOR GLOBAL SECURITIES. As an indirect
holder, an investor's rights relating to a Global Security will be governed by
the account rules of the investor's financial institution and of the Depositary,
as well as general laws relating to securities transfers. We do not recognize
this type of investor as a holder of Securities and instead deal only with the
Depositary that holds the Global Security.
An investor should be aware that if Securities are issued only in the form
of Global Securities:
The investor cannot get Securities registered in his or her own name.
- The investor cannot receive physical certificates for his or her interest
in the Securities.
- The investor will be a "Street Name" holder and must look to his or her
own bank or broker for payments on the Securities and protection of his
or her legal rights relating to the Securities. See the discussion above
"Street Name" and Other Indirect Holders".
- The Depositary's policies will govern payments, transfers, exchange and
other matters relating to the investor's interest in the Global Security.
We and each Trustee have no responsibility for any aspect of the
Depositary's actions or for its records of ownership interests in the
Global Security. We and each Trustee also do not supervise the Depositary
in any way.
- The laws of some jurisdictions require that certain purchasers receive
physical certificates for their interests in the securities. These laws
may impair the ability to transfer beneficial interests in a Global
Security.
SPECIAL SITUATIONS WHEN A GLOBAL SECURITY WILL BE TERMINATED. In a few
special situations described later, a Global Security will terminate and
interests in it will be exchanged for physical certificates representing
Securities. After that exchange, the choice of whether to hold Securities
directly or in "Street Name" will be up to the investor. Investors must consult
their own bank or brokers to find out how to have their interests in Securities
transferred to their own name so that they will be direct holders. The rights of
"Street Name" investors and direct holders in the Securities have been described
above under "Street Name" and Other Indirect Holders" and "Direct Holders" on
page 12.
The special situations for termination of a Global Security are:
- When the Depositary notifies us that it is unwilling, unable or no longer
qualified to continue as Depositary.
- When an event of default on the Securities has occurred and has not been
cured. (Defaults are discussed above)
The prospectus supplement may also list additional situations for
terminating a Global Security that would apply only to the particular
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series of Securities covered by the prospectus supplement. When a Global
Security terminates, the Depositary (and not the company or each Trustee) is
responsible for deciding the names of the institutions that will be the initial
direct holders.
PLAN OF DISTRIBUTION
We may sell Securities:
- to or through underwriting syndicates represented by managing
underwriters;
- through one or more underwriters without a syndicate for them to offer
and sell to the public;
- through dealers or agents; and
- to investors directly in negotiated sales or in competitively bid
transactions.
Any underwriter or agent involved in the offer and sale of any series of
the Securities will be named in the prospectus supplement.
The prospectus supplement for each series of Securities will describe:
- the terms of the offering of these Securities, including the name of the
agent or the name or names of any underwriters;
- the public offering or purchase price;
- any discounts and commissions to be allowed or paid to the agent or
underwriters and all other items constituting underwriting compensation;
- any discounts and commissions to be allowed or paid to dealers; and
- other specific terms of the particular Securities.
Only the agents or underwriters named in a prospectus supplement are agents
or underwriters in connection with the Securities being offered by that
prospectus supplement.
Underwriters, agents and dealers may be entitled, under agreements with us,
to indemnification against certain civil liabilities, including liabilities
under the Securities Act.
Underwriters to whom we sell Securities for public offering and sale are
obliged to purchase all of those particular Securities if any are purchased.
This obligation is subject to certain conditions and may be modified in the
applicable prospectus supplement.
Underwriters, dealers or agents may engage in transactions with, or perform
services for, us or our affiliates in the ordinary course of business.
VALIDITY OF DEBT SECURITIES
Sullivan & Cromwell, New York, New York, will pass upon the validity of the
Securities for us.
EXPERTS
Our financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 incorporated in this
Prospectus by reference to Niagara Mohawk Holdings, Inc., and our Combined
Annual Report on Form 10-K for the year ended December 31, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as expert in
auditing and accounting.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document that we file at:
- SEC Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549;
- Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661-2411; or
- Seven World Trade Center
Suite 1300
New York, New York 10048.
You may also obtain copies of these documents at prescribed rates from the
Public Reference Section of the SEC at its Washington address.
Please call the SEC at 1-800-SEC-0330 for further information.
Our filings are also available to the public through:
- The SEC web site at http://www.sec.gov
- The New York Stock Exchange
20 Broad Street
New York, New York 10005
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which information incorporated by reference is considered to be
part of this prospectus supplement and the accompanying prospectus, and later
information that we file with the SEC will automatically update and supersede
that information as well as the information included in this prospectus
supplement and the accompanying prospectus. We incorporate by reference the
documents listed in the box below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities and Exchange Act of 1934
filed prior to the termination of this offering.
Annual Report on Form 10-K for the year ended December 31, 1999.
We will provide without charge a copy of these filings, other than any
exhibits, unless the exhibits are specifically incorporated by reference into
this prospectus supplement and the accompanying prospectus. You may request your
copy by writing or telephoning us at the following address:
Leon T. Mazur
Director, Investor Relations
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
(315) 428-5876
Information in this prospectus may add to, update or change information in
a previously filed document incorporated by reference in this prospectus. In
that case, you should rely on the information in this prospectus. Information in
a document filed after the date of this prospectus may add to, update or change
information in this prospectus or in a previously filed document incorporated by
reference in this prospectus. In that case, you should rely on the information
in the later filed document.
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MAY 9, 2000
LOGO
NIAGARA MOHAWK POWER CORPORATION
$200,000,000
8 7/8% SENIOR NOTES DUE 2007
-----------------------------------------
PROSPECTUS SUPPLEMENT
-----------------------------------------
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO MATTERS NOT STATED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. YOU MUST NOT RELY ON
UNAUTHORIZED INFORMATION. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ARE NOT AN OFFER TO SELL THE SECURITIES OR OUR SOLICITATION OF YOUR
OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT WOULD NOT BE
PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS
PROSPECTUS SUPPLEMENT SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN OR THE AFFAIRS OF NIAGARA MOHAWK POWER CORPORATION HAVE NOT CHANGED SINCE
THE DATE HEREOF.
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