SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 30, 1995
For the quarterly period ended. . . . . . . .. . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . .to. . . . . . . . .
1-3103-2
Commission file number. . . . . . . . . . . .. . . . . . . . . .
New York State Electric & Gas Corporation
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Exact name of registrant as specified in its charter)
New York 15-0398550
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 3287, Ithaca, New York 14852-3287
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Address of principal executive offices) (Zip Code)
607 347-4131
Registrant's telephone number, including area code . . . . . . .
N/A
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares of common stock (par value $6.66 2/3
per share) outstanding as of July 31, 1995 was 71,502,827.
TABLE OF CONTENTS
PART I
Page
Item 1. Financial Statements . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(a) Liquidity and Capital Resources . . . . . 6
(b) Results of Operations . . . . . . . . . . 12
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 17
(b) Reports on Form 8-K . . . . . . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 19
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
New York State Electric & Gas Corporation
Consolidated Statements of Income - (Unaudited)
(Thousands, except per share amounts)
Periods Ended June 30 Three Months Six Months
1995 1994 1995 1994
Operating Revenues
Electric . . . . . . . . . . . . . . $388,559 $340,899 $838,560 $765,419
Natural gas. . . . . . . . . . . . . 51,357 47,740 173,266 188,387
------- ------- --------- ---------
Total Operating Revenues. . . . 439,916 388,639 1,011,826 953,806
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 51,431 49,576 114,936 117,220
Electricity purchased. . . . . . . . 77,329 49,870 156,991 95,321
Natural gas purchased. . . . . . . . 26,422 27,848 93,773 108,130
Other operating expenses . . . . . . 78,747 81,705 157,109 157,699
Maintenance. . . . . . . . . . . . . 29,444 28,165 53,398 52,607
Depreciation and amortization. . . . 46,010 43,634 92,036 87,054
Federal income taxes . . . . . . . . 20,142 11,814 66,709 60,488
Other taxes. . . . . . . . . . . . . 49,498 48,243 105,225 107,513
------- ------- --------- ---------
Total Operating Expenses. . . . 379,023 340,855 840,177 786,032
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 60,893 47,784 171,649 167,774
Other Income and Deductions . . . . . (3,876) 10 (5,248) (15)
------- ------- --------- ---------
Income Before Interest Charges. . . . 57,017 47,794 166,401 167,759
------- ------- --------- ---------
Interest Charges
Interest on long-term debt . . . . . 28,928 33,049 58,513 66,181
Other interest . . . . . . . . . . . 3,600 3,061 8,204 5,865
Allowance for borrowed funds
used during construction . . . . . (141) (711) (530) (1,375)
------- ------- --------- ---------
Interest Charges, Net . . . . . 32,387 35,399 66,187 70,671
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 24,630 12,395 100,214 97,088
Preferred Stock Dividends . . . . . . 4,716 4,650 9,475 9,509
------- ------- --------- ---------
Earnings Available for Common Stock . $19,914 $7,745 $90,739 $87,579
======= ======= ========= =========
Earnings Per Share. . . . . . . . . . $.28 $.11 $1.27 $1.23
Dividends Per Share . . . . . . . . . $.35 $.55 $.70 $1.10
Average Shares Outstanding. . . . . . 71,503 71,214 71,503 71,008
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
(Thousands)
June 30, Dec. 31,
1995 1994
Assets
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . .$5,020,963 $4,916,960
Natural gas. . . . . . . . . . . . . . . . . . . . . . 426,890 414,929
Common . . . . . . . . . . . . . . . . . . . . . . . . 136,359 143,366
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,584,212 5,475,255
Less accumulated depreciation. . . . . . . . . . . . . 1,718,043 1,642,653
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 3,866,169 3,832,602
Construction work in progress. . . . . . . . . . . . . 99,779 154,723
---------- ----------
Total Utility Plant. . . . . . . . . . . . . . . . . 3,965,948 3,987,325
Other Property and Investments, Net . . . . . . . . . . 102,174 103,920
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . 7,023 22,322
Special deposits . . . . . . . . . . . . . . . . . . . 4,673 7,591
Accounts receivable, net . . . . . . . . . . . . . . . 111,700 155,665
Fuel, at average cost. . . . . . . . . . . . . . . . . 37,567 49,934
Materials and supplies, at average cost. . . . . . . . 47,761 47,843
Prepayments. . . . . . . . . . . . . . . . . . . . . . 28,274 30,441
Accumulated deferred federal income
tax benefits, net . . . . . . . . . . . . . . . . . 29,265 11,457
---------- ----------
Total Current Assets . . . . . . . . . . . . . . . . 266,263 325,253
Deferred Charges
Unfunded future federal income taxes . . . . . . . . . 361,292 363,151
Unamortized debt expense . . . . . . . . . . . . . . . 112,179 114,444
Demand-side management program costs . . . . . . . . . 73,731 72,849
Other. . . . . . . . . . . . . . . . . . . . . . . . . 230,233 255,963
---------- ----------
Total Deferred Charges . . . . . . . . . . . . . . . 777,435 806,407
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . .$5,111,820 $5,222,905
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
(Thousands)
June 30, Dec. 31,
1995 1994
Capitalization and Liabilities
Capitalization
Common stock equity
Common stock . . . . . . . . . . . . . . . . . . $476,686 $476,686
Capital in excess of par value. . . . . . . . . . 842,032 841,624
Retained earnings . . . . . . . . . . . . . . . . 387,234 346,547
---------- ----------
Total common stock equity. . . . . . . . . . . . . . . 1,705,952 1,664,857
Preferred stock redeemable solely at the
option of the company . . . . . . . . . . . . . . . 140,500 140,500
Preferred stock subject to mandatory
redemption requirements . . . . . . . . . . . . . . 125,000 125,000
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,618,534 1,651,081
---------- ----------
Total Capitalization. . . . . . . . . . . . . . . 3,589,986 3,581,438
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . 8,055 36,231
Notes payable. . . . . . . . . . . . . . . . . . . . . 59,300 151,900
Accounts payable and accrued liabilities . . . . . . . 90,236 107,356
Interest accrued . . . . . . . . . . . . . . . . . . . 24,005 25,132
Other. . . . . . . . . . . . . . . . . . . . . . . . . 104,245 94,961
---------- ----------
Total Current Liabilities . . . . . . . . . . . . 285,841 415,580
Deferred Credits and Other Liabilities
Accumulated deferred investment tax credit . . . . . . 129,337 132,440
Excess deferred federal income taxes . . . . . . . . . 33,786 34,040
Other postretirement benefits. . . . . . . . . . . . . 68,432 55,887
Liability for environmental restoration. . . . . . . . 33,600 33,600
Other. . . . . . . . . . . . . . . . . . . . . . . . . 108,365 131,585
---------- ----------
Total Deferred Credits and Other Liabilities. . . 373,520 387,552
Accumulated Deferred Federal Income Taxes
Unfunded future federal income taxes . . . . . . . . . 361,292 363,151
Other. . . . . . . . . . . . . . . . . . . . . . . . . 501,181 475,184
---------- ----------
Total Accumulated Deferred Federal
Income Taxes . . . . . . . . . . . . . . . . . . 862,473 838,335
Commitments and Contingencies . . . . . . . . . . . . . - -
---------- ----------
Total Capitalization and Liabilities. . . . . . .$5,111,820 $5,222,905
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Cash Flows - (Unaudited)
(Thousands)
Periods Ended June 30 Six Months
1995 1994
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $100,214 $97,088
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . 92,036 87,054
Deferred fuel and purchased gas. . . . . . . . . 17,138 8,831
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . . (10,565) (14,540)
Unbilled revenue amortization. . . . . . . . . . (1,429) (3,125)
Changes in current operating assets and liabilities:
Accounts receivable excluding accounts
receivable sold. . . . . . . . . . . . . . . . 43,965 11,652
Inventory. . . . . . . . . . . . . . . . . . . . 12,449 9,607
Accounts payable and accrued liabilities . . . . (17,120) (15,726)
Taxes accrued. . . . . . . . . . . . . . . . . . 28,082 21,384
Other, net . . . . . . . . . . . . . . . . . . . . (3,924) 49,290
------- --------
Net Cash Provided by Operating Activities . . . 260,846 251,515
------- --------
Investing Activities
Utility plant capital expenditures,
net of allowance for other funds
used during construction . . . . . . . . . . . . (68,766) (114,806)
Proceeds received from governmental and
other sources . . . . . . . . . . . . . . . . . 3,730 1,802
Expenditures for other property and investments. . (2,480) (30,106)
Funds restricted for capital expenditures. . . . . 2,192 23,326
------- --------
Net Cash Used in Investing Activities . . . . . (65,324) (119,784)
------- --------
Financing Activities
Issuance of pollution control notes. . . . . . . . 37,000 201,000
Sale of common stock . . . . . . . . . . . . . . . - 21,298
Repayments of first mortgage bonds, pollution
control notes and preferred stock,
including premiums. . . . . . . . . . . . . . . (92,395) (218,500)
Revolving credit agreement repayment . . . . . . . - (50,000)
Changes in funds set aside for pollution control
note repayments. . . . . . . . . . . . . . . . . - (8,500)
Long-term notes, net . . . . . . . . . . . . . . . (3,279) (1,020)
Notes payable, net . . . . . . . . . . . . . . . . (92,600) 25,900
Dividends on common and preferred stock. . . . . . (59,547) (87,988)
------- --------
Net Cash Used in Financing Activities . . . . . (210,821) (117,810)
------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . (15,299) 13,921
Cash and Cash Equivalents, Beginning of Period. . . 22,322 4,264
------- --------
Cash and Cash Equivalents, End of Period. . . . . . $7,023 $18,185
======= ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $61,699 $65,748
Income taxes. . . . . . . . . . . . . . . . . . . $25,917 $39,853
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Retained Earnings - (Unaudited)
(Thousands)
Periods ended June 30 Six Months
1995 1994
Balance, beginning of period. . . . . . . . . . $346,547 $320,114
Add net income. . . . . . . . . . . . . . . . . 100,214 97,088
-------- --------
446,761 417,202
Deduct dividends on capital stock:
Preferred. . . . . . . . . . . . . . . . . . . 9,475 9,509
Common . . . . . . . . . . . . . . . . . . . . 50,052 77,928
-------- --------
59,527 87,437
-------- --------
Balance, end of period. . . . . . . . . . . . . $387,234 $329,765
======== ========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Note 1. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of New York State Electric &
Gas Corporation's (company) consolidated results for the interim
periods. All such adjustments are of a normal recurring nature.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
contained in the company's annual report for the year ended
December 31, 1994. Due to the seasonal nature of the company's
operations, financial results for interim periods are not neces-
sarily indicative of trends for a twelve-month period.
Note 2. Reclassification
Certain items have been reclassified on the consolidated
financial statements to conform to the 1995 presentation.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Rate Matters (See Form 10-K for fiscal year ended December 31,
1994, Item 1(a)-Rates and regulatory matters-Rate Matters.)
On August 1, 1995, the Public Service Commission of the
State of New York (PSC) approved a new three-year electric rate-
settlement agreement (new agreement) for the period August 1,
1995 through July 31, 1998. The first year of the new agreement
replaces the final year of the electric portion of the company's
previous three-year electric and natural gas rate-settlement
agreement (previous agreement). Allowed returns on common equity
under the new agreement are 11.1% for year one and 11.2% for
years two and three. The new agreement increases the company's
average electric prices by:
2.9% or $45.1 million in year one, effective August 1, 1995
2.8% or $45.3 million in year two, effective August 1, 1996
2.7% or $45.5 million in year three, effective August 1, 1997
More than sixty percent of the price increase in the first
year of the new agreement is needed to cover the escalating cost
of electricity the company is required to buy from non-utility
generators (NUGs).
To assure price predictability and stability, the fuel
adjustment clause, the revenue decoupling mechanism (RDM) and
most other true-up mechanisms have been eliminated in the new
agreement. Also, annual adjustments of remaining true-up
mechanisms have been eliminated; instead adjustments will be made
at the end of the new agreement. The production cost incentive
was eliminated effective January 1, 1994. Only the service
quality incentive and an earnings performance incentive remain
under the new agreement.
On August 1, 1995, the PSC approved a 3.2% increase in
natural gas base rates for the company, effective August 1, 1995.
An 11.0% return on common equity was also approved. This
increase is the third under the gas portion of the previous
agreement. The rates were approved on a temporary basis pending
the outcome of settlement discussions between the company, the
PSC staff and other parties regarding a new three-year gas rate-
settlement agreement (new gas agreement). Depending on the final
outcome of discussions, the difference in rates effective August
1, 1995, and rates established under a new gas agreement is
subject to refund.
FERC Regulatory Matters (See Form 10-Q for the quarter ended
March 31, 1995, Item 2(a)-Liquidity and Capital Resources - FERC
Regulatory Matters.)
In March 1995 the Federal Energy Regulatory Commission
(FERC) issued two notices of proposed rulemaking (March NOPR) to
facilitate the development of competitive wholesale electric
markets by opening up transmission services and to address the
transition costs associated with the development of competitive
wholesale markets. Transition costs (also called stranded costs)
are costs that utilities have incurred or may incur that may
become unrecoverable as the industry moves from a heavily
regulated environment to a less-regulated, competitive
environment.
In July 1995 the company, as part of a coalition of other
utilities, filed joint comments that addressed legal issues
raised by the March NOPR. The coalition comments support the
FERC's proposal on recovery of stranded costs associated with a
municipality establishing its own electric system and newly
created or expanded wholesale customers. The comments urge the
FERC to set a national policy that will ensure recovery of
stranded costs associated with retail wheeling or at a minimum to
accept filings to implement state authorized stranded cost
charges to reduce the risk associated with challenges to state
authority to establish such charges.
In August 1995 the company also filed a separate document
with respect to the March NOPR that addressed legal and technical
issues specific to the company. Reply comments are due by
October 4, 1995.
FERC Filing (See Form 10-K for fiscal year ended December 31,
1994, Item 1(c)(i)-Principal business)
On February 14, 1995, the company filed a petition with the
FERC asking for relief from having to pay approximately $2
billion more than its avoided costs for power purchased over the
life of two NUG contracts. The company believes that the
overpayments under these two contracts violate the Public Utility
Regulatory Policies Act of 1978.
On April 12, 1995, the FERC denied the company's petition
and alleged the following reasons for the denial: (a) the
company's contracts are consistent with the FERC regulations, (b)
the company's contracts were not challenged at the time they were
executed and, therefore, the company's challenge now is untimely,
and (c) the need to maintain the sanctity of contracts in order
to facilitate project financing and the transition to wholesale
competition.
The company filed a request for rehearing with the FERC on
May 11, 1995, which was deemed denied under FERC's rules of
procedure. On June 14, 1995, the company filed a petition with
the United States Court of Appeals for the District of Columbia
to review FERC's decision.
Flexible Rates
The company has developed flexible rates that allow it to
negotiate long-term contracts with certain of its electric and
natural gas customers. The contracts may cover existing load,
new load, or both. To date, 18 major electric industrial
customers have signed contracts ranging from three to seven
years. These contracts retain more than $42 million and add
another $9 million in annual revenues, which together represent
3.1% of the company's total electric revenues for the twelve
months ended June 30, 1995. The company also has new contracts
with five major natural gas customers for load additions
totalling $1.5 million in annual revenues. Each month the
company develops over 275 natural gas prices to compete with the
alternative fuels available.
Competitive Conditions (See Form 10-K for fiscal year ended
December 31, 1994, Item 1(c)(x) - Competitive conditions)
In August 1994 the PSC instituted Phase II of a generic
proceeding which is studying the broad subject of flexible,
competitive rates. Phase II of the proceeding was instituted to
address competitive opportunities available to electric customers
and investigate the future regulation of electric service in
light of competition. The overall objective is to identify
regulatory and ratemaking practices that will assist the
transition to a more competitive electric industry.
In June 1995 the PSC issued an Order adopting principles to
guide the transition to competition in the electric industry.
The principles are designed to provide a framework for electric
competition and address issues in eight key categories related to
providing electric service: resource management, customer
service, reliability and safety, competitive market
characteristics, regulatory issues, transition issues, economic
efficiency, and economic developments. Issues related to both
wholesale and retail competition will be examined in this
proceeding. The administrative law judge presiding over this
proceeding is expected to issue a recommended decision by the end
of 1995.
This proceeding could affect the eligibility of electric
utilities in New York State to continue applying Statement of
Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71). If the
company could no longer meet the criteria of SFAS 71 for all or a
part of its business, the company would have to expense certain
previously deferred costs. Although the company believes it will
continue to meet the criteria of SFAS 71 in the near future, it
cannot predict what effect a competitive marketplace or future
actions of the PSC will have on its ability to continue to do so.
The company continually reviews its strategic plans to
address the challenges of competition. That review currently
includes a study of ways to improve organizational and financial
flexibility.
The company has taken other steps to address competitive
pressure. In June 1995 the company placed a 35 megawatt (MW)
generating unit at the company's Hickling Generating Station on
long-term cold standby. This is in addition to the two
generating units (97 MW) that were placed on long-term cold
standby during 1994. A generating unit at the company's
Greenidge Generating Station that is on long-term cold standby
has been activated as needed during 1995, to meet the company's
energy demands during peak periods. The company continues to
closely evaluate the performance of five other units (308 MW) to
make sure their output remains marketable and their operation
economical. As of June 30, 1995, the company's generating
capacity was 2,480 MW, excluding the three units on long-term
cold standby.
In July 1995 the company announced that the work force at
four of its generating stations - Hickling, Greenidge, Goudey and
Jennison - will be reduced by eliminating 42 hourly jobs and
reassigning 16 salaried positions. It is expected that the
hourly job terminations will be completed at all four stations by
August 19, 1995. The stations will continue to operate but will
be closely monitored to ensure that they remain competitive.
In addition to overall expense controls, the company has
taken several steps over the past two years to maximize cash flow
and improve financial flexibility, including significant capital
spending reductions and a common stock dividend reduction in
October 1994. As a result of these efforts, the company expects
to have cash in excess of its operating and capital needs over
the next several years. How this cash is utilized will depend on
industry and market conditions at the time, and could include
continued debt and preferred stock redemptions, additional
investments in unregulated businesses or the repurchase of common
stock. The company petitioned the PSC last fall for approval to
repurchase common stock. This approval is expected in the third
quarter of 1995.
Diversification
NGE Enterprises, Inc. (NGE), a wholly owned subsidiary of
the company, owns two unregulated businesses - EnerSoft
Corporation (EnerSoft) and XENERGY, Inc. (XENERGY).
Formed in May 1993, EnerSoft is a computer software company
developing and marketing software for natural gas utilities,
marketers and pipeline operators. EnerSoft, through an alliance
with the New York Mercantile Exchange, has developed Channel 4, a
natural gas and pipeline capacity trading and information system
for the North American market. Channel 4 was launched and
available for use on August 11, 1995. Like most development
stage companies, EnerSoft has been incurring operating losses.
The company expects that EnerSoft will continue to incur
operating losses in the near term. Market acceptance of
Channel 4 is key to improving EnerSoft's financial performance.
XENERGY, acquired in June 1994, is an energy services,
information systems and energy-consulting company providing
energy services, conservation engineering and DSM services to
utilities, governmental agencies and end-use energy consumers.
XENERGY's 1995 revenues have been lower than expected due to a
soft utility consulting market.
NGE is exploring environmental and operating services
opportunities with both domestic and foreign strategic partners.
As of July 31, 1995 and December 31, 1994, the company had
invested approximately $50 million and $47 million, respectively,
in NGE to finance its diversified investments. For the six
months ended June 30, 1995 and for the year ended December 31,
1994, NGE incurred net losses of $4.8 million and $6.0 million,
respectively. The company expects that NGE will incur an
operating loss in 1995 that will be higher than the loss
experienced in 1994. The company expects that NGE will break
even in 1996 and that it will contribute to earnings by 1997.
Net Cash Provided by Operating Activities
Cash provided by operating activities for the six months
ended June 30, 1995, increased $9 million, up 4% from the six
months ended June 30, 1994. The increase was primarily due to an
increase in cash provided by working capital items in 1995 and an
increase in net income. Net cash from operating activities is
derived by adjusting reported net income for charges or credits
that have no cash effect (primarily depreciation, amortization
and deferred income taxes) and changes in working capital items.
Net Cash Used in Investing Activities
For the six months ended June 30, 1995, cash used in
investing activities decreased $54 million, down 45% compared to
the same period in 1994. The change was primarily due to a
decrease in expenditures for utility plant construction.
Capital expenditures for the six months ended June 30, 1995,
were $69 million and have been primarily for the extension of
service, necessary improvements at existing facilities,
compliance with the Clean Air Act Amendments of 1990 and other
environmental requirements. The company received $4 million from
governmental and other sources to partially offset expenditures
for compliance with the Clean Air Act Amendments of 1990. The
company estimates that it will spend $188 million, including
nuclear fuel, for capital expenditures in 1995.
Net Cash Used in Financing Activities
Cash used in financing activities for the first six months
of 1995 increased $93 million, up 79% compared to the first six
months of 1994. The company issued less debt during the first
half of 1995 than during the comparable period in 1994. This
decrease was partially offset by a reduction in the amount of
debt redeemed and dividends paid.
In May 1995 the company repurchased $31 million of 9 7/8%
Series first mortgage bonds due February 2020 through the
issuance of commercial paper.
In August 1994 the Dividend Reinvestment and Stock Purchase
Plan (DRP) began purchasing shares on the open market rather than
the company issuing new shares. The company expects that the DRP
will continue purchasing shares on the open market in the future.
(b) Results of Operations
Three months ended June 30, 1995 compared with three months ended
June 30, 1994:
1995 1994 % Change
(Thousands, except Per Share Amounts)
Operating revenues $439,916 $388,639 13%
Earnings available for
common stock $19,914 $7,745 157%
Average shares outstanding 71,503 71,214 -%
Earnings per share $.28 $.11 155%
Dividends per share $.35 $.55 (36%)
For the three months ended June 30, 1995, earnings per share
increased 17 cents compared to the prior year period. Two one-
time charges recorded in the second quarter of 1994 reduced
earnings by 15 cents per share. Excluding the one-time charges,
second quarter 1995 earnings were up two cents compared to 1994
earnings. Earnings per share for the second quarter of 1994 were
reduced by 12 cents as a result of the 1993 production-cost
penalty, and by 3 cents for the company's share of a voluntary
early retirement program offered by Pennsylvania Electric Company
(Penelec) to its Homer City Generating Station employees. The
company owns the Homer City Generating Station jointly with
Penelec, which operates the facility.
Six months ended June 30, 1995 compared with six months ended
June 30, 1994:
1995 1994 % Change
(Thousands, except Per Share Amounts)
Operating revenues $1,011,826 $953,806 6%
Earnings available for
common stock $90,739 $87,579 4%
Average shares outstanding 71,503 71,008 1%
Earnings per share $1.27 $1.23 3%
Dividends per share $.70 $1.10 (36%)
Earnings per share for the six months ended June 30, 1995,
rose 4 cents compared to the prior year period. Earnings for the
first six months of 1994 were reduced by 15 cents per share
because of two one-time charges recorded in the second quarter of
1994, as discussed above. Lower electric retail sales reduced
earnings per share by 11 cents, and lower natural gas sales
reduced earnings by 4 cents per share for the six months ended
June 30, 1995. These results reflect the warmer first quarter of
1995 compared to 1994, and continued sluggish economic conditions
in the company's service territory. Lower electric retail sales
affected earnings because, beginning in the first quarter of
1995, the company is no longer recording revenues for sales
shortfalls through the RDM. This is in accordance with the new
electric rate-settlement agreement approved by the PSC on August
1, 1995 (see Liquidity and Capital Resources - Rate Matters).
Also, earnings per share were reduced by 4 cents due to losses
incurred by the company's diversified operations (see Liquidity
and Capital Resources - Diversification). These reductions were
partially offset because of the higher allowed return on equity,
11.4% effective in August 1994 compared to 10.8% effective in
August 1993, that added 8 cents to earnings per share for the six
months.
Other Income and Deductions
Other income and deductions decreased $4 million for the
three months ended June 30, 1995, compared to the same period in
1994. This decrease was primarily due to expenses related to the
May 1995 repurchase of $31 million of 9 7/8% Series first
mortgage bonds due February 2020 and higher losses for NGE
Enterprises, Inc. Other income and deductions decreased $5
million comparing the six month periods ended June 30, 1995 and
1994, for the same reasons.
Interest Expense
Interest expense (before the reduction for allowance for
borrowed funds used during construction) decreased $4 million
comparing the quarters ended June 30, 1995 and 1994, and
decreased $5 million comparing the six month periods ended June
30, 1995 and 1994. These decreases were primarily due to the
refinancing or refunding of certain issues of long-term debt.
Operating Results by Business Segment
Electric Three Months ended June 30,
1995 1994 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 2,995,103 2,981,628 -%
Operating revenues $388,559 $340,899 14%
Operating expenses $329,978 $293,280 13%
Operating income $58,581 $47,619 23%
The $48 million increase in electric operating revenues for
the quarter ended June 30, 1995, was primarily due to higher
electric prices that added $20 million. The higher prices were
primarily due to changes in rates effective August 1994 to
accommodate increased mandated purchases of NUG power. Revenues
increased $10 million due to various ratemaking adjustments and
an increase in sales of electricity to others added another $5
million to revenues. Also, electric revenues for 1994 were
reduced by $13 million because of the 1993 production-cost
penalty that was recorded in the second quarter of 1994.
Electric operating expenses rose by $37 million for the
second quarter of 1995 primarily because of an increase of $27
million in electricity purchased, principally due to purchases
from NUGs. In addition, federal income taxes grew by $7 million
as a result of higher pretax book income.
Six Months ended June 30,
1995 1994 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 6,457,193 6,734,245 (4%)
Operating revenues $838,560 $765,419 10%
Operating expenses $688,257 $620,889 11%
Operating income $150,303 $144,530 4%
Electric retail sales decreased 4% for the first six months
of 1995 compared to the first six months of 1994 as a result of
the warmer weather during the first quarter of this year and
continued sluggish economic conditions in the company's service
territory.
Electric operating revenues increased $73 million for the
six months ended June 30, 1995. Revenues rose $49 million
because of increases in electric prices, due primarily to changes
in rates effective August 1994 to accommodate increased mandated
purchases of NUG power. An increase in sales of electricity to
others added $15 million to revenues. Also, revenues increased
$25 million due to various ratemaking adjustments. Electric
revenues for 1994 were reduced by $13 million because of the 1993
production-cost penalty that was recorded in the second quarter
of 1994. These increases were partially offset by a decrease in
sales volume that reduced revenues by $28 million.
An increase of $67 million in electric operating expenses
for the six months is primarily attributable to an increase of
$62 million in electricity purchased, primarily due to purchases
from NUGs and an increase of $7 million in higher federal income
taxes, the result of higher pretax book income.
Natural Gas Three Months ended June 30,
1995 1994 % Change
(Thousands)
Deliveries-
dekatherms(dth) 10,186 9,043 13%
Operating revenues $51,357 $47,740 8%
Operating expenses $49,045 $47,575 3%
Operating income $2,312 $165 1301%
Natural gas deliveries in 1994 included an adjustment to
unbilled units (deliveries sold but not yet billed to customers).
Excluding this adjustment, natural gas deliveries for the three
month period increased 5% in 1995 compared to 1994. This in-
crease is the result of a colder second quarter in 1995 compared
to 1994 and greater incremental sales to large customers.
Natural gas operating revenues increased by $4 million in
the second quarter of 1995 compared to the second quarter of 1994
primarily as a result of higher sales that added $5 million.
The $1 million increase in natural gas operating expenses
for the second quarter of 1995 is due to a $1 million increase in
federal income taxes, the result of higher pretax book income.
Six Months ended June 30,
1995 1994 % Change
(Thousands)
Deliveries-
dekatherms(dth) 32,725 35,508 (8%)
Operating revenues $173,266 $188,387 (8%)
Operating expenses $151,920 $165,143 (8%)
Operating income $21,346 $23,244 (8%)
Natural gas deliveries decreased 8% for the first six months
of 1995 compared to the first six months of 1994. The 1995
decrease in deliveries was due to warmer weather in the first
quarter of 1995 and continued sluggish economic conditions in the
company's service territory.
For the six months ended June 30, 1995, natural gas
operating revenues decreased $15 million compared to the six
months ended June 30, 1994. The decrease was primarily due to
lower sales which decreased revenues by $17 million. This
decrease was partially offset by a $4 million increase in
revenues as a result of higher natural gas prices due primarily
to changes in rates effective in August 1994.
The decrease in natural gas operating expenses of $13
million is primarily due to a decrease in natural gas purchased
of $14 million, which is attributable to a decrease in volume.
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(a) By letter dated June 7, 1991, the New York State Department
of Environmental Conservation (NYSDEC) notified the company that
it had been identified as a potentially responsible party (PRP)
at the Pfohl Brothers Landfill, an inactive hazardous waste
disposal site (Pfohl Site) in Cheektowaga, New York. The Pfohl
Site is listed on the National Priorities List and the New York
State Registry of Inactive Hazardous Waste Sites. The NYSDEC
offered the company an opportunity to enter into negotiations
with it to undertake the investigation and remediation of the
Pfohl Site. The NYSDEC informed the company that if it declined
such negotiations, the NYSDEC would perform the necessary work at
the Pfohl Site using the Hazardous Waste Remedial Fund and would
seek recovery of its expenses from the company. On July 3, 1991,
the company responded to the NYSDEC by declining to negotiate to
undertake work at the Pfohl Site and it noted that the NYSDEC had
not shown any significant responsibility on the part of the
company for the situation at the Pfohl Site. The company
believes that remediation costs at the Pfohl Site will be $35
million to $55 million. By letter dated April 2, 1992, the
NYSDEC again notified the company that it had been identified as
a PRP for the Pfohl Site and offered the company an opportunity
to conduct or finance the on-site remedial design and action.
This notice letter was also sent to 19 other PRPs. Approximately
ten of these other named PRPs have agreed to perform the remedial
work required by the NYSDEC. By letter dated June 1, 1992, the
company notified the NYSDEC that it declined to perform such
remedial work because it believed that it was not a significant
contributor to the Pfohl Site.
In May of 1995 the company agreed to participate in a
process for allocating remedial costs at the Pfohl Site with the
other PRPs. The company contributed $20,000 toward past costs,
which sum is subject to that allocation process. Because the
company does not believe that it has any significant respon-
sibility at the Pfohl Site, it believes that the ultimate
disposition of this matter will not have a material adverse
effect on its results of operations or financial position.
Three actions were commenced against the company and
approximately 19 other defendants in the New York State Supreme
Court, Erie County (on January 17, 1995, April 7, 1995, and June
14, 1995, respectively), by plaintiffs who allegedly resided near
or recreated at the Pfohl Site in Cheektowaga, New York, claiming
damages for personal injuries, wrongful death, and loss of
consortium allegedly caused by exposure to hazardous chemicals
from the Pfohl Site. The plaintiffs allege that the defendants
are strictly liable, and were negligent or grossly negligent, for
disposing of hazardous and toxic materials at the Pfohl Site, and
they seek compensatory and punitive damages that total $96.5
million in the aggregate. The company believes that the actions
against it are without merit and will defend these actions
vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the company was held
on May 12, 1995. The following matters were voted upon:
a) The election of four directors:
Nominees Cumulative Votes For Cumulative Votes Withheld
J. A. Carrigg 60,150,568 100,802
P. L. Gioia 60,474,834 425,068
B. E. Lynch 60,606,741 556,975
C. W. Stuart 58,966,929 1,082,837
b) A shareholder proposal requesting that there be a percentage
reduction in director remuneration based on a dividend
reduction was defeated:
Shares For: 14,146,741
Shares Against: 36,876,776
Shares Abstain: 1,641,707
Broker "Non Votes": 9,467,959
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Report on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NEW YORK STATE ELECTRIC & GAS CORPORATION
(Registrant)
By Gary J. Turton
Gary J. Turton
Controller
(Chief Accounting Officer)
Date: August 11, 1995
EXHIBIT INDEX
27 -- Financial Data Schedule.