SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 30, 1996
For the quarterly period ended. . . . . . . .. . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . .to. . . . . . . . .
1-3103-2
Commission file number. . . . . . . . . . . .. . . . . . . . . .
New York State Electric & Gas Corporation
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Exact name of registrant as specified in its charter)
New York 15-0398550
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 3287, Ithaca, New York 14852-3287
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Address of principal executive offices) (Zip Code)
607 347-4131
Registrant's telephone number, including area code . . . . . . .
N/A
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares of common stock (par value $6.66 2/3
per share) outstanding as of October 31, 1996 was 70,093,827.
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 . . . . . . . . . . 13
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 18
(b) Reports on Form 8-K . . . . . . . . . . . 18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 20
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 September 30 Three Months Nine Months
1996 1995 1996 1995
Operating Revenues
Electric . . . . . . . . . . . . . . $421,709 $439,357 $1,291,149 $1,277,917
Natural gas. . . . . . . . . . . . . 34,859 25,337 237,116 198,603
------- ------- --------- ---------
Total Operating Revenues. . . . 456,568 464,694 1,528,265 1,476,520
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 55,869 62,993 162,149 177,929
Electricity purchased. . . . . . . . 90,268 78,880 270,956 235,871
Natural gas purchased. . . . . . . . 22,982 11,330 121,090 105,103
Other operating expenses . . . . . . 91,749 78,638 252,283 235,747
Maintenance. . . . . . . . . . . . . 25,292 29,018 78,819 82,416
Depreciation and amortization. . . . 47,465 46,305 141,608 138,341
Federal income taxes . . . . . . . . 19,639 30,038 101,568 96,747
Other taxes. . . . . . . . . . . . . 48,658 50,892 155,798 156,117
------- ------- --------- ---------
Total Operating Expenses. . . . 401,922 388,094 1,284,271 1,228,271
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 54,646 76,600 243,994 248,249
Other Income and Deductions . . . . . (13,893) (1,658) (21,369) (6,842)
------- ------- --------- ---------
Income Before Interest Charges. . . . 40,753 74,942 222,625 241,407
------- ------- --------- ---------
Interest Charges
Interest on long-term debt . . . . . 26,944 28,581 81,417 87,094
Other interest . . . . . . . . . . . 3,398 3,374 12,068 11,578
Allowance for borrowed funds
used during construction . . . . . (641) (516) (1,470) (982)
------- ------- --------- ---------
Interest Charges, Net . . . . . 29,701 31,439 92,015 97,690
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . 11,052 43,503 130,610 143,717
Preferred Stock Dividends . . . . . . 2,436 4,625 7,155 14,100
------- ------- --------- ---------
Earnings Available for Common Stock . $8,616 $38,878 $123,455 $129,617
======= ======= ========= =========
Earnings Per Share. . . . . . . . . . $.12 $.54 $1.73 $1.81
Dividends Per Share . . . . . . . . . $.35 $.35 $1.05 $1.05
Average Shares Outstanding. . . . . . 71,416 71,503 71,474 71,503
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)
Sep. 30, Dec. 31,
1996 1995
Assets
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . .$5,149,558 $5,090,044
Natural gas. . . . . . . . . . . . . . . . . . . . . . 460,613 445,256
Common . . . . . . . . . . . . . . . . . . . . . . . . 150,477 140,686
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,760,648 5,675,986
Less accumulated depreciation . . . . . . . . . . . . . 1,895,677 1,791,625
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 3,864,971 3,884,361
Construction work in progress . . . . . . . . . . . . . 96,713 79,229
---------- ----------
Total Utility Plant. . . . . . . . . . . . . . . . . 3,961,684 3,963,590
Other Property and Investments, Net . . . . . . . . . . 107,953 99,633
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . 11,977 11,433
Special deposits . . . . . . . . . . . . . . . . . . . 5,608 5,785
Accounts receivable, net . . . . . . . . . . . . . . . 136,938 195,834
Fuel, at average cost. . . . . . . . . . . . . . . . . 43,236 33,682
Materials and supplies, at average cost. . . . . . . . 45,032 44,809
Prepayments. . . . . . . . . . . . . . . . . . . . . . 26,754 31,371
Accumulated deferred federal income
tax benefits, net . . . . . . . . . . . . . . . . . 32,534 7,594
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 302,079 330,508
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . 320,597 323,446
Unamortized debt expense. . . . . . . . . . . . . . 82,122 85,023
Demand-side management program costs. . . . . . . . 72,349 74,824
Other regulatory assets . . . . . . . . . . . . . . 185,474 206,736
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 660,542 690,029
Other assets . . . . . . . . . . . . . . . . . . . . . 16,234 30,571
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 676,776 720,600
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . .$5,048,492 $5,114,331
========== ==========
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)
Sep. 30, Dec. 31,
1996 1995
Capitalization and Liabilities
Capitalization
Common stock equity
Common stock . . . . . . . . . . . . . . . . . . $471,359 $476,686
Capital in excess of par value. . . . . . . . . . 831,852 842,442
Retained earnings . . . . . . . . . . . . . . . . 468,406 424,412
---------- ----------
Total common stock equity. . . . . . . . . . . . . . . 1,771,617 1,743,540
Preferred stock redeemable solely at the
option of the company . . . . . . . . . . . . . . . 134,440 140,500
Preferred stock subject to mandatory
redemption requirements . . . . . . . . . . . . . . 25,000 25,000
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,508,006 1,581,448
---------- ----------
Total Capitalization. . . . . . . . . . . . . . . . 3,439,063 3,490,488
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . 57,553 37,003
Current portion of preferred stock . . . . . . . . . . - 100,000
Commercial paper . . . . . . . . . . . . . . . . . . . 60,500 28,620
Accounts payable and accrued liabilities . . . . . . . 99,456 117,637
Interest accrued . . . . . . . . . . . . . . . . . . . 36,216 24,093
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 36,037 22,231
Other. . . . . . . . . . . . . . . . . . . . . . . . . 68,607 68,027
---------- ----------
Total Current Liabilities . . . . . . . . . . . . . 358,369 397,611
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 127,044 128,643
Deferred income taxes . . . . . . . . . . . . . . . . 97,501 108,605
Other regulatory liabilities. . . . . . . . . . . . . 61,430 56,729
---------- ----------
Total regulatory liabilities. . . . . . . . . . . . 285,975 293,977
Other liabilities
Accumulated deferred investment tax credit. . . . . . 121,242 126,032
Deferred income taxes - other . . . . . . . . . . . . 646,334 617,452
Other postretirement benefits . . . . . . . . . . . . 89,204 75,683
Liability for environmental restoration . . . . . . . 31,800 31,800
Other . . . . . . . . . . . . . . . . . . . . . . . . 76,505 81,288
---------- ----------
Total other liabilities . . . . . . . . . . . . . . 965,085 932,255
Total Regulatory and Other Liabilities. . . . . . . 1,251,060 1,226,232
Commitments and Contingencies . . . . . . . . . . . . . - -
---------- ----------
Total Capitalization and Liabilities. . . . . . . .$5,048,492 $5,114,331
========== ==========
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 September 30 Nine Months
1996 1995
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $130,610 $143,717
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 141,608 138,341
Deferred fuel and purchased gas. . . . . . . . . 504 13,051
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . . (12,601) 21,877
Changes in current operating assets and liabilities
Accounts receivable. . . . . . . . . . . . . . . 58,896 49,047
Inventory. . . . . . . . . . . . . . . . . . . . (9,777) 13,441
Accounts payable and accrued liabilities . . . . (18,181) (9,903)
Taxes accrued. . . . . . . . . . . . . . . . . . 13,806 24,731
Interest accrued . . . . . . . . . . . . . . . . 12,123 12,893
Other, net . . . . . . . . . . . . . . . . . . . . 73,698 (4,230)
-------- --------
Net Cash Provided by Operating Activities . . . 390,686 402,965
-------- --------
Investing Activities
Utility plant capital expenditures . . . . . . . . (148,085) (120,727)
Proceeds from governmental and other sources . . . 2,269 4,793
Expenditures for other property and investments. . (1,090) (3,454)
Funds restricted for capital expenditures. . . . . - 1,324
-------- --------
Net Cash Used in Investing Activities . . . . . (146,906) (118,064)
-------- --------
Financing Activities
Issuance of pollution control notes. . . . . . . . - 37,000
Repurchase of common stock . . . . . . . . . . . . (17,644) -
Repayments of preferred stock and first
mortgage bonds, including net premiums. . . . . (171,478) (92,395)
Long-term notes, net . . . . . . . . . . . . . . . (1,576) (4,006)
Commercial paper, net. . . . . . . . . . . . . . . 31,880 (151,900)
Dividends on common and preferred stock. . . . . . (84,418) (89,289)
-------- --------
Net Cash Used in Financing Activities . . . . . (243,236) (300,590)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . 544 (15,689)
Cash and Cash Equivalents, Beginning of Period. . . 11,433 22,322
-------- --------
Cash and Cash Equivalents, End of Period. . . . . . $11,977 $6,633
======== ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $70,786 $75,673
Income taxes. . . . . . . . . . . . . . . . . . . $72,680 $36,843
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 September 30 Nine Months
1996 1995
Balance, beginning of period. . . . . . . . . . $424,412 $346,547
Add net income. . . . . . . . . . . . . . . . . 130,610 143,717
-------- --------
555,022 490,264
Deduct dividends on capital stock:
Preferred. . . . . . . . . . . . . . . . . . . 7,155 14,100
Common . . . . . . . . . . . . . . . . . . . . 75,078 75,078
-------- --------
82,233 89,178
Deduct premium paid on preferred stock
redemption, net . . . . . . . . . . . . . . . . 4,383 -
-------- --------
Balance, end of period. . . . . . . . . . . . . $468,406 $401,086
======== ========
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, 1995. 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 1996 presentation.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Competitive conditions (See Form 10-K for fiscal year ended
December 31, 1995, Item 1(c)(x) - Competitive conditions)
Regulatory Changes (See Form 10-Q for the quarter ended June 30,
1996, Item 2(a) - Liquidity and Capital Resources, Competitive
conditions - Regulatory Changes)
Regulatory issues being addressed by the Public Service
Commission of the State of New York (PSC), regulators in other
states and the Federal Energy Regulatory Commission (FERC) will
ultimately bring about dramatic changes in the electric industry.
Mega-NOPR: On April 24, 1996, FERC issued Orders 888 and
889 adopting final rules to facilitate the development of
competitive wholesale electric markets by opening up transmission
services and to address the resulting stranded costs.
The FERC directed all public utilities to file a compliance
open access transmission tariff on or before July 9, 1996. Order
888 allows utilities to submit further modifications to their
respective tariff, and customers to request modifications to the
tariff.
The company filed its compliance open access transmission
tariff and a modified open access transmission tariff on July 9
and July 10, 1996, respectively. The company is required to
operate under the July 9 compliance tariff until the July 10
modified tariff becomes effective.
The company's modified open access tariff has been accepted
for filing and suspended for five months, to become effective on
February 9, 1997, subject to refund and subject to any further
orders.
Under the compliance open access tariff, the company must
offer transmission service to its wholesale customers on a basis
that is comparable to that which it provides itself. The company
is also required to offer and/or provide certain ancillary
services.
Competitive Opportunities Proceeding: In August 1994 the
PSC instituted an investigation of issues related to a
restructuring of the electric industry in New York (Competitive
Opportunities Proceeding). The overall objective of the
Competitive Opportunities Proceeding is to identify regulatory
and ratemaking practices that will assist in the transition to a
more competitive electric industry.
On May 20, 1996, the PSC issued its Order which sets forth
the PSC's vision and goals for the future of the electric
industry in New York. The Order calls for implementation of a
competitive wholesale power market in early 1997 and the
introduction of retail access for all electric customers in early
1998. In addition, the Order calls for lowering rates of
consumers, increasing customer choice, continuing reliability of
service, continuing programs that are in the public interest,
allaying concerns about market power and continuing customer
protections and the obligation to serve. In the Order, the PSC
strongly encourages divestiture, particularly of generation
assets, but does not require it. The Order states that
incentives for divestiture will be worked out individually for
each utility in conjunction with its rate and restructuring plan
submission in this proceeding which was due October 1, 1996. The
Order also states that utilities should have a reasonable
opportunity to seek recovery of strandable costs consistent with
the goals of lowering rates, fostering economic development,
increasing customer choices and maintaining reliable service.
Certain aspects of the restructuring envisioned by the PSC --
particularly the PSC's apparent determinations that it can deny a
reasonable opportunity to recover prudent past investments made
on behalf of the public, order retail wheeling, require
divestiture of generation assets and deregulate certain sectors
of the energy market -- could, if implemented, have a negative
effect on the operations of New York's investor-owned electric
utilities, including the company.
On September 18, 1996, the company joined with six other New
York utilities and the Energy Association of New York State in
filing a lawsuit in the New York State Supreme Court in Albany
(Court) to annul the PSC's Order. The lawsuit contends, among
other things, that the PSC (i) failed to follow proper procedures
for reaching a decision in the Competitive Opportunities
Proceeding and (ii) lacks the statutory or legal authority to (a)
disallow a reasonable opportunity for utilities to recover past
expenditures prudently incurred to fulfill their legal obligation
to provide electricity service to the public, (b) mandate retail
wheeling, (c) deregulate the rates charged by electricity
generators or the energy services sector and (d) order
divestiture of the utilities' assets. The lawsuit seeks a
declaration that the PSC's Order is unlawful, or in the
alternative, that the Court clarify that the PSC's Order can be
given no binding effect by the PSC.
On September 27, 1996, the company submitted a five-year
rate and restructuring plan (NYSEGPlan) in the Competitive
Opportunities Proceeding for the company's transition to
competition. NYSEGPlan presents a five-year transition plan to
functionally separate generation from the delivery components of
the regulated electric business and to recover past prudent
investments.
NYSEGPlan calls for wholesale competition to begin August 1,
1997 with retail competition being phased in beginning August
1998. In addition, the average retail price of electricity would
be frozen for five years, beginning August 1, 1997, and would
allow most customers to increase their electricity use at about
half the present price. NYSEGPlan would equate to a seven-year
freeze for industrial and high load factor customers if the PSC
ultimately approves the rate design recommendation for years two
and three of the three-year electric rate settlement agreement
agreed to by the PSC in August 1995. (See below - Operational
and Financial Flexibility, Rate Matters.)
NYSEGPlan is contingent upon (i) the receipt of electric
price increases of 2.8% this year and 2.7% on August 1, 1997, as
approved by the PSC in August 1995 in the current electric rate
settlement agreement, (ii) the reasonable opportunity to fully
recover prudently incurred investments, (iii) the outcome of the
Energy Association lawsuit discussed above, (iv) FERC approval
and implementation of a statewide Independent System Operator and
Power Exchange, (v) unrestricted investment and earnings
potential by unregulated affiliates and (vi) final corporate and
regulatory approvals.
On October 9, 1996, the PSC issued a procedural order
(October Order) establishing a 90-day period ending January 7,
1997, for completion of discovery and settlement negotiations
regarding the utilities' submissions. If a settlement is
achieved within the 90-day period, all briefs in support or
opposition to the settlement as well as any additional matters
must be completed and the record closed no later than March 8,
1997. In the absence of a settlement at the conclusion of the
90-day period, the presiding administrative law judge will set
the remaining procedural schedule. Any hearings as well as the
submission of briefs and the closing of the record must be
completed no later than March 8, 1997.
Given the uncertainties regarding the Competitive
Opportunities Proceeding and the Energy Association's lawsuit to
annul the PSC's Order in the Competitive Opportunities
Proceeding, the company is unable to predict the outcome of this
proceeding and the ultimate effect on the company's financial
position or results of operations.
Operational and Financial Flexibility
Rate Matters (See Form 10-K for fiscal year ended December 31,
1995, Item 1(a) - Rates and regulatory matters, Electric Rate
Settlement)
On August 1, 1995, the PSC approved a new three-year
electric rate settlement agreement (electric agreement) for the
period August 1, 1995 through July 31, 1998. The electric
agreement provides for additional revenue of $45.3 million and
$45.5 million in years two and three, respectively, with the rate
design for years two and three to be determined at a later date.
In May 1996 a PSC Administrative Law Judge issued a
Recommended Decision (RD) on the rate design for years two and
three of the electric agreement. Year two calls for a price
freeze for about 1,600 industrial and high load factor commercial
and public authority customers; an average increase of 2.8% for
most other nonresidential customers; and an average increase of
3.7% for residential customers, mostly collected through an
increase in the basic monthly service charge.
On July 19, 1996, the company filed tariff leaves reflecting
rates for year two of the electric agreement with the PSC. The
rates reflected a design based on the RD and had an effective
date of September 1, 1996.
On August 26, 1996, the PSC issued an Order which deferred
the use of the year two rates contained in the tariff leaves
through December 30, 1996, unless otherwise ordered by the PSC.
On September 9, 1996, the company filed a petition for
rehearing with the PSC requesting that the PSC vacate its August
26 Order and place in effect a tariff containing a revenue
allocation and rate design that will result in an increase in
revenues of $45.3 million over year two of the electric
agreement.
The company is unable to predict the outcome of this matter
and its ultimate effect on the company's financial position or
results of operations.
Natural Gas Industry
The PSC issued an Opinion and Order in December 1994
(December Order) that set forth the policy framework to guide the
transition and movement of New York's gas distribution industry
to a more competitive marketplace in the post-FERC Order 636
environment. The PSC subsequently issued an Order on
Reconsideration in August 1995 addressing petitions for rehearing
or clarification of the December Order. In November 1995 the
company and other utilities filed restructuring tariffs in
compliance with the PSC's Order on Reconsideration. Under the
company's tariffs, approved by PSC Order on March 28, 1996 (March
Order) with certain modifications, residential and small
businesses may buy natural gas from other sources with the
company providing delivery service for a separate fee. The March
Order approving the company's tariffs is not expected to have a
material effect on the company's natural gas operations. In
addition, consistent with the March Order, the company is
implementing new services to compete more effectively for sales
to larger, more sophisticated transportation customers.
On April 29, 1996, the company and other utilities filed a
petition for rehearing of certain of the determinations made in
the March Order, including the PSC's decisions to not address the
stranded cost issue beyond three years and to provide new
customers the same access to pipeline capacity as existing
customers.
On September 13, 1996, the PSC issued its Order on Rehearing
denying the utilities' requests. The company is evaluating its
options regarding this Order on Rehearing. The company does not
expect this Order on Rehearing to have a material effect on the
its natural gas operations prior to the year 2000. Due to
uncertainties in the natural gas industry, the company is unable
to predict the effect of this Order on Rehearing on its natural
gas operations after the year 2000, however, the company does not
expect it to have a material effect.
Diversification (See Form 10-Q for the quarter ended June 30,
1996, Item 2(a) - Diversification)
NGE Enterprises, Inc. (NGE), a wholly-owned subsidiary of
the company, owns four unregulated businesses - EnerSoft
Corporation (EnerSoft), XENERGY, Inc. (XENERGY), NGE Funding
Corporation (NGE Funding) and NGE Environmental, Inc. (NGE
Environmental).
EnerSoft was formed in May 1993 to develop and market
computer software and real-time information and trading systems
for natural gas utilities, marketers and pipeline operators.
EnerSoft, in 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.
The Channel 4 system was made available for use in 1995, but
sales have been disappointing.
NGE has reviewed its investment in EnerSoft and determined
that EnerSoft no longer fits NGE's strategic focus. As a result
of this decision, the company took a $10 million charge against
1996 third quarter earnings for the writedown of NGE's investment
in EnerSoft. NGE is assessing various exit strategies for
EnerSoft and intends to exit the business by December 31, 1996.
XENERGY, acquired in June 1994, is an energy services,
information systems and energy-consulting company providing
energy services, conservation engineering and professional
services to utilities, governmental agencies and end-use energy
consumers. XENERGY's 1995 revenues were lower than expected due
to a soft utility demand-side management consulting market.
Revenues in 1996 are expected to be slightly higher than 1995.
As of October 31, 1996 and December 31, 1995, the company
had invested approximately $57 million and $54 million,
respectively, in NGE to finance its diversified investments. For
the nine months ended September 30, 1996 and for the year ended
December 31, 1995, NGE incurred net losses of $20 million, which
includes the $10 million writedown related to EnerSoft, and $12
million, respectively. The company expects that NGE will
continue to incur operating losses at least through 1997, but at
a lower level due to its plan to exit EnerSoft. The loss in
1996, excluding the writedown related to EnerSoft, is expected to
be comparable to 1995.
Investing Activities
Capital expenditures for the first nine months of 1996
totaled $147 million, primarily for the Seneca Lake gas storage
project, extension of service, purchase of facilities, necessary
improvements at existing facilities and environmental compliance
requirements. The company estimates its capital expenditures in
1996 will total $206 million and will be financed entirely with
internally generated funds.
Financing Activities
In July 1996 the company purchased the following, at a
discount, through the issuance of commercial paper: $2.6 million
of its 4.15% preferred stock, $1.5 million of its 4.15% (1954)
preferred stock and $2.0 million of its 4.40% preferred stock.
In September 1996 the company initiated a common stock
repurchase program not to exceed four million shares. The
company plans to purchase shares from time to time as market and
other conditions warrant. As of September 30, 1996, the company
had repurchased 799,000 shares.
(b) Results of Operations
Three months ended September 30, 1996 compared with three months
ended September 30, 1995:
1996 1995 % Change
(Thousands, except per share amounts)
Operating revenues $456,568 $464,694 (2%)
Operating income 54,646 76,600 (29%)
Earnings available for
common stock $8,616 $38,878 (78%)
Average shares outstanding 71,416 71,503 -
Earnings per share $.12 $.54 (78%)
Dividends per share $.35 $.35 -
Earnings per share for the three months ended September 30,
1996, decreased 42 cents compared to the prior year period.
In September 1996 the company recorded a 14 cents per share
charge to write down an investment in EnerSoft Corporation by NGE
Enterprises, Inc., the company's wholly-owned subsidiary as
discussed earlier.
Lower electric retail margins, primarily due to an increase
in purchases from NUGs, reduced earnings eight cents per share.
Lower natural gas margins reduced earnings three cents per share
due to the following combination of factors. Earnings were
reduced by 11 cents per share because natural gas pipeline
capacity costs are now recorded evenly throughout the year due to
the elimination of the gas adjustment clause. In 1995 pipeline
capacity costs were based on the volume of natural gas sold,
which is lower in summer months than in winter months. This
decrease was mitigated by higher natural gas revenues resulting
from an increase in natural gas deliveries, a change in rate
structure effective December 1995 and changes in prices effective
August 1995.
Normal weather this year, compared to the unusually hot
summer in 1995, resulted in a 3% decrease in electric retail
sales, reducing earnings by seven cents per share. Higher
operating costs lowered earnings by nine cents per share for the
three months.
Nine months ended September 30, 1996 compared with nine months
ended September 30, 1995:
1996 1995 % Change
(Thousands, except per share amounts)
Operating revenues $1,528,265 $1,476,520 4%
Operating income 243,994 248,249 (2%)
Earnings available for
common stock $123,455 $129,617 (5%)
Average shares outstanding 71,474 71,503 -
Earnings per share $1.73 $1.81 (4%)
Dividends per share $1.05 $1.05 -
For the nine months ended September 30, 1996, earnings
decreased eight cents per share compared to the prior year
period.
A decrease in other income and deductions reduced earnings
by 19 cents per share, primarily due to the writedown of the
investment in EnerSoft Corporation, as discussed earlier. Higher
operating costs reduced earnings by 12 cents per share and an
increase in federal income taxes due to higher taxable income
further reduced earnings by seven cents per share.
Those decreases were partially offset by higher electric and
natural gas retail sales, which contributed 15 cents per share to
earnings. The higher sales were mainly due to a combination of
colder weather in the first quarter of 1996 compared to the mild
winter a year earlier and additional customers. Lower interest
charges in 1996 added eight cents per share to earnings and a
reduction in preferred stock dividends, primarily due to the
January 1996 redemption of $100 million of 8.95% preferred stock
net of related interest expense on commercial paper, added seven
cents per share to earnings.
Operating Results by Business Segment
Electric Three Months ended September 30,
1996 1995 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 3,162,636 3,254,094 (3%)
Operating revenues $421,709 $439,357 (4%)
Operating expenses $359,615 $357,911 -
Electric retail sales decreased 3% for the quarter ended
September 30, 1996, primarily as a result of the unusually hot
summer weather of 1995 that increased retail sales for that
period.
The $18 million, or 4%, decrease in electric operating
revenues for the quarter was primarily due to lower sales, which
reduced revenues $10 million. The elimination of the fuel
adjustment clause, in accordance with the electric rate
settlement effective August 1995, net of an increase in base
prices, further reduced revenues $7 million.
The $2 million increase in electric operating expenses for
the three months is primarily attributable to an $11 million
increase in electricity purchased, mostly due to purchases from
NUGs and an increase in other operating expenses of $12 million.
Those increases were partially offset by a $9 million decrease in
federal income taxes due to lower pretax book income, a $7
million decrease in fuel used in electric generation and a $4
million decrease in maintenance expense.
Nine Months ended September 30,
1996 1995 % Change
(Thousands)
Retail sales-kilowatt-
hours(kwh) 9,897,277 9,711,287 2%
Operating revenues $1,291,149 $1,277,917 1%
Operating expenses $1,074,004 $1,046,168 3%
Electric retail sales increased 2% for the nine months ended
September 30, 1996, primarily because of colder weather in the
first quarter of 1996 compared to the mild winter a year earlier
and additional customers.
The $13 million, or 1%, increase in electric operating
revenues for the nine months ended September 30, 1996, was
primarily from higher retail sales, which added $21 million to
revenues. Changes in prices effective August 1995, net of the
effect of eliminating the fuel adjustment clause, added another
$13 million to revenues. Those increases were partially offset
by a decrease in regulatory deferrals of $20 million.
Electric operating expenses rose $28 million, or 3%, for the
nine months ended September 30, 1996. Increases in electricity
purchased, mostly due to purchases from NUGs, increased operating
expenses by $35 million and increases in other operating costs
added another $12 million to expenses. Those increases were
partially offset by a $16 million decrease in fuel used in
electric generation primarily due to reduced generation.
Natural Gas Three Months ended September 30,
1996 1995 % Change
(Thousands)
Deliveries-
dekatherms(dth) 7,136 6,738 6%
Operating revenues $34,859 $25,337 38%
Operating expenses $42,307 $30,183 40%
Natural gas deliveries increased 6% for the third quarter of
1996 compared to 1995 due to additional customers and increased
usage by several large customers.
For the three months ended September 30, 1996, natural gas
operating revenues rose $10 million, or 38%, compared to the 1995
period. The increase was primarily due to a change in rate
structure effective December 1995 and changes in prices effective
August 1995 that added $8 million to revenues. Sales of natural
gas to others added another $1 million to revenues.
The $12 million, or 40%, increase in natural gas operating
expenses for the quarter resulted from a $12 million increase in
natural gas purchased because natural gas pipeline capacity costs
are now recorded evenly throughout the year due to the
elimination of the gas adjustment clause discussed earlier.
Nine Months ended September 30,
1996 1995 % Change
(Thousands)
Deliveries-
dekatherms(dth) 43,411 39,463 10%
Operating revenues $237,116 $198,603 19%
Operating expenses $210,267 $182,103 15%
Natural gas deliveries increased 10% for the nine months
ended September 30, 1996, due to a combination of colder weather
and additional customers in the first quarter of 1996 compared to
the mild winter a year earlier.
Natural gas operating revenues increased $39 million, or
19%, for the nine months ended September 30, 1996. Higher retail
sales added $17 million and a change in rate structure effective
December 1995 and changes in prices effective August 1995 added
$17 million. Also, an increase in transportation of customer-
owned gas added $3 million to revenues for the period.
Comparing the two nine month periods, natural gas operating
expenses rose $28 million, or 15%. An increase in natural gas
purchased, due to higher commodity costs and higher deliveries,
added $16 million; higher federal income taxes, because of higher
pretax book income, added $5 million and an increase in certain
operating costs added $5 million to expenses.
PART II - OTHER INFORM ATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
A report on Form 8-K dated August 26, 1996, was filed to
report certain information under Item 5, "Other Events."
A report on Form 8-K dated September 18, 1996, was filed to
report certain information under Item 5, "Other Events."
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NEW YORK STATE ELECTRIC & GAS CORPORATION
(Registrant)
By Gary J. Turton
Gary J. Turton
Vice President and Controller
(Chief Accounting Officer)
Date: November 7, 1996
EXHIBIT INDEX
10-54 -- Employment Agreement for W. W. von Schack.
10-55 -- Employment Agreement for W. W. von Schack Amendment
No. 1.
27 -- Financial Data Schedule.