NEW YORK STATE ELECTRIC & GAS CORPORATION
(Registrant)
FORM 10-K
---------
ANNUAL REPORT
For Fiscal Year Ended December 31, 1996
To
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
TABLE OF CONTENTS
Page
PART I
Item 1. Business
(a) General development of business. . . . . . . . . . 3
(b) Financial information about industry segments. . . 3
(c) Narrative description of business
Principal business. . . . . . . . . . . . . . . . 3
New product or segment. . . . . . . . . . . . . . 4
Sources and availability of raw materials . . . . 4
Franchises . . . . . . . . . . . . . . . . . . . 5
Seasonal business . . . . . . . . . . . . . . . . 5
Working capital items . . . . . . . . . . . . . . 5
Single customer . . . . . . . . . . . . . . . . . 5
Backlog of orders . . . . . . . . . . . . . . . . 5
Business subject to renegotiation . . . . . . . . 5
Competitive conditions. . . . . . . . . . . . . . 5
Research and development. . . . . . . . . . . . . 6
Environmental matters . . . . . . . . . . . . . . 6
Water quality . . . . . . . . . . . . . . . . . 6
Air quality . . . . . . . . . . . . . . . . . . 7
Waste disposal. . . . . . . . . . . . . . . . . 8
Number of employees. . . . . . . . . . . . . . . . 8
(d) Financial information about foreign and domestic
operations and export sales. . . . . . . . . . . . 8
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal proceedings. . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of matters to a vote of security holders. . 16
Executive officers of the Registrant . . . . . . . . . . . . . . 16
PART II
Item 5. Market for Registrant's common equity and related
stockholder matters. . . . . . . . . . . . . . . . . 17
Item 6. Selected financial data. . . . . . . . . . . . . . . . 18
Item 7. Management's discussion and analysis of financial
condition and results of operations. . . . . . . . . 19
TABLE OF CONTENTS (Cont'd)
Page
Item 8. Financial statements and supplementary data. . . . . . 35
Financial Statements
Consolidated Statements of Income. . . . . . . . . . 35
Consolidated Balance Sheets. . . . . . . . . . . . . 36
Consolidated Statements of Cash Flows. . . . . . . . 38
Consolidated Statements of Changes in
Common Stock Equity. . . . . . . . . . . . . . . . 39
Notes to Consolidated Financial Statements . . . . . . 40
Report of Independent Accountants. . . . . . . . . . . 58
Financial Statement Schedules
II. Consolidated Valuation and Qualifying
Accounts . . . . . . . . . . . . . . . . . . 59
Item 9. Changes in and disagreements with accountants on
accounting and financial disclosure. . . . . . . . . 60
PART III
Item 10. Directors and executive officers of the Registrant . . 60
Item 11. Executive compensation . . . . . . . . . . . . . . . . 60
Item 12. Security ownership of certain beneficial owners
and management . . . . . . . . . . . . . . . . . . . 60
Item 13. Certain relationships and related transactions . . . . 60
PART IV
Item 14. Exhibits, financial statement schedules, and
reports on Form 8-K
(a) List of documents filed as part of this report
Financial statements . . . . . . . . . . . . . . 60
Financial statement schedules. . . . . . . . . . 60
Exhibits
Exhibits delivered with this report. . . . . . 61
Exhibits incorporated herein by reference. . . 61
(b) Reports on Form 8-K. . . . . . . . . . . . . . . . 65
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-3103-2.
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)
Registrant's telephone number, including area code (607) 347-4131
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
First Mortgage Bonds, 7 5/8% Series
due 2001 (Due November 1, 2001) New York Stock Exchange
3.75% Cumulative Preferred Stock
(Par Value $100) New York Stock Exchange
7.40% Cumulative Preferred Stock
(Par Value $25) New York Stock Exchange
Adjustable Rate Cumulative Preferred
Stock, Series B (Par Value $25) New York Stock Exchange
Common Stock (Par Value $6.66 2/3) New York Stock Exchange
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
4 1/2% Cumulative Preferred Stock (Series 1949) (Par Value $100)
4.15% Cumulative Preferred Stock (Par Value $100)
4.40% Cumulative Preferred Stock (Par Value $100)
4.15% Cumulative Preferred Stock (Series 1954) (Par Value $100)
* * * * * * * * * * *
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 .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ].
* * * * * * * * * * *
The aggregate market value as of February 28, 1997, of the
common stock held by non-affiliates of the Registrant was
$1,612,095,178.
Common stock - 69,337,427 shares outstanding as of
February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Document 10-K Part
The company has incorporated by reference
certain portions of its Proxy Statement
dated April 11, 1997, which will be filed
with the Commission prior to April 30, 1997. III
PART I
Item 1. Business
(a) General development of business
New York State Electric & Gas Corporation (company) was
organized under the laws of the State of New York in 1852.
The following general developments have occurred in the
business of the company since January 1, 1996:
Regulatory and Rate Matters
(See Item 7 - Competitive Conditions and Rate Matters.)
Energy Services
(See Item 7 - Energy Services and Note 10 to the Consolidated
Financial Statements.)
(b) Financial information about industry segments
(See Note 12 to the Consolidated Financial Statements.)
(c) Narrative description of business
(i) Principal business
The company's principal business is generating, purchasing,
transmitting and distributing electricity and purchasing,
transporting and distributing natural gas. The service
territory, 99% of which is located outside the corporate limits
of cities, is in the central, eastern and western parts of the
State of New York. The service territory has an area of
approximately 19,600 square miles and a population of 2,400,000.
The larger cities in which the company serves both electricity
and natural gas are Binghamton, Elmira, Auburn, Geneva, Ithaca
and Lockport. The company serves approximately 808,000 electric
customers and 238,000 natural gas customers. Its service
territory reflects a diversified economy, including high-tech
firms, light industry, colleges and universities, agriculture and
recreational facilities. No customer accounts for 5% or more of
either electric or natural gas revenues. For the years 1996, 1995
and 1994, 84%, 85% and 84%, respectively, of operating revenue
was derived from electric service and the balance was derived
from natural gas service.
The 1996-1997 winter peak load of 2,404 megawatts (mw), was
set on January 17, 1997. This is 207 mw less than the all-time
peak of 2,611 mw set on January 19, 1994. Power supply
capability to meet peak loads is currently 3,094 mw. This is
composed of 2,511 mw of generating capacity (89% coal-fired, 8%
nuclear and 3% hydroelectric) and 1,190 mw of purchases offset by
607 mw of firm sales. The purchases are composed of 599 mw from
nonutility generators (NUGs) and 591 mw from the New York Power
Authority (NYPA). Most purchases from NYPA are hydroelectric
power.
On January 18, 1997, the company experienced its 1996-1997
maximum peak daily sendout for natural gas of 413,309 dekatherms.
This exceeded, by 9,686 dekatherms, the previous year peak of
403,623 dekatherms set on February 5, 1996.
(ii) New product or segment
(See Item 7 - Energy Services and Note 10 to the
Consolidated Financial Statements.)
(iii) Sources and availability of raw materials
Electric
In 1996, approximately 88% of the company's generation was
coal-fired steam electric, 10% nuclear and 2% hydroelectric
power. About 44% of the company's steam electric generation in
1996 was supplied from its one-half share of the output from the
Homer City Generating Station, which is owned in common with
Pennsylvania Electric Company. An additional 31% was supplied
from the company's Kintigh Generating Station, and the remaining
25% was supplied from its other generating stations which are
located in New York State.
Coal
Coal for the New York generating stations is obtained
primarily from Pennsylvania and West Virginia. Of the 3.1
million tons of coal purchased for the New York generating
stations in 1996, approximately 84% was purchased under
contract and the balance on the open market. Coal purchased
under contract is expected to be approximately 88% of the
estimated 3.4 million tons to be purchased in 1997.
The annual coal requirement for the Homer City
Generating Station is approximately 4.7 million tons, the
majority of which is obtained under long-term contracts.
During 1996, approximately 58% of Homer City Generating
Station coal was obtained under these contracts. The
company anticipates obtaining approximately 60% of the 1997
requirements under these contracts. The balance will be
purchased under short-term contracts and, when necessary, on
the open market.
Nuclear
During the fall of 1996, Niagara Mohawk Power Corpora-
tion (Niagara Mohawk), the operator of Nine Mile Point
nuclear generating unit No. 2 (NMP2), in which the company
has an 18% interest, installed reload No. 5 into the reactor
core at NMP2. This refueling will support NMP2 operations
through the spring of 1998. Reload No. 6 is scheduled for
May 1998 and will support operations through the spring of
2000. Enrichment services are under contract with the U.S.
Enrichment Corporation for 100% of the enrichment
requirements through 1998 and 75% of the requirements
through 2003. Fuel fabrication services are under contract
through 2004. Approximately 90% of the uranium and
conversion requirements are under contract through 2003.
Natural Gas
(See Item 7 - Competitive Conditions - Natural Gas Industry,
Seneca Lake Natural Gas Storage Project.)
The natural gas supply mix includes long-term, short-term
and spot natural gas purchases transported on both firm and
interruptible transportation contracts. During 1996, about 60%
of the company's natural gas supply was purchased from various
suppliers under long-term and short-term sales contracts and 40%
was purchased on the monthly spot natural gas market to maximize
natural gas cost savings. The company's natural gas supply is
expected to be purchased in 1997 in a similar proportion as in
1996.
(iv) Franchises
(See Item 7 - Competitive Conditions.)
The company has, with minor exceptions, valid franchises
from the municipalities in which it renders service to the
public. In 1996, the company obtained authorization from the
Public Service Commission of the State of New York (PSC) for
natural gas distribution service in the city of Plattsburgh, the
towns of Carlisle, Cobleskill, Davenport and Saranac, the
villages of Cobleskill and Dannemora and certain sections of the
town of Halfmoon and village of Rouses Point.
(v) Seasonal business
Sales of electricity are highest during the winter months
primarily due to space heating usage and fewer daylight hours.
Sales of natural gas are highest during the winter months
primarily due to space heating usage.
(vi) Working capital items
The company has been granted, through the ratemaking
process, an allowance for working capital to operate its ongoing
electric and natural gas utility services.
(vii) Single customer - Not applicable
(viii) Backlog of orders - Not applicable
(ix) Business subject to renegotiation - Not applicable
(x) Competitive conditions
(See Item 7 - Competitive Conditions and Accounting
Issues.)
(xi) Research and development
Expenditures on research and development in 1996, 1995 and
1994 amounted to $11.9 million, $13.1 million and $14.5 million,
respectively, principally for the company's internal research
programs and for contributions to research administered by the
Electric Power Research Institute, the Empire State Electric
Energy Research Corporation, the New York Gas Group and the New
York State Energy Research and Development Authority. These
expenditures are designed to improve existing technologies and to
develop new technologies for the production, distribution and
customer use of energy.
(xii) Environmental matters
(See Item 3 - Legal proceedings, Item 7 - Accounting
Issues and Notes 7, 8 and 9 to the Consolidated
Financial Statements.)
The company is subject to regulation by the federal
government and by state and local governments in New York and
Pennsylvania with respect to environmental matters and is also
subject to the New York State Public Service Law requiring
environmental approval and certification of proposed major
transmission facilities.
The company continually assesses actions that may need to be
taken to comply with changing environmental laws and regulations.
Any additional compliance programs will require changes in the
company's operations and facilities and increase the cost of
electric and natural gas service. Historically, rate recovery
has been authorized for environmental compliance costs.
Capital additions to meet environmental requirements during
the three years ended December 31, 1996 were approximately $37
million and are estimated to be $7 million for 1997, $10 million
for 1998 and $2 million for 1999.
Water quality
The company is required to comply with federal and state
water quality statutes and regulations including the Clean Water
Act (Water Act). The Water Act requires that generating stations
be in compliance with federally issued National Pollutant
Discharge Elimination System Permits (NPDES Permits) or state
issued State Pollutant Discharge Elimination System Permits
(SPDES Permits), which reflect water quality considerations for
the protection of the environment. The company has SPDES Permits
for its six coal-fired generating stations in New York and NMP2.
The company's Homer City Generating Station in Pennsylvania has a
NPDES permit.
In connection with the issuance of permits under the Water
Act, the company has conducted studies of the effects of its coal
pile operations on groundwater quality at its Greenidge,
Jennison, Milliken and Hickling Generating Stations. New York
State groundwater standards are sometimes exceeded at certain
locations at each of those stations. Preliminary studies at
Greenidge Generating Station indicate that elevated levels of
groundwater constituents do not appear to be directly
attributable to the coal pile. The remedial work at Jennison
Generating Station was completed in 1995. The remediation action
at Milliken Generating Station is expected to cost $1.5 million.
The remedial action, if required, at Hickling and Greenidge
Generating Stations is estimated to cost $1.4 million.
Groundwater monitoring data for Kintigh and Homer City Generating
Stations does not indicate facility-induced groundwater
contamination.
Air quality
The company is required to comply with federal and state air
quality statutes and regulations. All stations have the required
federal or state operating permits. Stack tests and continuous
emissions monitoring indicate that the stations are generally in
compliance with permit emission limitations, although occasional
opacity exceedances occur. Efforts continue in the
identification and elimination of the causes of opacity
exceedances. The company and Pennsylvania Electric Company may
find it necessary either to upgrade or install additional
equipment at the Homer City Generating Station in order to
consistently meet the particulate emission requirements.
The Clean Air Act Amendments of 1990 (1990 Amendments) limit
emissions of sulfur dioxide and nitrogen oxides and require
emissions monitoring. The U. S. Environmental Protection Agency
(EPA) allocates annual emissions allowances to each of the
company's coal-fired generating stations based on statutory
emissions limits. An emissions allowance represents an
authorization to emit, during or after a specified calendar year,
one ton of sulphur dioxide.
The costs of controlling toxic emissions under the 1990
Amendments, if required, cannot be estimated at this time, since
the type and level of reductions that may be required is
dependent on several studies currently being performed by the
EPA. Regulations may be adopted at the state level that would
limit toxic emissions even further, at an additional cost to the
company.
The company estimates that it will have allowances in excess
of the affected coal-fired generating stations' actual emissions
during Phase I, which began January 1, 1995. The company's
present strategy is to bank excess allowances for use in later
years. It is estimated that the company will meet Phase II
(which begins January 1, 2000) emissions requirements through the
year 2004, by using allowances banked during Phase I together
with the company's Phase II annual emissions allowances. This
strategy could be modified should market or business conditions
change.
Waste disposal
The company has received or applied for SPDES Permits, Solid
Waste Disposal Facilities Permits and applicable local permits
for its active ash disposal sites for its New York generating
stations. Groundwater standards have been exceeded in areas
close to portions of the Milliken and Weber ash disposal sites.
Corrective actions have been taken and studies are continuing to
monitor the effectiveness of the corrective actions.
The company has received NPDES permits, a Solid Waste
Disposal Permit and applicable local permits for its active ash
disposal site for the Homer City Generating Station and for the
active refuse disposal site for the Homer City Coal Cleaning
Plant.
A low level radioactive waste management and contingency
plan for NMP2 provides assurance that NMP2 is properly prepared
to handle interim storage of low level radioactive waste until
2006.
Niagara Mohawk has contracted with the U.S. Department of
Energy (DOE) for disposal of high level radioactive waste (spent
fuel) from NMP2. The company is reimbursing Niagara Mohawk for
its 18% share of the costs under the contract (currently
approximately $1 per megawatt hour of net generation). The DOE's
schedule for start of operations of their high level radioactive
waste repository will be no sooner than 2010. The company has
been advised by Niagara Mohawk that the NMP2 Spent Fuel Storage
Pool has a capacity for spent fuel that is adequate until 2014.
If further DOE schedule slippage should occur, construction of
pre-licensed dry storage facilities would extend the on-site
storage capability for spent fuel at NMP2 beyond 2014.
(xiii) Number of employees
The company had 4,114 employees as of December 31, 1996.
(d) Financial information about foreign and domestic operations
and export sales - Not applicable
Item 2. Properties
(See Item 7 - Competitive Conditions - Electric Industry,
Generation Business.)
The company's electric system includes coal-fired, nuclear,
hydroelectric and internal combustion generating stations,
substations and transmission and distribution lines, all of which
are located in the State of New York, except for the Homer City
Generating Station and related facilities which are located in
the Commonwealth of Pennsylvania. Generating facilities are:
Name and location of station Generating
Coal-fired capability (mw)
Goudey (Binghamton, N.Y.) 80 (1)
Greenidge (Dresden, N.Y.) 104 (1)
Hickling (East Corning, N.Y.) 44 (1)
Jennison (Bainbridge, N.Y.) 72
Milliken (Lansing, N.Y.) 302
Kintigh (Somerset, N.Y.) 675
Homer City (Homer City, Pa.) 959 (2)
-----
Total coal-fired 2,236
Nuclear
NMP2 (Oswego, N.Y.) 206 (3)
Hydroelectric (Various - 9 locations) 62
Internal combustion (Various - 2 locations) 7
-----
Total - all stations 2,511
=====
(1) The company has one unit at each of the Goudey, Greenidge
and Hickling Generating Stations, with a combined capability
of 133 megawatts, on long-term cold standby. These units
can be brought on-line in three to fourteen days.
(2) Company's 50% share of the generating capability.
(3) Company's 18% share of the generating capability.
The company owns 433 substations having an aggregate
transformer capacity of 13,367,720 kilovolt-amperes. The
transmission system consists of 4,840 circuit miles of line. The
distribution system consists of 33,724 pole miles of overhead
lines and 2,025 miles of underground lines.
The company's natural gas system consists of the
distribution of natural gas through 745 miles of transmission
pipelines (over 3-inch equivalent) and 6,000 miles of
distribution pipelines (under 3-inch equivalent).
Somerset Railroad Corporation (SRC), a wholly-owned
subsidiary, owns a rail line consisting of 15 1/2 miles of track
and related property rights in Lockport, Newfane and Somerset,
New York which is used primarily to transport coal and other
materials to the Kintigh Generating Station.
The company's first mortgage bond indenture constitutes a
direct first mortgage lien on substantially all of the company's
properties. Substantially all of the properties of SRC, other
than rolling stock, are subject to a lien of a mortgage and
security agreement.
Item 3. Legal proceedings
(See 1(c)(xii) - Environmental matters and Item 7 - Competitive
Conditions and Rate Matters.)
The company is unable to predict the ultimate disposition of
the matters referred to below in (a), (b), (d), (g), (h), (i),
the first paragraphs in (c) and (f) and the first three
paragraphs in (e). However, since the PSC has allowed the
company to recover in rates remediation costs for certain of the
sites referred to in the preceding sentence, there is a
reasonable basis to conclude that the company will be permitted
to recover in rates any remediation costs that it may incur for
all of the sites referred to in the preceding sentence.
Therefore, the company believes that the ultimate disposition of
the matters referred to below in (a), (b), (d), (g), (h), (i),
the first paragraphs in (c) and (f) and the first three
paragraphs in (e) will not have a material adverse effect on its
results of operations or financial position.
(a) By letter dated February 29, 1988, the New York State
Department of Environmental Conservation (NYSDEC) notified the
company that it had been identified as a potentially responsible
party (PRP) for investigation and remediation of hazardous wastes
at the Lockport City Landfill Site (Lockport Site) in Lockport,
New York. The Lockport Site is listed on the New York State
Registry of Inactive Hazardous Waste Disposal Sites (New York
State Registry). Five other PRPs were identified in the NYSDEC
letter. The company believes that remediation costs at the
Lockport Site might rise to $4 million. The Lockport Site has
been remediated by the site owner, the City of Lockport. By
letter dated May 2, 1988, the company notified the NYSDEC that it
declined to finance remediation costs because it believed that
the NYSDEC had not demonstrated that a significant threat to
public health or the environment existed as a result of hazardous
waste disposal at the Lockport Site.
(b) By letter dated December 10, 1990, the NYSDEC notified the
company that it had been identified as a PRP for investigation
and remediation of hazardous wastes at the Schreck's scrapyard
site (Schreck's Site) in the City of North Tonawanda, New York.
The Schreck's Site is listed on the New York State Registry.
Seven other PRPs were identified in the NYSDEC letter. On
February 3, 1992, the NYSDEC again notified the company that it
had been identified as a PRP for investigation and remediation
costs at the Schreck's Site, this time listing eight other PRPs.
The company was offered an opportunity to conduct remediation or
finance remediation costs at the Schreck's Site, failing which
the NYSDEC might remediate the Schreck's Site itself and commence
an action to recover its costs and damages. By letter dated
April 1, 1992, the company notified the NYSDEC that it believed
it had no responsibility for the alleged contamination at the
Schreck's Site, and it declined to conduct remediation or finance
remediation costs. NYSDEC completed the soil remediation at the
Schreck's Site in February 1994 at a cost of $2.6 million.
Monitoring for groundwater contamination continues at the site.
(c) By letter dated June 7, 1991, the NYSDEC notified the
company that it had been identified as a 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.
The NYSDEC offered the company an opportunity to enter into
negotiations with it to undertake the investigation and remedia-
tion 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
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. Ten of these other 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. The company believes
the PRPs currently involved in conducting remediation at the
Pfohl Site were much larger contributors. In May 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.
Four 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, June 14,
1995 and January 10, 1997), 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 $103.5
million in the aggregate. The company believes that the actions
against it are without merit and will defend them vigorously.
In 1995, four actions were commenced against approximately
11 defendants, and in 1996, an action was commenced against 13
defendants, by plaintiffs who allegedly resided near or recreated
at the Pfohl Site 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. The company was not
named as a defendant in these actions. Third-party actions were
commenced in the four 1995 actions against the company and ten
other third-party defendants in the United States District Court
for the Western District of New York (District Court) (two on
April 27, 1995, one on June 9, 1995, and one on November 7,
1995), by third-party plaintiffs who were named as defendants in
the main actions. A third-party action was commenced in the
District Court on August 23, 1996, against the company and ten
other third-party defendants. In each of the five actions, the
third-party plaintiffs allege that the company and the other
third-party defendants are liable for all or a part of any
damages recovered by the plaintiffs. Recovery in these third-
party actions depends on the plaintiffs recovering money damages
against the third-party plaintiffs in the main actions. The
company believes that the actions against it are without merit
and will defend them vigorously.
(d) By letter dated January 21, 1992, the NYSDEC notified the
company that it had been identified as a PRP at the Peter Cooper
Corporation's Landfill Site (Peter Cooper Site) in the village of
Gowanda, New York. Three other PRPs were identified in the
NYSDEC letter. The NYSDEC letter also notified the company that
state surface water and groundwater standards had been exceeded
at the Peter Cooper Site and offered the company an opportunity
to conduct or finance a remedial program. NYSDEC indicated that
if the company did not agree to enter into a consent order it
would perform the necessary work itself or seek a court order
requiring the company to conduct the work. The company believes
that remediation costs at the Peter Cooper Site might rise to $16
million. By letter dated May 12, 1992, the company notified the
NYSDEC that it believed it had no responsibility for the alleged
contamination at the Peter Cooper Site, and it declined to
conduct remediation or finance remediation costs.
On July 2, 1996, the EPA notified the company of its concern
regarding the stream bank erosion along a portion of the Peter
Cooper Site that is located on the company's property. The
company, without admitting any liability or responsibility,
entered into an Order on Consent on October 24, 1996, with the
EPA to stabilize the stream bank. This project was completed in
January 1997 at a cost of $120,000.
(e) By letter dated April 20, 1992, the EPA notified the company
that it had been identified as a PRP at the Bern Metals Removal
Site (Bern Metals Site) in Buffalo, New York. Six other PRPs
have been identified by the EPA. The EPA has taken response
actions at the Bern Metals Site, including investigation,
excavation, and removal of drums and contaminated soil, and
implementation of measures to prevent surface water run-off. The
EPA demanded that the company reimburse the EPA Hazardous
Substances Superfund $2 million in response costs incurred to
date by the EPA, with interest accruing from the date of the
demand. In September 1995 the company and the EPA reached
agreement on a consent order under which the company will pay the
sum of $10,000 in return for a covenant by the EPA not to sue the
company for the EPA's response costs, and to protect the company
from claims of contribution by other PRPs for such costs incurred
to date. The order is awaiting final government approval.
In addition to the foregoing, the NYSDEC, by letter dated
July 21, 1992, notified the company that it had been identified
as a PRP at the Bern Metals Site, which the NYSDEC defined to
include an adjacent property known as the Universal Iron & Metal
Site (Bern Metals/Universal Iron Site). The Bern
Metals/Universal Iron Site is listed on the New York State
Registry. The NYSDEC also identified eight other PRPs for the
Bern Metals/Universal Iron Site. The NYSDEC has requested that
the company, and the eight other identified PRPs, enter into
negotiations in which the company and the other identified PRPs
would agree to finance or conduct a Remedial Investigation and
Feasibility Study (RI/FS) designed to determine what further
remediation or removal actions may be appropriate for the Bern
Metals/Universal Iron Site. By letter dated December 3, 1992,
the company declined to negotiate with NYSDEC to finance or
conduct an RI/FS for the Bern Metals/Universal Iron Site, because
the company believes it was only a very small contributor to the
Bern Metals Site and had no involvement with the Universal Iron &
Metal Site.
An RI/FS was performed at the Bern Metals/Universal Iron
Site by certain of the other PRPs, and a proposed remedial action
plan identifying the preferred remedy and summarizing the other
alternatives considered has been issued for the site. The
NYSDEC, by letter dated March 22, 1996, to the company and six of
the other eight PRPs, inquired whether the company and such six
other PRPs were willing to conduct or finance the design and
implementation of the remedial alternative once it was selected.
The NYSDEC informed the company that if it declined to enter into
negotiations with it for such purpose, it might remediate the
Bern Metals/Universal Iron Site itself using the Hazardous Waste
Remedial Fund and would seek recovery of its expense from the
company. On March 29, 1996, NYSDEC issued a Record of Decision
which provided for remedial action having an estimated cost of
$1.9 million. By letter dated April 4, 1996, the company offered
to enter into negotiations with NYSDEC without admission of
liability or responsibility even though the company's
contribution to the site, if any, was of a de minimis nature,
provided that NYSDEC take action to send notices of
responsibility to a substantial number of other PRPs. In
addition, the company believes that it does not have any
connection with the Universal Iron & Metal Site.
On September 11, 1996, the company was named as a third-
party defendant by Niagara Frontier Transportation Authority
(NFTA) claiming contributions for costs that might be recovered
against NFTA in an action filed by EPA in the United States
District Court for the Western District of New York. Fifty-five
other third-party defendants were sued in addition to the
company. NFTA is seeking contributions for response costs
incurred by EPA at the Universal Iron Site. The company believes
that the action against it is without merit and will defend it
vigorously.
(f) By letter dated April 20, 1992, the EPA notified the company
that the EPA had reason to believe that the company was a PRP for
the Clinton-Bender Removal Site (Clinton-Bender Site) in Buffalo,
New York. Five other PRPs have been identified by the EPA. Nine
private residential lots and one commercial property at the
Clinton-Bender Site were contaminated with lead, allegedly due to
run-off from the adjacent Bern Metals Site. The EPA ordered the
company to perform the necessary removal work at the Clinton-
Bender Site and the company is remediating the site in
conjunction with four other identified PRPs. The total cost of
the removal actions to be performed at the Clinton-Bender Site is
estimated to be $3.1 million. The company and the other
participating parties are seeking to recover from other PRPs, not
participating in the remedial action at the Clinton-Bender Site,
any cost that the company and other participating parties have
incurred or will incur.
On November 3, 1993, the company was served with a summons
and complaint filed on behalf of certain of the homeowners at the
Clinton-Bender Site. Seven other defendants were named in the
complaint, which was filed in the New York State Supreme Court,
Erie County (Supreme Court, Erie County). The action was removed
to the U.S. District Court for the Western District of New York
(Western District Court). In their complaint, plaintiffs make
general allegations that the defendants violated federal
environmental laws without alleging facts in support of these
allegations. Plaintiffs also allege personal injury, property
damage, and fear of cancer which they claim were caused by the
presence of hazardous substances on their property, allegedly
resulting from the disposal of such substances by the defendants
at the Bern Metals Site. Any liability incurred as a result of
these claims may be joint and several. The plaintiffs ask for
$30 million in direct damages from all defendants, as well as
treble damages (for unspecified reasons) from all defendants, and
an additional $10 million in punitive damages from each
defendant. By order dated September 1, 1995, the Western
District Court dismissed the plaintiffs claims made under the
Clean Air Act, the Clean Water Act, and the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
(CERCLA), which are the only claims based upon federal causes of
action, and remanded the action to the Supreme Court, Erie
County. The company believes that the ultimate disposition of
this matter will not have a material adverse effect on its
results of operations or financial position.
(g) By letter dated February 12, 1993, NYSDEC notified the
company that it had been identified as a PRP for remediation of
hazardous wastes at the Booth Oil Site (Booth Oil Site) in North
Tonawanda, New York. The Booth Oil Site is listed on the New
York State Registry. Nineteen other PRPs were identified in the
NYSDEC letter. Booth Oil Company is a waste oil re-refiner and
recycler. The company had sent waste oils to Booth Oil Company
for disposal as had numerous other companies in the Buffalo area.
According to NYSDEC, the Booth Oil Site is contaminated with
PCBs, lead, and other substances. NYSDEC has requested that the
company and the other identified PRPs conduct remediation at the
Booth Oil Site pursuant to an Order on Consent to be negotiated
with NYSDEC. The company estimates that the present value of
costs for remedial alternatives range from $7.2 million to $21.7
million. The company has been actively involved both in trying
to persuade NYSDEC to name additional PRPs and in examining the
process which led to the NYSDEC treatment alternatives. Other
named PRPs have also been involved in these efforts. The PRPs
and NYSDEC have agreed to study an alternative concept for
remediation of the Booth Oil Site.
(h) On June 14, 1994, the company was served with a summons and
complaint joining the company as a defendant in an action that
was filed in the United States District Court for the Northern
District of New York. The plaintiffs are five companies which
have been required by the EPA to conduct remedial activities at
the Rosen Brothers Site (Rosen Site) in the City of Cortland, New
York. The Rosen Site was the location of a scrap metal
processing operation and industrial waste disposal site between
approximately 1971 and 1985, and it is now allegedly contaminated
with hazardous substances including heavy metals, solvents and
PCBs. The Rosen Site is listed on the National Priorities List
and the New York State Registry. Among other claims, the
plaintiffs seek contribution under CERCLA from the company and
sixteen other defendants for the costs of complying with the EPA
order to remediate the Rosen Site. The plaintiffs allege that
the company was a contributor of transformers which may have
contained polychlorinated biphenyls (PCBs). Liability under
CERCLA may be joint and several.
By letter dated August 16, 1994, the EPA notified the
company that the EPA had reason to believe that the company was a
PRP for the Rosen Site and requested that the company participate
in the RI/FS then being prepared for the Rosen Site by the other
named PRPs. By letter dated October 20, 1994, the company
declined to participate in this study because it believes that no
facts have been established showing that it was responsible for
any contamination at the Rosen Site. While the study has been
completed, the EPA has not yet selected a remedy for the site,
and therefore, the total amount of remedial costs is currently
unknown.
(i) The company responded on October 3, 1995, to a request for
information by the EPA concerning alleged disposal of PCBs at
facilities owned or operated by PCB Treatment, Inc. in Kansas
City, Kansas and Kansas City, Missouri. On September 27, 1996,
the company entered into an Order on Consent with the EPA under
which the company and at least nine other companies will conduct
a Removal Site Evaluation and Engineering Evaluation/Cost
Analysis (Site Evaluation) at the two facilities operated by PCB
Treatment, Inc. The cost to the company of its obligations under
this Order on Consent is not expected to exceed $65,000. Since
the Site Evaluation has not been completed, the total cost to
remediate these sites is unknown.
Item 4. Submission of matters to a vote of security holders -
Not applicable.
* * * * * * * * * *
Executive officers of the Registrant
Positions, offices and
business experience -
Name Age January 1992 to date
Wesley W. von Schack 52 Chairman, President and Chief Execu-
tive Officer, September 1996 to date;
Chairman, President, Chief Executive
Officer and a Director of DQE, Inc.
and Duquesne Light Company to August
1996.
Jack H. Roskoz 58 Executive Vice President, January
1995 to date; Senior Vice President-
Electric Business Unit, to January
1995.
Michael I. German 46 Senior Vice President-Gas Business
Unit, December 1994 to date; Senior
Vice President, American Gas Assoc-
iation, Arlington, Virginia, to
December 1994.
Gerald E. Putman 46 Senior Vice President-Customer
Service Business Unit, January 1995
to date; Vice President-Fuel Supply
and Operation Services, May 1993 to
January 1995; Vice President-East
Region Electric, September 1992 to
May 1993; Executive Assistant to the
Chairman, President and Chief
Executive Officer, to September 1992.
Sherwood J. Rafferty 49 Senior Vice President and Chief
Financial Officer, February 1996 to
date; Vice President and Treasurer,
to February 1996.
Daniel W. Farley 41 Vice President and Secretary.
Jeffrey K. Smith 48 Vice President-Generation, January
1995 to date; Executive Assistant to
the Chairman, President and Chief
Executive Officer, February 1994 to
January 1995; Assistant to the Senior
Vice President-Electric Business
Unit, to February 1994.
Executive officers of the Registrant (Cont'd)
Positions, offices and
business experience -
Name Age January 1992 to date
Ralph R. Tedesco 43 Vice President-Strategic Growth
Business Unit, February 1994 to date;
Executive Assistant to the Chairman,
President and Chief Executive
Officer, September 1992 to February
1994; Manager, Corporate Performance,
to September 1992.
Gary J. Turton 49 Vice President and Controller,
February 1996 to date; Controller,
December 1994 to February 1996;
Assistant Controller, to December
1994.
Denis E. Wickham 48 Vice President-Electric Resource
Planning.
Robert D. Kump 35 Treasurer, February 1996 to date;
Director of Financial Services,
February 1995 to February 1996;
Manager-Investor Relations, October
1993 to February 1995; Specialist-
Investor Relations, to October 1993.
The company has entered into an agreement with Wesley W. von
Schack which provides for his employment as Chairman, President
and Chief Executive Officer of the company for a term ending on
September 8, 1999, with automatic one-year extensions unless
either party gives notice that the agreement is not to be
extended.
Each officer holds office for the term for which he is
elected or appointed, and until his successor shall be elected
and shall qualify. The term of office for each officer extends
to and expires at the meeting of the Board of Directors
following the next annual meeting of shareholders.
PART II
Item 5. Market for Registrant's common equity and related
stockholder matters
See Note 4 and Note 13 to the Consolidated Financial
Statements.
Item 6. Selected financial data
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
(Thousands - except per share amounts)
Operating revenues $2,059,371 $2,009,541 $1,898,855 $1,800,149 $1,691,689
Net income $178,241(1) $196,690 $187,645(2) $166,028(3) $183,968
Earnings per share $2.37(1) $2.49 $2.37(2) $2.08(3) $2.40
Dividends paid
per share $1.40 $1.40 $2.00 $2.18 $2.14
Average shares
outstanding 71,127 71,503 71,254 69,990 67,972
Book value per share
of common stock
(year end) $25.41 $24.38 $23.28 $22.89 $22.85
Interest charges,
Net $122,729 $129,567 $136,092 $141,099 $151,831
Depreciation and
amortization $189,401 $184,770 $178,326 $164,568 $158,977
Other taxes $206,715 $210,910 $210,729 $204,962 $200,941
Capital
expenditures $211,837 $158,681 $224,306 $245,029 $245,618
Total assets $5,059,681 $5,114,331 $5,230,685 $5,287,958 $5,077,916
Long-term obliga-
tions, capital
leases and
redeemable
preferred stock $1,505,814 $1,606,448 $1,776,081 $1,755,629 $1,883,927
(1)Includes the effect of the writedown of the investment in EnerSoft
Corporation that decreased net income by $10 million and earnings per share
by 14 cents.
(2)Includes the effect of the 1993 production-cost penalty that decreased net
income by $8 million and decreased earnings per share by 12 cents.
(3)Includes the effect of restructuring expenses that decreased net income by
$17 million and decreased earnings per share by 25 cents.
Item 7. Management's discussion and analysis of financial
condition and results of operations
Liquidity and Capital Resources
Competitive Conditions
Movement toward competition was swift during 1996 for the
historically regulated electric industry. The company is
addressing numerous issues as it adjusts to operate under the
complex and sweeping changes faced by its electric and natural
gas businesses.
Electric Industry
The Public Service Commission of the State of New York
(PSC), the Federal Energy Regulatory Commission (FERC) and
regulators in other states are revising their policies to
introduce competition and reduce rates in the electric industry.
Orders were issued during 1996 in two significant proceedings:
the PSC's Competitive Opportunities Proceeding and the FERC's
proceeding relating to competitive wholesale electric markets.
Competitive Opportunities Proceeding: The transition to a more
competitive electric industry in New York State was set in motion
in August 1994 when the PSC instituted the Competitive
Opportunities Proceeding. The overall objective of this
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 in the Competitive
Opportunities Proceeding, which calls for a competitive wholesale
power market in early 1997 and the introduction of retail access
for all electric customers in early 1998. The Order also calls
for lowering rates for consumers, increasing customers' choice of
suppliers, continuing reliability of service, continuing programs
that are in the public interest, allaying concerns about market
power and continuing customer protections and the utilities'
obligation to serve.
The Order strongly encourages divestiture, particularly of
generation assets, but does not require it. The Order states
that incentives for divestiture will be worked out for each
utility in conjunction with the rate and restructuring plan it
was required to submit by October 1, 1996. (See Electric Rate
and Restructuring Plan.) 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 its 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 October 9, 1996, the PSC issued a procedural order
allowing until January 7, 1997, (subsequently extended for the
company until March 25, 1997) to complete the discovery and
settlement negotiations regarding the utilities' submissions. An
evidentiary hearing will be held in each case in which a proposed
settlement agreement is filed and opposed by one or more parties.
Energy Association Lawsuit: In September 1996 the company joined
with six other New York utilities and the Energy Association of
New York State (Energy Association) in filing a lawsuit in the
New York State Supreme Court, Albany County (Court) to annul the
PSC's Order in the Competitive Opportunities Proceeding. 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
is simply a policy statement and can be given no binding effect
by the PSC. The intent of the lawsuit is not to challenge the
transition to competition, but to ensure that the transition is
orderly and competition is fair to customers, shareholders and
taxpayers. The lawsuit was necessary to preserve the company's
shareholders' rights to have the opportunity to recover prudent
investments made to serve customers and to protect the
reliability of the electric system. To preserve those rights a
lawsuit had to be filed within four months of the PSC's Order.
The lawsuit contends, among other things, that the PSC did
not follow proper procedures in reaching its decision in the
Competitive Opportunities Proceeding and lacks the statutory or
legal authority to: deny a reasonable opportunity for utilities
to recover past expenditures prudently incurred to fulfill their
legal obligation to provide electricity service to the public,
mandate retail wheeling, deregulate the rates charged by
electricity generators or the energy services sector and order
divestiture of the utilities' assets. On November 26, 1996, the
Court issued a decision denying the relief requested.
On December 24, 1996, the seven New York utilities and the
Energy Association appealed the decision to the New York State
Supreme Court, Appellate Division (Third Department).
Given the uncertainties regarding the Competitive
Opportunities Proceeding and the Energy Association lawsuit to
annul the PSC's Order in that proceeding, the company is unable
to predict the outcome of this proceeding and the ultimate effect
on the company's financial position, results of operations, or
its eligibility to continue applying Statement of Financial
Accounting Standards No. 71 (Statement 71), Accounting for the
Effects of Certain Types of Regulation. (See Accounting Issues.)
Electric Rate and Restructuring Plan: On September 27, 1996, the
company submitted a five-year rate and restructuring plan
(NYSEGPlan) in response to the PSC's Order dated May 20, 1996, in
the Competitive Opportunities Proceeding. The company
anticipates amending NYSEGPlan in the near future to provide for
the formation of a holding company. If implemented with the
anticipated amendments, NYSEGPlan would:
- Freeze the average retail price of electricity for five
years, beginning August 1, 1997, and allow customers to
increase their electricity use at up to half the
present price.
- Allow the company to form a holding company and
transfer designated coal-fired generation assets
to a generation company or companies within the
holding company structure.
- Introduce wholesale competition on August 1, 1997, and
phase in retail competition beginning August 1, 1998.
- Give investors a reasonable opportunity to fully
recover past, prudently incurred costs.
In NYSEGPlan, the company emphasizes that lowering electric
prices will take a combination of competition and a reduction of
mandated costs, such as power purchases from nonutility
generators (NUGs) and New York State's high taxes. Those
mandated costs have resulted in excess payments to NUGs and taxes
in New York State that are more than twice the national average.
Such above-market costs will diminish the ability of New York
State utilities to compete in the retail market with utilities in
other states.
NYSEGPlan is contingent upon the receipt of electric price
increases of 2.8% scheduled for August 1, 1996, and 2.7% a year
later, as approved by the PSC in August 1995 under the company's
three-year electric rate settlement agreement. The price
increases are needed primarily to cover the rising cost of NUG
power, higher taxes and past expenditures whose recovery has been
delayed. NYSEGPlan is also contingent upon the reasonable
opportunity to fully recover prudently incurred investments, the
outcome of the Energy Association lawsuit, FERC approval and
implementation of a statewide Independent System Operator and
Power Exchange, no restriction on investment and earnings by
unregulated affiliates and final corporate and regulatory
approvals. (See Energy Association Lawsuit and Rate Matters.)
Generation Business: The company plans to transfer designated
generation assets to a generation company or companies. (See
Electric Rate and Restructuring Plan.) The company has sharpened
its focus on the evolving wholesale power market and is
concentrating on maximizing short-term wholesale power sales and
pursuing and negotiating creative medium- and long-term wholesale
sales contracts to improve its competitive position.
In July 1996 the company announced plans to remove three
generating units from active service by mid-1997, if initiatives
to improve the marketability of their output do not succeed. The
three units, two at Jennison Generating Station and one at
Hickling Generating Station, represent 116 megawatts (MW) of
capacity and would be placed on long-term cold standby.
Currently Goudey, Greenidge and Hickling generating stations each
have one unit on long-term cold standby, representing a combined
capacity of 133 MW. Certain of these units operated
intermittently in 1996 when energy markets were favorable.
Petition to the FERC on NUGs: In February 1995 the company
petitioned the FERC asking for relief from having to pay
approximately $2 billion more than its avoided costs for power
purchased over the lives of two NUG contracts. The FERC denied
that petition in April 1995 and denied the company's subsequent
request for a rehearing. The company believes that the
overpayments under the two contracts violate the Public Utility
Regulatory Policies Act of 1978.
In June 1995 the company filed a petition with the United
States Court of Appeals for the District of Columbia to review
the FERC's decision.
The company continues to seek cost-effective ways to
terminate or renegotiate existing NUG contracts and thus reduce
its overpayment burdens under such contracts.
FERC Orders 888 and 889: In April 1996 the 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 each utility to submit further modifications to its
tariff, and allows 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 FERC
accepted the company's transmission rates filed on July 9, 1996,
subject to refund and set the rates for hearing. As required by
the FERC, in February 1997 the company filed a new compliance
tariff with respect to non-rate terms and conditions, which
became effective retroactively on January 29, 1997.
Under the compliance tariff, the company must offer
transmission service to its wholesale customers on terms
comparable to those it applies to itself, and it is also required
to offer and/or provide certain ancillary services. The
company's tariff and tariffs of other utilities could adversely
affect the revenues received and payments made by the company in
connection with its transmission and wholesale power
transactions.
On December 30, 1996, the New York Power Pool (NYPP), of
which the company is a member, submitted a compliance filing with
the FERC in response to Order 888. This filing indicates the
intention to restructure the NYPP using an Independent System
Operator (ISO) structure, as endorsed by the FERC. On January
31, 1997, the NYPP submitted an additional restructuring filing,
which includes proposals to establish an ISO, a Power Exchange
and a New York State Reliability Council. The company is unable
to predict the outcome of these filings and their ultimate effect
on the company's financial position or results of operations.
Natural Gas Industry
During 1996 the company added nine natural gas franchises
and gained approximately 5,000 natural gas customers in both new
and existing franchise areas. The company plans to continue to
increase its natural gas business through the expansion of
natural gas service in existing franchise areas and to acquire
new franchises. The company completed two new large pipelines in
December 1996. A 25-mile pipeline system was constructed, and
natural gas began flowing to large industrial and public
authority customers in the Plattsburgh area. A 10-mile pipeline
was constructed, and natural gas began flowing to a large
industrial customer in Cobleskill.
The natural gas business has experienced a number of
regulatory changes, including FERC Order 636, which has been in
effect for three years, and recent PSC opinions and orders.
PSC Opinions and Orders: The PSC issued an Opinion and Order in
December 1994 (December Order) that set forth the policy
framework to guide the transition of New York's gas distribution
industry to a more competitive marketplace after the
implementation of FERC Order 636. 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 Order on Reconsideration.
Under the company's natural gas tariffs that were approved
by PSC Order in March 1996 (March Order) with certain
modifications, all of the company's customers -- residential,
small business and commercial, and industrial -- may buy natural
gas from other sources under a small customer aggregation
program, with the company providing delivery service for a
separate fee. The company has been offering unbundled
transportation services for a decade. The March Order approving
the company's tariffs is not expected to have a material effect
on the company's natural gas operations. Consistent with the
March Order, the company is implementing new services to compete
more effectively for sales to larger, more sophisticated
transportation customers as well as smaller customers.
Seneca Lake Natural Gas Storage Project: The company's Seneca
Lake storage project was placed in service in December 1996. The
project consists of a natural gas storage cavern, a compressor
station and two natural gas transmission pipelines. The storage
facility, located north of Watkins Glen on the west side of
Seneca Lake, includes a depleted salt cavern that has a working
capacity of 800 million cubic feet of natural gas.
The project's primary purposes are to ensure an adequate
natural gas supply to customers and to support economic growth in
southern and central New York. The project also allows the
company to increase supply flexibility, retire two inefficient
and expensive propane plants and reduce pipeline demand charges.
The company expects to expand the project in 1997, at an
estimated cost of $10 million. The expansion will allow for
growth in the company's wholesale natural gas business through
the sale of storage capacity in interstate commerce. The company
submitted a filing to the PSC in December 1996 for approval to
expand the project, and submitted a filing to the FERC in January
1997 for approval to provide additional services related to the
project expansion.
Economic and Business Climate
For the past few years the sluggish economy in New York
State has limited the company's sales growth opportunities and
increased the difficulty of retaining and expanding its
industrial customer base. There are indications, however, that
the state's economic and business climate is improving. When
fully implemented, proposed tax cuts in combination with
previously legislated tax cuts will reduce business and personal
taxes by $5.7 billion a year, and more than 400 burdensome
business regulations will have been eliminated or changed.
The company continues to focus on improving sales. The
flexible rates the company has developed allow it to negotiate
long-term contracts with eligible electric and natural gas
customers. The contracts may cover existing or new load, or
both.
Accounting Issues (See Note 1.)
The PSC's Competitive Opportunities Proceeding could affect
the eligibility of the company to continue applying Statement 71.
If the company could no longer meet the criteria of Statement 71
for all or a separable part of its business, the company may have
to record as expense or revenue certain previously deferred items
(regulatory assets and regulatory liabilities) and may have to
record as a loss the amount for power purchase contracts with
NUGs that is above the estimated price in a competitive
marketplace. These items are currently recovered in rates.
At December 31, 1996 and 1995, the company had $604 million
and $690 million, respectively, of regulatory assets, and $269
million and $294 million, respectively, of regulatory liabilities
on its balance sheets. At December 31, 1996, the company also
had power purchase contracts with NUGs that, on a present value
basis, are $1.8 billion above the estimated price in a
competitive marketplace. Although the company believes it will
continue to meet the criteria of Statement 71 in the near future,
it cannot predict what effect a competitive marketplace or future
PSC actions will have on its ability to continue to do so.
The company has other costs currently being recovered in
rates that may not be fully recoverable in a competitive
marketplace, including operating costs for certain generating
plants that may be above the market price for electricity. The
inability to recover those above-market costs would have an
adverse effect on the company's financial position and results of
operations.
Energy Services (See Note 10.)
The company has been making investments in energy services
companies through its subsidiary, NGE Enterprises, Inc. (NGE).
Those companies provide energy, financial and environmental
services.
During 1996 NGE determined that EnerSoft Corporation
(EnerSoft), a computer software and real-time information and
trading systems company, no longer fit NGE's strategic focus. As
a result, the company took a $10 million (14 cents per share)
charge against earnings in 1996 to write down NGE's investment in
EnerSoft, and exited that business in December 1996.
XENERGY, Inc. (XENERGY), acquired in June 1994, is an energy
services, information systems and energy-consulting company
serving utilities, governmental agencies and end-use energy
consumers. XENERGY's revenues were slightly higher in 1996 than
in 1995, and are expected to grow in 1997.
XENERGY has been successful in securing customers under
pilot programs for retail electricity competition. In
Massachusetts, XENERGY was chosen to supply 200 thousand
megawatt-hours per year to the Massachusetts High Technology
Council, a group of 13 companies participating in the pilot
program. In New Hampshire, XENERGY has formed an alliance with
Freedom Energy Company, L.L.C. to supply power to customers
representing approximately 10% of the 50-megawatt load in the
pilot program.
The company's investment as of December 31 and net loss for
the year ended December 31 related to NGE are:
1996 1995 1994
(Millions)
Investment $57 $54 $47
Net Loss* $21 $12 $6
*Includes net loss from EnerSoft of $16 million, $7 million and
$5 million in 1996, 1995 and 1994, respectively. EnerSoft's 1996
net loss includes $10 million related to NGE's decision to exit
that business.
The company expects that NGE will continue to incur
operating losses at least through 1997, but at a lower level due
to the exit from EnerSoft.
Rate Matters
Electric Rate Settlement
The company's current three-year electric rate settlement
agreement (electric agreement), approved by the PSC on August 1,
1995, is effective for the period August 1, 1995, through July
31, 1998. Effective August 1 each year, the electric agreement
provides for:
1995 1996 1997
Revenue increase (millions) $45.1 $45.3 $45.5
Percent increase 2.9% 2.8% 2.7%
Allowed return on equity 11.1% 11.2% 11.2%
The rate increases for years two and three of the electric
agreement are primarily to cover increases in the mandated
purchases of power from NUGs, higher taxes and past expenditures
whose recovery has been delayed to lessen previous rate
increases.
NUG power purchases, including termination costs, totaled
$320 million in 1996, and the company estimates that such
purchases will total $338 million in 1997, $351 million in 1998
and $352 million in 1999. (See Note 8.)
At the time the electric agreement was approved by the PSC,
the rate design for years two and three had yet to be determined.
In May 1996 a PSC administrative law judge issued a Recommended
Decision (RD) on the rate design for years two and three. In
July 1996 the company submitted the draft rate design for year
two to the PSC. This rate design was based on the RD and had an
effective date of September 1, 1996.
The PSC issued an order in August 1996 that deferred the use
of the year-two rates contained in the filing through December
30, 1996, unless otherwise ordered by the PSC. In September 1996
the company filed a petition for rehearing with the PSC
requesting that the PSC vacate its August Order and place in
effect a tariff containing a revenue allocation and rate design
that would increase revenues $45.3 million during year two of the
electric agreement. On December 18, 1996, the PSC issued an
order that further deferred use of the year-two rates through
June 30, 1997. On January 16, 1997, the PSC issued an order
denying the petition for rehearing and stated that the petition
should be considered in the context of NYSEGPlan. (See Electric
Rate and Restructuring Plan.)
On December 23, 1996, the company filed a lawsuit in the New
York State Supreme Court, Albany County. Among other things, the
lawsuit asks for a judgment directing the PSC to immediately
issue an order granting the company rates that include year-two
rate increases.
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 Rate Settlement
The company's natural gas rate settlement agreement (gas
agreement), which was authorized by the PSC in December 1995,
freezes natural gas prices from December 15, 1995, until July 31,
1998. The natural gas rates approved in the gas agreement made
permanent, until July 31, 1998, a 3.2% increase, less an
adjustment of about $1 million. That increase became effective
August 1, 1995, the final year of the gas portion of the previous
three-year electric and natural gas rate settlement agreement.
An earnings sharing mechanism in the gas agreement provides
that the average of the earned equity returns (exclusive of
service quality awards or penalties) will be determined for the
three years, and half of the three-year average of net earnings
in excess of 14%, if any, will be shared with customers.
The gas agreement eliminated, effective August 1, 1995, the
gas adjustment clause and the weather normalization clause, which
were used to collect from, or refund to, customers amounts
resulting from changes in the cost of purchased natural gas and
the effect of unusually warm or cold weather on natural gas
sales. The company uses risk management techniques such as
natural gas futures and options to manage natural gas commodity
prices and to fix margins on sales of natural gas.
Environmental Matters (See Notes 8 and 9.)
The company continually assesses actions needed to comply
with changing environmental laws and regulations. Any additional
compliance programs will require changes in the company's
operations and facilities and increase the cost of electric and
natural gas service. Historically, rate recovery has been
authorized for environmental compliance costs.
The Clean Air Act Amendments of 1990 (1990 Amendments) limit
emissions of sulfur dioxide and nitrogen oxides and require
emissions monitoring. The U.S. Environmental Protection Agency
(EPA) allocates annual emissions allowances to each of the
company's coal-fired generating stations based on statutory
emissions limits. An emissions allowance represents an
authorization to emit, during or after a specified calendar year,
one ton of sulphur dioxide.
The company estimates that it will have allowances in excess
of the affected coal-fired generating stations' actual emissions
during Phase I, which began on January 1, 1995. The company's
present strategy is to bank excess allowances for use in later
years. It is estimated that the company will meet Phase II
(begins January 1, 2000) emissions requirements through the year
2004, by using allowances banked during Phase I together with the
company's Phase II annual emissions allowances. This strategy
could be modified should market or business conditions change.
Investing and Financing Activities
Investing Activities
Capital expenditures for the company's electric and natural
gas businesses, including nuclear fuel and the allowance for
funds used during construction (AFDC), totaled $215 million in
1996, $164 million in 1995 and $248 million in 1994.
Expenditures in those three years were primarily for the
extension of service, necessary improvements to existing
facilities and compliance with environmental requirements. In
1996 and 1995 capital expenditures were financed entirely with
internally generated funds.
Capital expenditures projected for 1997, 1998 and 1999 are
$141 million, $157 million and $128 million, respectively, and
are expected to be financed entirely with internally generated
funds. (See Note 8.)
Financing Activities
In September 1996 the company initiated a common stock
repurchase program of not to exceed four million shares. As of
December 31, 1996, the company had repurchased 1,832,500 shares
at an average price of $21.90 per share. Common stock equity was
reduced by $40 million as a result of the repurchase. The
company plans to purchase shares from time to time as market and
other conditions warrant.
The company's other financing activities during 1996, funded
through the issuance of commercial paper, consisted of:
- The redemption, at a premium, of $100 million of 8.95%
preferred stock.
- The redemption, at par, of $23 million of 9 7/8% Series
first mortgage bonds, due February 1, 2020, pursuant to
a sinking fund provision in the company's mortgage
indenture.
- The redemption, at a premium, of the remaining $37
million of 8 5/8% Series first mortgage bonds due 2007.
- The purchase, at a discount, of $2.60 million of 4.15%
preferred stock, $1.98 million of 4.40% preferred stock
and $1.48 million of 4.15% (1954) preferred stock.
Since 1987 the company has reduced its debt from 62% to 45%
of total capital (includes current maturities) and has raised its
common stock equity from 33% to 51% of total capital at December
31, 1996.
The company reduced its embedded cost of long-term debt to
6.9% at the end of 1996, and has refinanced and/or redeemed more
than $1.8 billion in long-term debt since the beginning of 1988.
The embedded cost of preferred stock, which was reduced
significantly due to the redemption of the 8.95% preferred stock,
was 6% at December 31, 1996. Annual interest expense and
preferred stock dividends have been reduced by nearly $80 million
since the beginning of 1988.
The company uses short-term, unsecured notes, usually
commercial paper, to finance certain refundings and for other
corporate purposes. There was $129 million and $29 million of
commercial paper outstanding at December 31, 1996 and 1995,
respectively, at weighted average interest rates of 5.8% and
6.1%, respectively.
The company also has a revolving credit agreement with
certain banks that provides for borrowing up to $200 million
until December 31, 2001. There were no amounts outstanding under
this agreement during 1996 or 1995.
Results of Operations
1996 1995
over over
1995 1994
1996 1995 1994 Change Change
(Thousands, except per share amounts)
Total Operating Revenues $2,059,371 $2,009,541 $1,898,855 2% 6%
Operating Income $457,543 $472,144 $438,575 (3%) 8%
Earnings Available for
Common Stock $168,711 $177,969 $168,698 (5%) 5%
Average Shares Outstanding 71,127 71,503 71,254 (1%) -
Earnings Per Share $2.37 $2.49 $2.37 (5%) 5%
Earnings Per Share Excluding
Certain Charges $2.51 $2.49 $2.49 1% -
Dividends Per Share $1.40 $1.40 $2.00 - (30%)
Earnings per Share
Earnings per share for 1996 were 12 cents lower than 1995
earnings per share. Without a charge of 14 cents per share to
write down an investment in EnerSoft Corporation by NGE
Enterprises, Inc., 1996 earnings per share would have been two
cents higher than the prior year.
Higher electric and natural gas retail sales, mainly due to
a combination of cold weather in the first quarter of 1996 and
additional customers, added five cents per share to earnings.
Lower interest charges in 1996 added nine cents per share to
earnings and a reduction in preferred stock dividends, primarily
due to the redemption of $100 million of 8.95% preferred stock,
net of related interest expense on commercial paper, added 10
cents per share to earnings. Earnings per share were reduced 15
cents because of lower electric retail margins, primarily due to
increases in mandated purchases of power from NUGs. (See Electric
Rate Settlement.) Higher operating costs further decreased
earnings six cents per share.
Earnings per share in 1995 were 12 cents higher than in
1994. Excluding a charge for the 1993 production-cost penalty
that lowered 1994 earnings by 12 cents per share, earnings per
share were unchanged between 1995 and 1994.
Higher electric and natural gas prices added eight cents per
share to 1995 earnings and higher profits on wholesale sales of
electricity added five cents. The company's efforts to control
operating costs increased 1995 earnings two cents per share.
Lower interest charges in 1995, primarily due to the refinancing
and retirement of debt, added six cents per share to earnings.
Those increases were offset by an 11 cent per share decrease in
other income and deductions, mostly because of higher losses
incurred by NGE, and a nine cent charge to earnings per share for
higher maintenance expenses, including storm-related costs.
Interest Expense
Compared to the prior year, interest expense (before the
reduction for allowance for borrowed funds used during
construction) decreased $6 million and $9 million in 1996 and
1995, respectively. The decreases in both years were primarily
the result of the refinancing and retirement of certain issues of
long-term debt.
Dividends Per Share
The quarterly common stock dividend for 1996 was unchanged
compared to 1995. Dividends per share for 1995 decreased 30%
compared to the prior year because the board of directors reduced
the quarterly common stock dividend from 55 cents per share to 35
cents per share in October 1994. Future dividend levels will
depend on many factors, including the effect of industry
restructuring on earnings.
Operating Results for the Electric Business Segment
1996 1995
over over
1995 1994
1996 1995 1994 Change Change
(Thousands)
Retail Sales - Megawatt-
Hours(mwh) 13,216 13,093 13,148 1% -
Operating Revenues $1,723,147 $1,708,297 $1,600,075 1% 7%
Operating Expenses $1,322,885 $1,286,969 $1,202,328 3% 7%
Operating Income $400,262 $421,328 $397,747 (5%) 6%
Electric retail sales increased in 1996 primarily because of
cold weather in the first quarter of 1996 and additional
customers.
The slight decrease in electric retail sales in 1995
resulted from the sluggish economy in the company's service
territory. Although there were significant changes in weather
during 1995 compared to 1994, the overall effect on sales was
minimal.
Operating Revenues: The $15 million increase in electric
operating revenues for 1996 was primarily due to higher retail
sales, which added $14 million to revenues. An increase in
wholesale sales of electricity added $12 million to revenues and
changes in prices effective August 1995, net of the effect of
eliminating the fuel adjustment clause, added $6 million to
revenues. Those increases were partially offset by an increase
in regulatory deferrals of $21 million.
Electric operating revenues for 1995 were $108 million
higher than 1994 revenues. Revenues rose $87 million because of
increases in electric prices, due to changes in rates effective
August 1995 and 1994, primarily to accommodate increased mandated
purchases of NUG power. An increase in wholesale sales of
electricity added $9 million to 1995 revenues. 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.
Operating Expenses: Electric operating expenses rose $36 million
in 1996. Electricity purchases, mostly required purchases from
NUGs, increased operating expenses $42 million. That increase
was partially offset by an $8 million decrease in fuel used in
electric generation.
The $85 million increase in electric operating expenses in
1995 is primarily attributable to an increase of $76 million in
electricity purchased, mostly due to NUG purchases. Maintenance
expenses, including storm-related costs, rose $10 million.
Operating Results for the Natural Gas Business Segment
1996 1995
over over
1995 1994
1996 1995 1994 Change Change
(Thousands)
Deliveries -
Dekatherms (dth) 61,542 58,535 58,624 5% -
Operating Revenues $336,224 $301,244 $298,780 12% 1%
Operating Expenses $278,943 $250,428 $257,952 11% (3%)
Operating Income $57,281 $50,816 $40,828 13% 24%
Natural gas deliveries increased in 1996 due to a
combination of cold weather in the first quarter of 1996
and additional customers.
Natural gas deliveries for 1995 were almost equal to 1994
deliveries. The sluggish economy in the company's service
territory continued to affect sales, which were below
expectations. There were significant changes in weather during
1995 compared to 1994, but the overall effect on 1995 sales was
minimal.
Operating Revenues: Natural gas operating revenues for 1996
increased $35 million over 1995 revenues. A change in rate
structure effective December 1995 and changes in rates effective
August 1995 added $20 million to revenues. Higher retail sales
added $9 million to revenues and an increase in transportation of
customer-owned gas added $4 million to revenues for the year.
In 1995 natural gas operating revenues increased $2 million,
primarily as a result of higher natural gas prices that added $3
million to revenues. Changes in rates effective in August 1995
and 1994 were the primary reason for the higher natural gas
prices.
Operating Expenses: Comparing 1996 to 1995, natural gas
operating expenses rose $29 million. An increase in natural gas
purchased, due to higher commodity costs and higher deliveries,
added $23 million and an increase in certain operating costs
added $5 million to expenses.
The $8 million reduction in natural gas operating expenses
in 1995 was due to a combination of factors. Natural gas
purchased decreased $12 million mainly because of lower commodity
prices. That decrease was partially offset by higher
depreciation and distribution operation expenses that each added
$1 million to operating expenses.
Item 8. Financial statements and supplementary data
New York State Electric & Gas Corporation
Consolidated Statements of Income
Year Ended December 31 1996 1995 1994
- ----------------------------------------------------------------------------
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . . $1,723,147 $1,708,297 $1,600,075
Natural gas . . . . . . . . . . . . . . 336,224 301,244 298,780
---------- ---------- ----------
Total Operating Revenues. . . . . . . 2,059,371 2,009,541 1,898,855
---------- ---------- ----------
Operating Expenses
Fuel used in electric generation. . . . 222,102 229,759 231,648
Electricity purchased . . . . . . . . . 360,753 318,440 242,352
Natural gas purchased . . . . . . . . . 172,705 149,789 161,627
Other operating expenses. . . . . . . . 342,455 326,922 328,961
Maintenance.. . . . . . . . . . . . . . 107,697 116,807 106,637
Depreciation and amortization . . . . . 189,401 184,770 178,326
Other taxes . . . . . . . . . . . . . . 206,715 210,910 210,729
---------- ---------- ----------
Total Operating Expenses. . . . . . . 1,601,828 1,537,397 1,460,280
---------- ---------- ----------
Operating Income. . . . . . . . . . . . . 457,543 472,144 438,575
Interest Charges, Net . . . . . . . . . . 122,729 129,567 136,092
Other Income and Deductions . . . . . . . 48,630 30,023 12,377
---------- ---------- ----------
Income Before Federal Income Taxes. . . . 286,184 312,554 290,106
Federal Income Taxes. . . . . . . . . . . 107,943 115,864 102,461
---------- ---------- ----------
Net Income. . . . . . . . . . . . . . . . 178,241 196,690 187,645
Preferred Stock Dividends . . . . . . . . 9,530 18,721 18,947
---------- ---------- ----------
Earnings Available for Common Stock . . . $168,711 $177,969 $168,698
========== ========== ==========
Earnings Per Share. . . . . . . . . . . . $2.37 $2.49 $2.37
Average Shares Outstanding. . . . . . . . 71,127 71,503 71,254
The notes on pages 40 through 57 are an integral part of the financial
statements.
New York State Electric & Gas Corporation
Consolidated Balance Sheets
December 31 1996 1995
- -----------------------------------------------------------------------------
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $ 8,253 $11,433
Special deposits . . . . . . . . . . . . . . . . . . . 31,364 5,785
Accounts receivable, net . . . . . . . . . . . . . . . 189,043 195,834
Fuel, at average cost. . . . . . . . . . . . . . . . . 36,472 33,682
Materials and supplies, at average cost. . . . . . . . 43,044 44,809
Prepayments. . . . . . . . . . . . . . . . . . . . . . 47,169 31,371
Accumulated deferred federal income
tax benefits, net . . . . . . . . . . . . . . . . . 3,424 7,594
---------- ----------
Total Current Assets . . . . . . . . . . . . . . . . 358,769 330,508
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 5,177,365 5,090,044
Natural gas. . . . . . . . . . . . . . . . . . . . . . 529,023 445,256
Common . . . . . . . . . . . . . . . . . . . . . . . . 151,290 140,686
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,857,678 5,675,986
Less accumulated depreciation. . . . . . . . . . . . . 1,933,599 1,791,625
---------- ----------
Net Utility Plant in Service . . . . . . . . . . . . 3,924,079 3,884,361
Construction work in progress. . . . . . . . . . . . . 58,285 79,229
---------- ----------
Total Utility Plant. . . . . . . . . . . . . . . . . 3,982,364 3,963,590
Other Property and Investments, Net . . . . . . . . . . 99,221 99,633
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 269,767 323,446
Unamortized debt expense. . . . . . . . . . . . . . . 80,745 85,023
Demand-side management program costs. . . . . . . . . 71,425 74,824
Other regulatory assets . . . . . . . . . . . . . . . 181,661 206,736
---------- ---------
Total regulatory assets. . . . . . . . . . . . . . . . 603,598 690,029
Other assets . . . . . . . . . . . . . . . . . . . . . 15,729 30,571
---------- ----------
Total Regulatory and Other Assets. . . . . . . . . . 619,327 720,600
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . $5,059,681 $5,114,331
========== ==========
The notes on pages 40 through 57 are an integral part of the financial
statements.
New York State Electric & Gas Corporation
Consolidated Balance Sheets
December 31 1996 1995
- ------------------------------------------------------------------------------
(Thousands)
Liabilities
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $83,488 $37,003
Commercial paper . . . . . . . . . . . . . . . . . . . 129,300 28,620
Accounts payable and accrued liabilities . . . . . . . 121,123 117,637
Interest accrued . . . . . . . . . . . . . . . . . . . 22,195 24,093
Taxes accrued. . . . . . . . . . . . . . . . . . . . . - 22,231
Other. . . . . . . . . . . . . . . . . . . . . . . . . 71,324 68,027
---------- ----------
Total Current Liabilities . . . . . . . . . . . . . 427,430 297,611
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 109,065 128,643
Deferred income taxes . . . . . . . . . . . . . . . . 94,004 108,605
Other liabilities . . . . . . . . . . . . . . . . . . 65,471 56,729
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 268,540 293,977
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 751,553 743,484
Other postretirement benefits . . . . . . . . . . . . 95,195 75,683
Liability for environmental restoration . . . . . . . 32,100 31,800
Other . . . . . . . . . . . . . . . . . . . . . . . . 74,627 81,288
---------- ----------
Total other liabilities . . . . . . . . . . . . . . . 953,475 932,255
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,480,814 1,581,448
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 3,130,259 3,105,291
Commitments . . . . . . . . . . . . . . . . . . . . . . - -
Preferred Stock Redeemable Solely at the Option of
the Company . . . . . . . . . . . . . . . . . . . . . 134,440 140,500
Preferred Stock Subject to Mandatory Redemption
Requirements. . . . . . . . . . . . . . . . . . . . . 25,000 125,000
Common Stock Equity
Common stock ($6.66 2/3 par value, 90,000,000
shares authorized and 69,670,327 and 71,502,827
shares issued and outstanding at December 31,
1996 and 1995, respectively) . . . . . . . . . . . . 464,469 476,686
Capital in excess of par value . . . . . . . . . . . . 816,384 842,442
Retained earnings. . . . . . . . . . . . . . . . . . . 489,129 424,412
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 1,769,982 1,743,540
---------- ----------
Total Liabilities and Stockholders' Equity. . . . . $5,059,681 $5,114,331
========== ==========
The notes on pages 40 through 57 are an integral part of the financial
statements.
New York State Electric & Gas Corporation
Consolidated Statements of Cash Flows
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $178,241 $196,690 $187,645
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 189,401 184,770 178,326
Deferred fuel and purchased gas. . . . . . . . . 1,066 15,022 (1,944)
Federal income taxes and investment tax credits
deferred, net. . . . . . . . . . . . . . . . . 28,928 52,362 37,910
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . 6,791 (40,169) 25,921
Inventory. . . . . . . . . . . . . . . . . . . . (1,025) 19,286 5,924
Accounts payable and accrued liabilities . . . . 3,486 10,281 (4,125)
Other, net . . . . . . . . . . . . . . . . . . . . 52,144 13,589 20,721
-------- -------- --------
Net Cash Provided by Operating Activities . . . 459,032 451,831 450,378
-------- -------- --------
Investing Activities
Utility plant capital expenditures . . . . . . . . (214,373)(163,401)(246,536)
Proceeds from governmental and other sources . . . 2,977 5,621 23,915
Expenditures for other property and investments. . (916) (3,145) (34,482)
Funds restricted for capital expenditures. . . . . - 1,324 41,113
-------- -------- --------
Net Cash Used in Investing Activities. . . . . . (212,312)(159,601)(215,990)
-------- -------- --------
Financing Activities
Issuance of pollution control notes and
first mortgage bonds . . . . . . . . . . . . . . - 37,000 275,000
(Repurchase) sale of common stock. . . . . . . . . (40,198) - 23,386
Revolving credit agreement, net. . . . . . . . . . - - (50,000)
Repayments of preferred stock, first mortgage
bonds and pollution control notes,
including net premiums . . . . . . . . . . . . . (171,478) (92,395)(497,450)
Changes in funds set aside for first mortgage
bond and preferred stock repayments. . . . . . . (25,000) - 95,000
Long-term notes, net . . . . . . . . . . . . . . . (2,581) (5,504) (2,290)
Commercial paper, net. . . . . . . . . . . . . . . 100,680 (123,280) 101,700
Dividends on common and preferred stock. . . . . . (111,323)(118,940)(161,676)
-------- -------- --------
Net Cash Used in Financing Activities. . . . . . (249,900)(303,119)(216,330)
-------- -------- --------
Net (Decrease) Increase in Cash and
Cash Equivalents. . . . . . . . . . . . . . . . . (3,180) (10,889) 18,058
Cash and Cash Equivalents, Beginning of Year. . . . 11,433 22,322 4,264
-------- -------- --------
Cash and Cash Equivalents, End of Year. . . . . . . $8,253 $11,433 $22,322
======== ======== ========
The notes on pages 40 through 57 are an integral part of the financial
statements.
New York State Electric & Gas Corporation
Consolidated Statements of Changes in Common Stock Equity
(Thousands, except shares and per share amounts)
C>
Common Stock Capital in
$6.66 2/3 Par Value Excess of Retained
Shares Amount Par Value Earnings Total
Balance, January 1, 1994 70,595,985 $470,640 $824,943 $320,114 $1,615,697
Net income 187,645 187,645
Cash dividends declared
Preferred stock (at serial rates)
Redeemable - optional (8,419) (8,419)
- mandatory (10,528) (10,528)
Common stock ($2.00 per share) (142,265) (142,265)
Issuance of stock
Dividend reinvestment and
stock purchase plan 906,842 6,046 17,450 23,496
Amortization of capital stock
issue expense (769) (769)
Balance, December 31, 1994 71,502,827 476,686 841,624 346,547 1,664,857
Net income 196,690 196,690
Cash dividends declared
Preferred stock (at serial rates)
Redeemable - optional (8,196) (8,196)
- mandatory (10,525) (10,525)
Common stock ($1.40 per share) (100,104) (100,104)
Amortization of capital stock
issue expense 818 818
Balance, December 31, 1995 71,502,827 476,686 842,442 424,412 1,743,540
Net income 178,241 178,241
Cash dividends declared
Preferred stock (at serial rates)
Redeemable - optional (7,955) (7,955)
- mandatory (1,575) (1,575)
Common stock ($1.40 per share) (99,611) (99,611)
Common stock repurchase (1,832,500) (12,217) (27,981) (40,198)
Premium paid on preferred stock
redemption, net (4,383) (4,383)
Amortization of capital stock
issue expense 1,923 1,923
Balance, December 31, 1996 69,670,327 $464,469 $816,384 $489,129 $1,769,982
The notes on pages 40 through 57 are an integral part of the financial statements.
Notes to Consolidated Financial Statements
1 Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the company's subsidiaries,
Somerset Railroad Corporation (SRC) and NGE Enterprises, Inc. (NGE).
Utility plant
The cost of repairs and minor replacements is charged to the appropriate
operating expense accounts. The cost of renewals and betterments, including
indirect costs, is capitalized. The original cost of utility plant retired or
otherwise disposed of and the cost of removal less salvage are charged to
accumulated depreciation.
Depreciation and amortization
Depreciation expense is determined using straight-line rates, based on the
average service lives of groups of depreciable property in service.
Depreciation accruals were equivalent to 3.5% of average depreciable property
for 1996, 1995 and 1994. Amortization expense includes the amortization of
certain regulatory assets authorized by the Public Service Commission of the
State of New York (PSC).
Accounts receivable
The company has an agreement that expires in November 2000 to sell, with
limited recourse, undivided percentage interests in certain of its accounts
receivable from customers. The agreement allows the company to receive up to
$152 million from the sale of such interests. At December 31, 1996 and 1995,
accounts receivable on the consolidated balance sheets are shown net of
$152 million of interests in accounts receivable sold. All fees associated
with the program are included in other income and deductions on the
consolidated statements of income and amounted to approximately $9 million, $10
million and $7 million in 1996, 1995 and 1994, respectively. Accounts
receivable on the consolidated balance sheets are also shown net of an
allowance for doubtful accounts of $7 million at December 31, 1996 and 1995.
Bad debt expense was $19 million, $18 million and $20 million in 1996, 1995 and
1994, respectively.
In June 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (Statement 125), Accounting for the
Transfer and Servicing of Financial Assets and Extinguishment of Liabilities,
effective for transactions occurring after December 31, 1996. The company's
accounting complies with the provisions of Statement 125.
Income taxes
The company files a consolidated federal income tax return with SRC and
NGE. Deferred income taxes are provided on all temporary differences between
financial statement basis and
taxable income in accordance with Statement of Financial Accounting Standards
No. 109 (Statement 109), Accounting for Income Taxes. Investment tax credits,
which reduce federal income taxes currently payable, were deferred and are
being amortized over the estimated lives of the applicable property.
Regulatory assets and liabilities
Pursuant to Statement of Financial Accounting Standards No. 71 (Statement
71), Accounting for the Effects of Certain Types of Regulation, the company
capitalizes, as regulatory assets, incurred costs that are probable of recovery
in future electric and natural gas rates. In accordance with the company's
current electric and natural gas rate settlement agreements, the company is no
longer deferring certain costs that were previously subject to deferral
accounting, such as fuel and natural gas purchased. The company also records
as regulatory liabilities, obligations to customers to refund previously
collected revenue or to spend revenue collected from customers on future costs.
The company's regulatory assets and liabilities consisted of the
following:
December 31 1996 1996 1995 1995
Liabil- Liabil-
Assets ities Assets ities
(Thousands)
Unfunded future federal
income taxes $269,767 - $323,446 -
Deferred income taxes - unfunded
future federal income taxes - $109,065 - $128,643
Deferred income taxes - 94,004 - 108,605
Unamortized debt expense 80,745 - 85,023 -
Demand-side management
(DSM) program costs 71,425 - 74,824 -
Nonutility generator (NUG)
termination agreements 43,991 - 43,847 -
Environmental remediation costs 32,100 - 31,763 -
Other postretirement benefits 18,417 - 21,179 -
Other 87,153 65,471 109,947 56,729
-------- -------- -------- --------
Total $603,598 $268,540 $690,029 $293,977
======== ======== ======== ========
Unfunded future federal income taxes and deferred income
taxes are amortized as the related temporary differences reverse.
Unamortized debt expense is amortized over the lives of the
related debt issues. DSM program costs, other regulatory assets
and other regulatory liabilities are amortized over various
periods in accordance with the company's rate settlement
agreements. The company is earning a return on all regulatory
assets for which the company has spent funds.
If the company could no longer meet the criteria of
Statement 71 for all or a separable part of its business, the
company may have to record as expense or revenue all or a portion
of its regulatory assets and liabilities and may have to record
as a loss the amount for power purchase contracts with NUGs that
is above the estimated price in a competitive marketplace.
Consolidated Statements of Cash Flows
The company considers all highly liquid investments with a
maturity or put date of three months or less when acquired to be
cash equivalents. Those investments are included in cash and
cash equivalents on the consolidated balance sheets.
Total income taxes paid were $98 million, $55 million and
$69 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
Interest paid, net of amounts capitalized, was $112 million,
$118 million and $132 million for the years ended December 31,
1996, 1995 and 1994, respectively.
Estimates
Preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications
Certain amounts have been reclassified on the consolidated
financial statements to conform with the 1996 presentation.
2 Income Taxes
Year ended December 31 1996 1995 1994
(Thousands)
Charged to operations
Current $79,015 $63,502 $64,551
Deferred, net
Accelerated depreciation 52,572 55,493 57,564
Revenue decoupling mechanism (2,153) (4,608) 6,870
Alternative minimum tax
(AMT) credit 310 18,009 6,076
Demand-side management (1,267) 21 (9,048)
Miscellaneous (14,197) (10,339) (17,514)
Investment tax credit (ITC) (6,337) (6,214) (6,038)
-------- -------- --------
Total $107,943 $115,864 $102,461
======== ======== ========
The company's effective tax rate differed from the statutory rate
of 35% due to the following:
Year ended December 31 1996 1995 1994
(Thousands)
Tax expense at statutory rate $100,165 $109,396 $101,537
Depreciation not normalized 20,542 19,774 18,552
ITC amortization (6,337) (6,214) (6,038)
Research & Development credit 83 (5,547) (1,352)
Cost of removal (2,825) (3,772) (5,462)
Other, net (3,685) 2,227 (4,776)
-------- -------- --------
Total $107,943 $115,864 $102,461
======== ======== ========
The company's deferred tax assets and liabilities consisted of
the following:
December 31 1996 1995
(Thousands)
Current Deferred Tax Assets $3,424 $7,594
======== ========
Noncurrent Deferred Taxes
Depreciation $761,794 $727,630
Unfunded future federal
income taxes 109,065 128,643
Accumulated deferred ITC 119,696 126,032
Future income tax benefit - ITC (41,847) (44,488)
Other 4,529 40,063
-------- --------
Total Noncurrent Deferred
Tax Liabilities 953,237 977,880
Valuation allowance 1,385 2,852
Less amounts classified as
regulatory liabilities
Deferred income taxes - unfunded
future federal income taxes 109,065 128,643
Deferred income taxes 94,004 108,605
-------- --------
Noncurrent Deferred Income Taxes $751,553 $743,484
======== ========
3 Long-Term Debt
At December 31, 1996 and 1995, long-term debt was:
Amount
Maturity Interest
Dates Rates 1996 1995
(Thousands)
First mortgage
bonds (1) 1997 to 2023 5 5/8% to 9 7/8% $903,000 $963,000
Pollution control
notes (2) 2006 to 2034 3.30% to 6.15% 613,000 613,000
Long-term notes 12/31/99 29,900 31,000
Various long-term notes 15,809 5,501
Obligations under capital leases 10,699 14,799
Unamortized premium and discount on debt, net (8,106) (8,849)
---------- ----------
1,564,302 1,618,451
Less debt due within one year - included
in current liabilities 83,488 37,003
---------- ----------
Total $1,480,814 $1,581,448
========== ==========
At December 31, 1996, long-term debt and capital lease
payments that will become due during the next five years are:
1997 1998 1999 2000 2001
(Thousands)
$83,488 $35,634 $33,906 $1,899 $51,641
(1) The company's first mortgage bond indenture constitutes a
direct first mortgage lien on substantially all utility plant.
The mortgage also provides for a sinking and improvement fund.
This provision requires the company to make an annual cash
deposit with the Trustee equivalent to 1% of the principal amount
of all bonds delivered and authenticated by the Trustee prior to
January 1 of that year (excluding any bonds issued on the basis
of the retirement of bonds). The company satisfied the
requirement by depositing $23 million in cash in 1996 and 1997.
The funds were used to redeem, at par, $23 million of 9 7/8%
Series first mortgage bonds, due February 2020, in both February
1996 and February 1997.
(2) Fixed-rate pollution control notes totaling $306 million
were issued to secure the same amount of tax-exempt pollution
control revenue bonds issued by a governmental authority. The
interest rates range from 5.70% to 6.15%.
Adjustable-rate pollution control notes totaling $132
million were issued to secure the same amount of tax-exempt
adjustable-rate pollution control revenue bonds (Adjustable-rate
Revenue Bonds) issued by a governmental authority. The
Adjustable-rate Revenue Bonds bear interest at rates ranging from
3.30% to 3.85% through dates preceding various annual interest
rate adjustment dates. On the annual interest rate adjustment
dates the interest rates will be adjusted, or at the option of
the company, subject to certain conditions, a fixed rate of
interest may become effective. Bond owners may elect, subject to
certain conditions, to have their Adjustable-rate Revenue Bonds
purchased by the Trustee.
Multi-mode pollution control notes totaling $175 million
were issued to secure the same amount of tax-exempt multi-mode
pollution control refunding revenue bonds (Multi-mode Revenue
Bonds) issued by a governmental authority. The Multi-mode
Revenue Bonds have a structure that allows the interest rates to
be based on a daily rate, a weekly rate, a commercial paper rate,
an auction rate, a term rate or a fixed rate. Bond owners may
elect, while the Multi-mode Revenue Bonds bear interest at a
daily or weekly rate, to have their bonds purchased by the
Registrar and Paying Agent. The maturity dates of the Multi-mode
Revenue Bonds are February 1, 2029, June 1, 2029, and October 1,
2029, and can be extended subject to certain conditions. At
December 31, 1996, the multi-mode pollution control notes bore
interest at the daily rate. The weighted average interest rate
for all three series was 3.2%, excluding letter of credit fees,
for the year ended December 31, 1996.
The company has irrevocable letters of credit that support
certain payments required to be made on the Adjustable-rate
Revenue Bonds and Multi-mode Revenue Bonds, and that expire on
various letter of credit expiration dates. If the company is
unable to extend the letter of credit that is related to a
particular series of Adjustable-rate Revenue Bonds, that series
will have to be redeemed unless a fixed rate of interest becomes
effective. Multi-mode Revenue Bonds are subject to mandatory
purchase upon any change in the interest rate mode and in certain
other circumstances. Payments made under the letters of credit
in connection with purchases of Adjustable-rate Revenue Bonds and
Multi-mode Revenue Bonds are repaid with the proceeds from the
remarketing of those Bonds. To the extent the proceeds are not
sufficient, the company is required to reimburse the bank that
issued the letter of credit.
4 Preferred Stock
At December 31, 1996 and 1995, serial cumulative preferred stock
was:
Shares
Par Value Authorized
Per Redeemable and Amount
Series Share Prior to Per Share Outstanding(1) 1996 1995
(Thousands)
Redeemable solely at the option of the company:
3.75% $100 $104.00 150,000 $15,000 $15,000
4 1/2%(1949) 100 103.75 40,000 4,000 4,000
4.15% (2) 100 101.00 14,000 1,400 4,000
4.40% (2) 100 102.00 55,200 5,520 7,500
4.15% (1954)(2) 100 102.00 35,200 3,520 5,000
6.48% 100 102.00 300,000 30,000 30,000
7.40% (3) 25 12/1/98 26.85 1,000,000 25,000 25,000
Thereafter 25.00
Adjustable
Rate (4) 25 12/1/98 27.50 2,000,000 50,000 50,000
Thereafter 25.00
-------- --------
Total $134,440 $140,500
======== ========
Subject to mandatory redemption requirements:
6.30% (5) 100 1/1/98 103.78 250,000 $25,000 $25,000
8.95% (6) 25 - - 100,000
-------- --------
Total $25,000 $125,000
======== ========
At December 31, 1996, there were no preferred stock redemptions
or annual redeemable preferred stock sinking fund requirements
for the next five years.
(1) At December 31, 1996, there were 1,610,600 shares of $100 par
value preferred stock, 7,800,000 shares of $25 par value
preferred stock and 1,000,000 shares of $100 par value preference
stock authorized but unissued.
(2) In 1996 the company purchased the following, at a discount,
through the issuance of commercial paper: $2.60 million of 4.15%
preferred stock, $1.98 million of 4.40% preferred stock and $1.48
million of 4.15% (1954) preferred stock.
(3) The company is restricted in its ability to redeem this
Series prior to December 1, 1998.
(4) The payment on this Series, for April 1, 1997, is at an
annual rate of 5.40% and subsequent payments can vary from an
annual rate of 4% to 10%, based on a formula included in the
company's Certificate of Incorporation. The company is
restricted in its ability to redeem this Series prior to December
1, 1998.
(5) On January 1 in each year 2004 through 2008, the company must
redeem 12,500 shares at par, and on January 1, 2009, the company
must redeem the balance of the shares at par. This Series is
redeemable at the option of the company at $103.78 per share
prior to January 1, 1998. The $103.78 price will be reduced
annually by 63 cents for the years ending 1998 through 2002;
thereafter, the redemption price is $100.00. The company is
restricted in its ability to redeem this Series prior to January
1, 2004.
(6) Redeemed January 1, 1996.
Dividend Limitations: After dividends on all outstanding
preferred stock have been paid, or declared, and funds set apart
for their payment, the common stock is entitled to cash dividends
as may be declared by the board of directors out of retained
earnings accumulated since December 31, 1946. Common stock
dividends are limited if common stock equity (52% at December 31,
1996) falls below 25% of total capitalization, as defined in the
company's Certificate of Incorporation. Dividends on common
stock cannot be paid unless sinking fund requirements of the
preferred stock are met. The company has not been restricted in
the payment of dividends on common stock by these provisions.
Retained earnings accumulated since December 31, 1946, were
approximately $489 million and $424 million as of December 31,
1996 and 1995, respectively.
5 Bank Loans and Other Borrowings
The company has a revolving credit agreement with certain
banks that provides for borrowing up to $200 million to December
31, 2001. At the option of the company, the interest rate on
borrowings is related to the prime rate, the London Interbank
Offered Rate or the interest rate applicable to certain
certificates of deposit. The agreement also provides for the
payment of a commitment fee that can fluctuate from .10% to .25%
depending on the credit ratings of the company's first mortgage
bonds. The commitment fee was .125% at December 31, 1996 and
1995, and .1875% at December 31, 1994.
The revolving credit agreement does not require compensating
balances. The company had no outstanding loans under the
revolving credit agreement at December 31, 1996 or 1995.
The company uses short-term unsecured notes, usually
commercial paper, to finance certain refundings and for other
corporate purposes. The weighted average interest rates on
commercial paper balances at December 31, 1996, 1995 and 1994
were 5.8%, 6.1% and 5.8%, respectively.
6 Retirement Benefits
Pensions
The company has a noncontributory retirement annuity plan
that covers substantially all employees. Benefits are based
principally on the employee's length of service and compensation
for the five highest paid consecutive years during the last 10
years of service. It is the company's policy to fund pension
costs accrued each year to the extent deductible for federal
income tax purposes.
Net pension benefit included the following components:
Year ended December 31 1996 1995 1994
(Thousands)
Service cost: Benefits
earned during the year $18,593 $16,391 $17,637
Interest cost on projected
benefit obligation 46,070 45,400 43,328
Actual return on plan assets (138,957) (185,816) (17,409)
Net amortization and deferral 58,162 111,209 (48,824)
-------- -------- --------
Net pension (benefit) $(16,132) $(12,816) $(5,268)
======== ======== ========
The funded status of the plan was:
December 31 1996 1995
(Thousands)
Actuarial present value of accumulated
benefit obligation
Vested $472,786 $450,857
Nonvested 52,272 53,837
-------- --------
Total $525,058 $504,694
======== ========
Fair value of plan assets $(995,795) $(888,190)
Actuarial present value of
projected benefit obligation (PBO) 679,778 661,138
-------- --------
Plan assets in excess of PBO (316,017) (227,052)
Unrecognized net transition asset 51,898 59,136
Unrecognized net gain 275,531 178,927
Unrecognized prior service cost (26,464) (9,931)
-------- --------
Net pension (asset) liability $(15,052) $1,080
======== ========
Assumptions used to determine actuarial valuations
Discount rate used to determine PBO 7.25% 7.0%
Rate of compensation increase
used to determine PBO 4.75% 4.75%
Long-term rate of return on plan
assets for net pension benefit 8.0% 8.0%
Plan assets primarily consist of domestic and international
equity securities; U.S. agency, corporate and Treasury bonds; and
cash equivalents.
Postretirement benefits other than pensions
The company has postretirement benefit plans, such as a
comprehensive health insurance plan and a prescription drug plan,
that provide certain benefits for retired employees and their
dependents. Substantially all of the company's employees who
retire under the company's pension plan may become eligible for
those benefits at retirement. The postretirement benefit plans
were unfunded as of December 31, 1996 and 1995.
The net periodic postretirement benefits cost other than
pensions recognized on the income statements for 1996, 1995 and
1994 (below) represent the portion of costs related to Statement
of Financial Accounting Standards No. 106 (Statement 106),
Employers' Accounting for Postretirement Benefits Other Than
Pensions, that the company has been allowed to collect from its
customers. The company has deferred $18 million and $21 million
of Statement 106 costs as of December 31, 1996 and 1995,
respectively. The company expects to recover any deferred
Statement 106 amounts by the year 2000.
Net postretirement benefits cost other than pensions
included the following components:
Year ended December 31 1996 1995 1994
(Thousands)
Service cost: Benefits accumulated
during the year $6,436 $5,412 $7,050
Interest cost on accumulated
postretirement benefit obligation 15,795 15,228 15,903
Amortization of transition obligation
over 20 years 10,330 10,330 10,330
Amortization of (gain) loss (3,246) (4,575) 2
Deferral for future recovery (8,950) (7,742) (18,757)
------- ------- -------
Net periodic postretirement
benefits cost $20,365 $18,653 $14,528
======= ======= =======
The status of the plans for postretirement benefits other
than pensions, as reflected in the company's consolidated balance
sheets, was as follows:
December 31 1996 1995
(Thousands)
Accumulated postretirement benefit
obligation (APBO)
Retired employees $103,912 $114,383
Fully eligible active plan
participants 15,259 15,214
Other active plan employees 107,022 106,689
-------- --------
Total APBO 226,193 236,286
Less unrecognized transition
obligation 165,278 175,608
Less unrecognized net gain (34,280) (15,005)
-------- --------
Accrued postretirement liability $95,195 $75,683
======== ========
A 9% annual rate of increase in the per capita costs of
covered health care benefits was assumed for 1997, gradually
decreasing to 5% by the year 2003. Increasing the assumed health
care cost trend rates by 1% in each year would increase the APBO
as of January 1, 1997, by $39 million and increase the aggregate
of the service cost and interest cost components of the net
postretirement benefits cost for 1996 by $5 million. Discount
rates of 7.25% and 7% were used to determine the APBO in 1996 and
1995, respectively.
7 Jointly-Owned Generating Stations
Nine Mile Point Unit 2
The company has an undivided 18% interest in the output and
costs of the Nine Mile Point nuclear generating unit No. 2
(NMP2), which is operated by Niagara Mohawk Power Corporation
(Niagara Mohawk). Ownership of NMP2 is shared with Niagara
Mohawk 41%, Long Island Lighting Company 18%, Rochester Gas and
Electric Corporation 14% and Central Hudson Gas & Electric
Corporation 9%. The company's share of the rated capability is
206 megawatts. The company's share of net utility plant
investment, excluding nuclear fuel, was approximately $610
million and $625 million, at December 31, 1996 and 1995,
respectively. The accumulated provision for depreciation was
approximately $144 million and $129 million, at December 31, 1996
and 1995, respectively. The company's share of operating
expenses is included in the consolidated statements of income.
Nuclear insurance
Niagara Mohawk maintains public liability and property
insurance for NMP2. The company reimburses Niagara Mohawk for
its 18% share of those costs.
The public liability limit for a nuclear incident is
approximately $8.3 billion. Should losses stemming from a
nuclear incident exceed the commercially available public
liability insurance, each licensee of a nuclear facility would be
liable for up to $76 million per incident, payable at a rate not
to exceed $10 million per year. The company's maximum liability
for its 18% interest in NMP2 would be approximately $14 million
per incident. The $76 million assessment is subject to periodic
inflation indexing and a 5% surcharge should funds prove
insufficient to pay claims associated with a nuclear incident.
The Price-Anderson Act also requires indemnification for
precautionary evacuations whether or not a nuclear incident
actually occurs.
Niagara Mohawk has procured property insurance for NMP2
aggregating approximately $2.8 billion through the Nuclear
Insurance Pools and the Nuclear Electric Insurance Limited
(NEIL). In addition, the company has purchased NEIL insurance
coverage for the extra expense that would be incurred by
purchasing replacement power during prolonged accidental outages.
Under NEIL programs, should losses resulting from an incident at
a member facility exceed the accumulated reserves of NEIL, each
member, including the company, would be liable for its share of
the deficiency. The company's maximum liability per incident
under the property damage and replacement power coverages is
approximately $3 million.
Nuclear plant decommissioning costs
Based on the results of a 1995 decommissioning study, the
company's 18% share of the cost to decommission NMP2 is $150
million in 1997 dollars ($422 million in 2026 when NMP2's
operating license will expire). The estimated annual
contribution needed to cover the company's share of costs as
outlined in the study is approximately $4 million.
The company's estimated liability for decommissioning NMP2
using the Nuclear Regulatory Commission's (NRC) minimum funding
requirement is approximately $82 million in 1997 dollars. The
company's electric rates currently include an annual allowance
for decommissioning of $2 million, which approximates the NRC's
minimum funding requirement. Decommissioning costs are charged
to depreciation and amortization expense and are recovered over
the expected life of the plant. In its five-year electric rate
and restructuring plan submitted in the PSC's Competitive
Opportunities Proceeding, the company used the 1995
decommissioning study as a basis for increasing the amount
proposed to be recovered in rates for decommissioning. The
company believes that any increase in decommissioning costs will
ultimately be recovered in rates.
The company has established a Qualified Fund under
applicable provisions of the federal tax law and to comply with
NRC funding regulations. The balance in the fund, including
reinvested earnings, was approximately $11 million and $9 million
at December 31, 1996 and 1995, respectively. Those amounts are
included on the consolidated balance sheets in other property and
investments, net. The related liability for decommissioning is
included in other liabilities - other. At December 31, 1996, the
external trust fund investments were classified as
available-for-sale, and their carrying value approximated fair
value.
In early 1996 the Financial Accounting Standards Board
issued an exposure draft, Accounting for Certain Liabilities
Related to Closure and Removal of Long-Lived Assets. The
exposure draft proposes that companies recognize the present
value of estimated decommissioning costs. If the final statement
includes that requirement, the estimated liability the company
would have to recognize on its balance sheet related to
decommissioning NMP2 is approximately $61 million, based on the
1995 decommissioning study.
Homer City
The company has an undivided 50% interest in the output and
costs of the Homer City Generating Station, which comprises three
generating units. The station is owned with Pennsylvania
Electric Company and is operated by its affiliate, GPU
Generation, Inc. The company's share of the rated capability is
959 megawatts, and its net utility plant investment was
approximately $269 million and $276 million at December 31, 1996
and 1995, respectively. The accumulated provision for
depreciation was approximately $181 million and $168 million, at
December 31, 1996 and 1995, respectively. The company's share of
operating expenses is included in the consolidated statements of
income.
8 Commitments
Capital expenditures
The company has substantial commitments in connection with
its capital expenditure program and estimates that expenditures
for 1997, 1998 and 1999 will approximate $141 million, $157
million and $128 million, respectively, and are expected to be
financed entirely with internally generated funds. The program
is subject to periodic review and revision. Actual capital
expenditures may change to reflect additional regulatory
requirements and the company's continued focus on minimizing
capital expenditures. Capital expenditures will be primarily for
the extension of service, necessary improvements to existing
facilities and compliance with environmental requirements.
Nonutility generator power purchase contracts
During 1996, 1995 and 1994 the company expensed
approximately $320 million, $284 million and $214 million,
respectively, for NUG power, including termination costs. The
company estimates that NUG power purchases, including termination
costs, will total $338 million in 1997, $351 million in 1998 and
$352 million in 1999.
9 Environmental Liability
The company has been notified by the U. S. Environmental
Protection Agency (EPA) and the New York State Department of
Environmental Conservation (NYSDEC), as appropriate, that it is
among the potentially responsible parties (PRPs) who may be
liable to pay for costs incurred to remediate certain hazardous
substances at nine waste sites, not including the company's
inactive gas manufacturing sites, which are discussed below.
With respect to the nine sites, seven sites are included in the
New York State Registry of Inactive Hazardous Waste Sites (New
York State Registry) and two of the sites are also included on
the National Priorities list.
Any liability may be joint and several for certain of those
sites. The company has recorded an estimated liability of $1
million related to six of the nine sites, which is reflected in
the company's consolidated balance sheets at December 31, 1996.
The ultimate cost to remediate the sites may be significantly
more than the estimated amount and will be dependent on such
factors as the remedial action plan selected, the extent of site
contamination and the portion attributed to the company.
The company has a program to investigate and perform
necessary remediation at its known inactive gas manufacturing
sites. In March 1994 and October 1996 the company entered into
Orders on Consent with the NYSDEC requiring the company to
investigate and, where necessary, remediate 34 of the company's
38 known inactive gas manufacturing sites. With respect to the
38 sites, eight sites are included in the New York State
Registry.
Expenditures through the year 2009 are estimated at $31
million, including the impact of the Orders on Consent. That
estimate was determined by using the company's experience and
knowledge related to the sites as a result of the investigation
and remediation that the company has performed to date. It could
change materially, based on facts and circumstances derived from
site investigations, changes in required remedial action, changes
in technology relating to remedial alternatives and changes in
presently enacted laws and regulations. The liability to
investigate and perform remediation, as necessary, at the known
inactive gas manufacturing sites, is reflected in the company's
consolidated balance sheets at December 31, 1996 and 1995, in the
amount of $31 million. The company has recorded a corresponding
regulatory asset, since it expects to recover such expenditures
in rates, as the company has previously been allowed by the PSC
to recover such costs in rates. The company has notified its
former and current insurance carriers that it seeks to recover
from them certain of the cleanup costs. The company is unable to
predict the amount of insurance recoveries, if any, that it may
obtain.
10 Energy Services
The company, pursuant to a PSC Order, is allowed to invest
up to 5% of its consolidated capitalization (approximately $171
million at December 31, 1996) in one or more subsidiaries that
may engage or invest in energy-related or environmental-services
businesses and provide related services.
The company has been making investments in energy services
companies through NGE Enterprises, Inc. (NGE). Those companies
provide energy, financial and environmental services.
The company's investment as of December 31 and net loss for
the year ended December 31 related to NGE are:
1996 1995 1994
(Millions)
Investment $57 $54 $47
Net Loss* $21 $12 $6
*Includes net loss from EnerSoft Corporation (EnerSoft) of $16
million, $7 million and $5 million in 1996, 1995 and 1994,
respectively. EnerSoft's 1996 net loss includes $10 million
related to NGE's decision to exit that business.
The majority of the company's investment is included in
other property and investments, net on the consolidated balance
sheets. NGE's total liabilities and capitalization at December
31, 1996 and 1995, was approximately $45 million and $48 million,
respectively. NGE's net loss is included in other income and
deductions on the consolidated statements of income.
11 Fair Value of Financial Instruments
Certain of the company's financial instruments had carrying
amounts and estimated fair values (based on the quoted market
prices for the same or similar issues of the same remaining
maturities) as follows:
December 31 1996 1996 1995 1995
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands)
Preferred stock subject
to mandatory redemption
requirements $25,000 $22,531 $125,000 $130,085
First mortgage bonds $894,894 $938,873 $954,151 $1,025,696
Pollution control notes $613,000 $623,666 $613,000 $617,446
The carrying amount for the following items approximates
estimated fair value because of the short maturity (within one
year) of those instruments: cash and cash equivalents, commercial
paper and interest accrued.
Special deposits include restricted funds that are set aside
for preferred stock and long-term debt redemptions. The carrying
amount approximates fair value because the special deposits have
been invested in securities with a short-term maturity (within
one year).
12 Industry Segment Information
Certain information pertaining to the electric and natural
gas operations of the company follows:
1996 1996 1995 1995 1994 1994
Natural Natural Natural
Electric Gas Electric Gas Electric Gas
(Thousands)
Operating
Revenues $1,723,147 $336,224 $1,708,297 $301,244 $1,600,075 $298,780
Income $400,262 $57,281 $421,328 $50,816 $397,747 $40,828
Depreciation and
amortization $176,906 $12,495 $172,831 $11,939 $167,484 $10,842
Capital
expenditures $129,212 $82,625 $113,539 $45,142 $183,910 $40,396
Identifiable
assets* $4,376,814 $550,196 $4,525,541 $493,537 $4,631,511 $486,075
* Assets used in electric, natural gas and energy services operations not
included above were $132,671, $95,253 and $113,099 at December 31, 1996, 1995
and 1994, respectively. They consist primarily of cash and cash equivalents,
special deposits, prepayments and subsidiaries' assets.
13 Quarterly Financial Information (Unaudited)
Quarter ended March 31 June 30 Sept. 30 Dec. 31
(Thousands, except per share amounts)
1996
Operating revenues $618,764 $452,933 $456,568 $531,106
Operating income $196,353 $74,924 $74,285 $111,981
Net income $98,676 $20,882 $11,052* $47,631
Earnings available
for common stock $96,343 $18,496 $8,616 $45,256
Earnings per share $1.35 $.26 $.12* $.65
Dividends per share $.35 $.35 $.35 $.35
Average shares outstanding 71,503 71,503 71,416 70,096
Common stock price**
High $26.38 $24.50 $24.88 $22.63
Low $21.88 $22.00 $21.13 $20.38
1995
Operating revenues $571,910 $439,916 $464,694 $533,021
Operating income $157,323 $81,035 $106,638 $127,148
Net income $75,584 $24,630 $43,503 $52,973
Earnings available
for common stock $70,825 $19,914 $38,878 $48,352
Earnings per share $.99 $.28 $.54 $.68
Dividends per share $.35 $.35 $.35 $.35
Average shares outstanding 71,503 71,503 71,503 71,503
Common stock price**
High $21.75 $24.00 $26.75 $26.38
Low $19.00 $21.25 $22.50 $24.75
* Includes the effect of the writedown of the investment in EnerSoft
Corporation that decreased net income and earnings available for common
stock by $10 million and decreased earnings per share by 14 cents.
** The company's common stock is listed on the New York Stock Exchange. The
number of shareholders of record at December 31, 1996, was 45,608.
REPORT OF INDEPENDENT ACCOUNTANTS
_______________________
To the Shareholders and Board of Directors,
New York State Electric & Gas Corporation and Subsidiaries
Ithaca, New York
We have audited the consolidated financial statements and the
financial statement schedule of New York State Electric & Gas
Corporation and Subsidiaries listed in Item 14(a) of this Form
10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of New York State Electric & Gas Corporation
and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included
therein.
COOPERS & LYBRAND L.L.P.
New York, New York
January 31, 1997
NEW YORK STATE ELECTRIC & GAS CORPORATION
SCHEDULE II - Consolidated Valuation and Qualifying Accounts
(Thousands of Dollars)
Years Ended December 31, 1996, 1995 and 1994
Beginning End
Classification of Year Additions Write-offs (a) Adjustments of Year (b)
1996
Allowance for Doubtful
Accounts - Accounts
Receivable $6,785 $18,858 $(18,937) $100(c) $6,806
Deferred Tax Asset
Valuation Allowance $2,852 $158 $(1,625) - $1,385
1995
Allowance for Doubtful
Accounts - Accounts
Receivable $7,198 $17,891 $(18,304) - $6,785
Deferred Tax Asset
Valuation Allowance $2,211 $641 - - $2,852
1994
Allowance for Doubtful
Accounts - Accounts
Receivable $4,000 $19,594 $(16,894) $498 (c) $7,198
Deferred Tax Asset
Valuation Allowance $663 $1,548 - - $2,211
(a) Uncollectible accounts charged against the allowance, net of recoveries.
(b) Represents an estimate of the write-offs that will not be recovered in rates.
(c) Due to acquisition of XENERGY, Inc. in 1994 and KENETECH Energy Management, Inc. in 1996.
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure - None
PART III
Item 10. Directors and executive officers of the Registrant
Incorporated herein by reference to the information under the caption
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement dated April 11, 1997. The
information regarding executive officers is on pages 16 - 17 of this report.
Item 11. Executive compensation
Incorporated herein by reference to the information under the captions
"Executive Compensation," "Employment and Change in Control Arrangements,"
"Directors' Compensation," "Compensation Committee Interlocks and Insider
Participation," "Report of Executive Compensation and Succession Committee"
and "Stock Performance Graph" in the Company's Proxy Statement dated April 11,
1997.
Item 12. Security ownership of certain beneficial owners and management
Incorporated herein by reference to the information under the caption
"Security Ownership of Management" in the Company's Proxy Statement dated
April 11, 1997.
Item 13. Certain relationships and related transactions
Incorporated herein by reference to the information under the caption
"Election of Directors" in the Company's Proxy Statement dated April 11, 1997.
PART IV
Item 14. Exhibits, financial statement schedules, and reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial statements
Included in Part II of this report:
a) Consolidated Balance Sheets as of December 31, 1996 and 1995
b) For the three years ended December 31, 1996:
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Common Stock Equity
c) Notes to Consolidated Financial Statements
d) Report of Independent Accountants
2. Financial statement schedule
Included in Part II of this report:
For the three years ended December 31, 1996:
II. Consolidated Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
not required, are inapplicable or the required information is presented in the
Consolidated Financial Statements or notes thereto.
3. Exhibits
(a)(1) The following exhibits are delivered with this report:
Exhibit No.
3-15 - By-Laws of the company as amended January 10, 1997.
(A) 10-16 - Retirement Plan for Directors Amendment No. 3.
(A) 10-19 - Director Share Plan.
(A) 10-20 - Deferred Compensation Plan for the Director Share Plan.
(A) 10-21 - Supplemental Executive Retirement Plan as amended through
Amendment No. 11.
(A) 10-22 - Amended and Restated Annual Executive Incentive Plan.
12 - Computation of Ratio of Earnings to Fixed Charges.
21 - Subsidiaries.
23 - Consent of Coopers & Lybrand L.L.P. to incorporation by
reference into certain registration statements.
27 - Financial Data Schedule.
99-1 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees.
99-2 - Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees.
(a)(2) The following exhibits are incorporated herein by reference:
Exhibit No. Filed in As Exhibit No.
3-1 - Restated Certificate of Incorporation of the
Company pursuant to Section 807 of the Business
Corporation Law filed in the Office of the
Secretary of State of the State of New York on
October 25, 1988 - Registration No. 33-50719 . . . 4-11
3-2 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on October 17, 1989 - Registration No. 33-50719 . . 4-12
3-3 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on May 22, 1990 -
Registration No. 33-50719 . . . . . . . . . . . . . 4-13
3-4 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on October 31, 1990 - Registration No. 33-50719 . . 4-14
3-5 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on February 6, 1991 - Registration No. 33-50719 . . 4-15
3-6 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the
Secretary of State of the State of New York
on October 15, 1991 - Registration No. 33-50719 . . 4-16
3-7 - Certificate of Merger of Columbia Gas of New York,
Inc. into the Company filed in the Office of the
Secretary of State of the State of New York on
April 8, 1991 - Registration No. 33-50719 . . . . . 4-20
3-8 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on May 28, 1992 -
Registration No. 33-50719 . . . . . . . . . . . . . 4-17
______________________________
(A) Management contract or compensatory plan or arrangement.
Exhibit No. Filed in As Exhibit No.
3-9 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on October 20, 1992 -
Registration No. 33-50719 . . . . . . . . . . . . . 4-18
3-10 - Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary
of State of the State of New York on October 14, 1993
Registration No. 33-50719 . . . . . . . . . . . . . 4-19
3-11 - Certificate of Amendment of the Certificate of Incor-
poration filed in the Office of the Secretary of State
of the State of New York on December 10, 1993 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 3-11
3-12 - Certificate of Amendment of the Certificate of Incor-
poration filed in the Office of the Secretary of State
of the State of New York on December 20, 1993 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 3-12
3-13 - Certificate of Amendment of the Certificate of Incor-
poration filed in the Office of the Secretary of State
of the State of New York on December 20, 1993 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 3-13
3-14 - Certificates of the Secretary of the Company concern-
ing consents dated March 20, 1957 and May 9, 1975 of
holders of Serial Preferred Stock with respect to
issuance of certain unsecured indebtedness -
Registration No. 2-69988. . . . . . . . . . . . . . 4-7
4-1 - First Mortgage dated as of July 1, 1921 executed by
the Company under its then name of "New York State
Gas and Electric Corporation" to The Equitable Trust
Company of New York, as Trustee (The Chase Manhattan
Bank is Successor Trustee) - Registration No. 33-4186. 4-1
Supplemental Indentures to First Mortgage dated as of July 1, 1921:
4-2 - No. 37 - Registration No. 33-31297. . . . . . . . . 4-2
4-3 - No. 39 - Registration No. 33-31297. . . . . . . . . 4-3
4-4 - No. 43 - Registration No. 33-31297. . . . . . . . . 4-4
4-5 - No. 51 - Registration No. 2-59840 . . . . . . . . . 2-B(46)
4-6 - No. 69 - Registration No. 2-59840 . . . . . . . . . 2-B(64)
4-7 - No. 71 - Registration No. 2-59840 . . . . . . . . . 2-B(66)
4-8 - No. 74 - Registration No. 2-59840 . . . . . . . . . 2-B(69)
4-9 - No. 75 - Registration No. 2-59840 . . . . . . . . . 2-B(70)
4-10 - No. 80 - Registration No. 2-59840 . . . . . . . . . 2-B(75)
4-11 - No. 81 - Registration No. 2-59840 . . . . . . . . . 2-B(76)
4-12 - No. 103- Registration No. 33-43458. . . . . . . . . 4-8
4-13 - No. 104- Registration No. 33-43458. . . . . . . . . 4-9
4-14 - No. 105- Registration No. 33-52040. . . . . . . . . 4-8
4-15 - No. 106- Company's 10-K for year ended
December 31, 1992 - File No. 1-3103-2. . . 4-23
4-16 - No. 107- Company's 10-K for year ended
December 31, 1992 - File No. 1-3103-2. . . 4-24
4-17 - No. 108- Registration No. 33-50719. . . . . . . . . 4-8
4-18 - No. 109- Registration No. 33-50719. . . . . . . . . 4-9
Agreements and amendments with the Power Authority of the State of New York:
Exhibit No. Filed in As Exhibit No.
10-1 - Letter Agreement dated February 3, 1982 relating to
transmission services - Registration No. 2-82192. . 10-1
10-2 - Amendment dated December 21, 1989 to the Letter
Agreement dated February 3, 1982 relating to trans-
mission services - Company's 10-K for year ended
December 31, 1989 - File No. 1-3103-2 . . . . . . 10-4
10-3 - Transmission Agreement dated December 12, 1983,
with respect to connection of the Company's Kintigh
(Somerset) Generating Station to the Niagara-Edic
345 kv transmission system - Company's 10-K for year
ended December 31, 1988 - File No. 1-3103-2 . . . . 10-6
10-4 - Amendment dated December 21, 1989 to the Transmission
Agreement dated December 12, 1983 with respect to
connection of the Company's Kintigh (Somerset) Gener-
ating Station to the Niagara-Edic 345 kv transmission
system - Company's 10-K for the year ended December
31, 1989 File No. 1-3103-2. . . . . . . . . . . . . 10-7
* * * * * * * * * *
10-5 - New York Power Pool Agreement dated July 11, 1985 -
Company's 10-K for year ended December 31, 1988 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-7
10-6 - Transmission Agreement dated January 10, 1990 between
New York State Electric & Gas Corporation and Niagara
Mohawk Power Corporation, with respect to remote load
and generation wheeling service for the Company -
Company's 10-K for year ended December 31, 1990 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-17
10-7 - Coal Sales Agreement dated December 21, 1983 between
the Company and Consolidation Coal Company - Company's
10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . . 10-14
10-8 - Amendment No. 1 dated as of October 1, 1985 to the
Coal Sales Agreement dated December 21, 1983 between
the Company and Consolidation Coal Company -
Company's 10-K for year ended December 31, 1986 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-11
10-9 - Amendment No. 2 dated as of August 28, 1986 to the
Coal Sales Agreement dated December 21, 1983 between
the Company and Consolidation Coal Company -
Company's 10-K for year ended December 31, 1986 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-12
10-10 - Basic Agreement dated as of September 22, 1975
between New York State Electric & Gas Corporation
and others concerning Nine Mile Point Nuclear
Station, Unit No. 2 - Registration No. 2-54903. . . 5-0
10-11 - Nine Mile Point Nuclear Station Unit 2 Operating
Agreement effective as of January 1, 1993 among
New York State Electric & Gas Corporation and
others - Company's 10-K for the year ended
December 31, 1992 - File No. 1-3103-2 . . . . . . . 10-18
Exhibit No. Filed in As Exhibit No.
10-12 - Coal Hauling Agreement dated as of March 9, 1983
between Somerset Railroad Corporation and New
York State Electric & Gas Corporation -
Registration No. 2-82352. . . . . . . . . . . . . . 10
(A)10-13 - Retirement Plan for Directors - Company's 10-K
for the year ended December 31, 1991 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-26
(A)10-14 - Retirement Plan for Directors Amendment No. 1 -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-21
(A)10-15 - Retirement Plan for Directors Amendment No. 2 -
Company's 10-K for year ended December 31, 1995 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-15
(A)10-17 - Form of Deferred Compensation Plan for Directors -
Company's 10-K for year ended December 31, 1989 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-22
(A)10-18 - Deferred Compensation Plan for Directors Amendment
No. 1 - Company's 10-K for year ended December
31, 1993 - File No. 1-3103-2. . . . . . . . . . . . 10-23
(A)10-23 - Long-term Executive Incentive Share Plan -
Company's 10-K for year ended December 31, 1995 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . 10-43
(A)10-24 - Long-Term Executive Incentive Share Plan Deferred
Compensation Agreement - Company's 10-K for year
ended December 31, 1995 - File No. 1-3103-2 . . . . 10-44
(A)10-25 - Employment Contract for A. E. Kintigh - Company's
10-K for year ended December 31, 1988 - File
No. 1-3103-2. . . . . . . . . . . . . . . . . . . . 10-26
(A)10-26 - Agreement with M.I. German - Company's 10-K for the
year ended December 31, 1994 - File No. 1-2103-2. . 10-41
(A)10-27 - Employment Agreement for J. A. Carrigg - Company's
10-K for year ended December 31, 1993 - File No.
1-3103-2. . . . . . . . . . . . . . . . . . . . . . 10-46
(A)10-28 - Employment Agreement for J. A. Carrigg Amendment
No. 1 - Company's 10-K for year ended December 31,
1995 - File No. 1-3103-2. . . . . . . . . . . . . . 10-48
(A)10-29 - Form of Severance Agreement for Senior Vice
Presidents - Company's 10-K for year ended December
31, 1993 - File No. 1-3103-2. . . . . . . . . . . . . 10-47
(A)10-30 - Form of Severance Agreement for Senior Vice
Presidents Amendment No. 1 - Company's 10-K for year
ended December 31, 1995 - File No. 1-3103-2 . . . . . 10-50
(A)10-31 - Form of Severance Agreement for Vice Presidents -
Company's 10-K for year ended December 31, 1993 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . . 10-48
(A)10-32 - Form of Severance Agreement for Vice Presidents
Amendment No. 1 - Company's 10-K for year ended
December 31, 1995 - File No. 1-3103-2 . . . . . . . . 10-52
(A)10-33 - Deferred Compensation Plan for Salaried Employees -
Company's 10-K for year ended December 31, 1995 -
File No. 1-3103-2 . . . . . . . . . . . . . . . . . . 10-53
_____________________________
(A) Management contract or compensatory plan or arrangement.
Exhibit No. Filed in As Exhibit No.
(A)10-34 - Employment Agreement for W. W. von Schack -
Company's 10-Q for quarter ended September 30,
1996 - File No. 1-3103-2. . . . . . . . . . . . . . . 10-54
(A)10-35 - Employment agreement for W. W. von Schack Amendment
No. 1 - Company's 10-Q for quarter ended September
30, 1996 - File No. 1-3103-2. . . . . . . . . . . . . 10-55
The company agrees to furnish to the Commission, upon request, a copy of
the Revolving Credit Agreement dated as of July 31, 1992, as amended, between
the company, The Chase Manhattan Bank, as Agent, and certain banks; a copy of
the Participation Agreements dated as of June 1, 1987 and December 1, 1988
between the company and New York State Energy Research and Development
Authority (NYSERDA) relating to Adjustable Rate Pollution Control Revenue Bonds
(1987 Series A), and (1988 Series A), respectively; a copy of the Participation
Agreements dated as of March 1, 1985, October 15, 1985, and December 1, 1985
between the company and NYSERDA relating to Annual Tender Pollution Control
Revenue Bonds (1985 Series A), (1985 Series B), and (1985 Series D),
respectively; a copy of the Participation Agreements dated as of February 1,
1993, February 1, 1994, June 1, 1994, October 1, 1994 and December 1, 1994
between the company and NYSERDA relating to Pollution Control Refunding Revenue
Bonds (1994 Series A), (1994 Series B), (1994 Series C), (1994 Series D), and
(1994 Series E), respectively; a copy of the Participation Agreement dated as
of December 1, 1993 between the company and NYSERDA relating to Solid Waste
Disposal Revenue Bonds (1993 Series A); a copy of the Participation Agreement
dated as of December 1, 1994 between the company and the Indiana County
Industrial Development Authority relating to Pollution Control Refunding
Revenue Bonds (1994 Series A); a copy of the Credit Agreement dated as of March
9, 1983, as amended, between Somerset Railroad Corporation and The Chase
Manhattan Bank, and a copy of the Revolving Credit Agreement dated as of June
30, 1994, as amended, between XENERGY Inc. and The First National Bank of
Boston. The total amount of securities authorized under each of such
agreements does not exceed 10% of the total assets of the company and its
subsidiaries on a consolidated basis.
(b) Reports on Form 8-K
None
______________________________
(A) Management contract or compensatory plan or arrangement.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 14, 1997 By Gary J. Turton
Gary J. Turton
Vice President and Controller
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICER
Date: March 14, 1997 By Wesley W. von Schack
Wesley W. von Schack
Chairman, President,
Chief Executive Officer and
Director
PRINCIPAL FINANCIAL OFFICER
Date: March 14, 1997 By Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER
Date: March 14, 1997 By Gary J. Turton
Gary J. Turton
Vice President and Controller
Signatures (Cont'd)
Date: March 14, 1997 By James A. Carrigg
James A. Carrigg
Director
Date: March 14, 1997 By Alison P. Casarett
Alison P. Casarett
Director
Date: March 14, 1997 By Joseph J. Castiglia
Joseph J. Castiglia
Director
Date: March 14, 1997 By Lois B. DeFleur
Lois B. DeFleur
Director
Date: March 14, 1997 By Everett A. Gilmour
Everett A. Gilmour
Director
Date: March 14, 1997 By Paul L. Gioia
Paul L. Gioia
Director
Date: March 14, 1997 By John M. Keeler
John M. Keeler
Director
Date: March 14, 1997 By Allen E. Kintigh
Allen E. Kintigh
Director
Date: March 14, 1997 By Ben E. Lynch
Ben E. Lynch
Director
Date: March 14, 1997 By Alton G. Marshall
Alton G. Marshall
Director
EXHIBIT INDEX
* 3-1 -- Restated Certificate of Incorporation of the company
pursuant to Section 807 of the Business Corporation Law
filed in the Office of the Secretary of State of the
State of New York on October 25, 1988.
* 3-2 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 17, 1989.
* 3-3 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on May 22, 1990.
* 3-4 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 31, 1990.
* 3-5 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on February 6, 1991.
* 3-6 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 15, 1991.
* 3-7 -- Certificate of Merger of Columbia Gas of New York, Inc.
into the company filed in the Office of the Secretary of
State of the State of New York on April 8, 1991.
* 3-8 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on May 28, 1992.
* 3-9 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 20, 1992.
* 3-10 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on October 14, 1993.
* 3-11 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on December 10, 1993.
* 3-12 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on December 20, 1993.
* 3-13 -- Certificate of Amendment of the Certificate of
Incorporation filed in the Office of the Secretary of
State of the State of New York on December 20, 1993.
* 3-14 -- Certificates of the Secretary of the company concerning
consents dated March 20, 1957 and May 9, 1975 of holders
of Serial Preferred Stock with respect to issuance of
certain unsecured indebtedness.
3-15 -- By-Laws of the company as amended January 10, 1997.
* 4-1 -- First Mortgage dated as of July 1, 1921 executed by the
company under its then name of "New York State Gas and
Electric Corporation" to The Equitable Trust Company of
New York, as Trustee (The Chase Manhattan Bank is
Successor Trustee).
___________________________________
* Incorporated by reference.
EXHIBIT INDEX (Cont'd)
Supplemental Indentures to First Mortgage dated as of July 1, 1921:
* 4-2 -- No. 37 * 4-8 -- No. 74 * 4-14 -- No. 105
* 4-3 -- No. 39 * 4-9 -- No. 75 * 4-15 -- No. 106
* 4-4 -- No. 43 * 4-10 -- No. 80 * 4-16 -- No. 107
* 4-5 -- No. 51 * 4-11 -- No. 81 * 4-17 -- No. 108
* 4-6 -- No. 69 * 4-12 -- No. 103 * 4-18 -- No. 109
* 4-7 -- No. 71 * 4-13 -- No. 104
Agreements and Amendments with the Power Authority of the State of New
York:
* 10-1 -- Letter Agreement dated February 3, 1982 relating to
transmission services.
* 10-2 -- Amendment dated December 21, 1989 to the Letter
Agreement dated February 3, 1982 relating to
transmission services.
* 10-3 -- Transmission Agreement dated December 12, 1983, with
respect to connection of the company's Kintigh
(Somerset) Generating Station to the Niagara-Edic 345 kv
transmission system.
* 10-4 -- Amendment dated December 21, 1989 to the Transmission
Agreement dated December 12, 1983 with respect to
connection of the company's Kintigh (Somerset)
Generating Station to the Niagara-Edic 345 kv
transmission system.
* * * * * * * * * *
* 10-5 -- New York Power Pool Agreement dated July 11, 1985.
* 10-6 -- Transmission Agreement dated January 10, 1990 between New
York State Electric & Gas Corporation and Niagara Mohawk
Power Corporation, with respect to remote load and
generation wheeling service for the company.
* * * * * * * * * *
Coal Sales Agreement and Amendments between New York State Electric &
Gas Corporation and Consolidation Coal Company:
* 10-7 -- Agreement dated December 21, 1983.
* 10-8 -- Amendment No. 1 dated as of October 1, 1985.
* 10-9 -- Amendment No. 2 dated as of August 28, 1986.
* * * * * * * * * *
___________________________________
* Incorporated by reference.
EXHIBIT INDEX (Cont'd)
* 10-10 -- Basic Agreement dated as of September 22, 1975 between
New York State Electric & Gas Corporation and others
concerning Nine Mile Point Nuclear Station, Unit No. 2.
* 10-11 -- Nine Mile Point Nuclear Station Unit 2 Operating
Agreement effective as of January 1, 1993 among New York
State Electric & Gas Corporation and others.
* 10-12 -- Coal Hauling Agreement dated as of March 9, 1983 between
Somerset Railroad Corporation and New York State
Electric & Gas Corporation.
(A)* 10-13 -- Retirement Plan for Directors.
(A)* 10-14 -- Retirement Plan for Directors Amendment No. 1.
(A)* 10-15 -- Retirement Plan for Directors Amendment No. 2.
(A) 10-16 -- Retirement Plan for Directors Amendment No. 3.
(A)* 10-17 -- Form of Deferred Compensation Plan for Directors.
(A)* 10-18 -- Deferred Compensation Plan for Directors Amendment
No. 1.
(A) 10-19 -- Director Share Plan.
(A) 10-20 -- Deferred Compensation Plan for the Director Share Plan.
(A) 10-21 -- Supplemental Executive Retirement Plan as amended
through Amendment No. 11.
(A) 10-22 -- Amended and Restated Annual Executive Incentive Plan.
(A)* 10-23 -- Long-Term Executive Incentive Share Plan.
(A)* 10-24 -- Long-Term Executive Incentive Share Plan Deferred
Compensation Agreement.
(A)* 10-25 -- Employment Contract for A. E. Kintigh.
(A)* 10-26 -- Agreement with M. I. German.
(A)* 10-27 -- Employment Agreement for J. A. Carrigg.
(A)* 10-28 -- Employment Agreement for J. A. Carrigg Amendment No. 1.
(A)* 10-29 -- Form of Severance Agreement for Senior Vice Presidents.
(A)* 10-30 -- Form of Severance Agreement for Senior Vice Presidents
Amendment No. 1.
(A)* 10-31 -- Form of Severance Agreement for Vice Presidents.
(A)* 10-32 -- Form of Severance Agreement for Vice Presidents
Amendment No. 1.
(A)* 10-33 -- Deferred Compensation Plan for Salaried Employees.
(A)* 10-34 -- Employment Agreement for W. W. von Schack.
(A)* 10-35 -- Employment Agreement for W. W. von Schack Amendment
No. 1.
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- Subsidiaries.
23 -- Consent of Coopers & Lybrand L.L.P. to incorporation by
by reference into certain registration statements.
27 -- Financial Data Schedule.
99-1 -- Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Salaried Employees.
99-2 -- Form 11-K for New York State Electric & Gas Corporation
Tax Deferred Savings Plan for Hourly Paid Employees.
___________________________________
* Incorporated by reference.