SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 30, 1998
For the quarterly period ended. . . . . . . .. . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . .to. . . . . . . . .
1-14766
Commission file number. . . . . . . . . . . .. . . . . . . . . .
Energy East Corporation
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Exact name of registrant as specified in its charter)
New York 14-1798693
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 12904, Albany, NY 12212-2904
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Address of principal executive offices) (Zip Code)
518-434-3049
Registrant's telephone number, including area code . . . . . . .
N/A
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares of common stock (par value $.01 per
share) outstanding as of October 31, 1998 was 63,161,677.
TABLE OF CONTENTS
PART I
Page
Item 1. Financial Statements . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(a) Liquidity and Capital Resources . . . . . 7
(b) Results of Operations . . . . . . . . . . 12
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 15
Item 5. Other Information. . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 16
(b) Reports on Form 8-K . . . . . . . . . . . 16
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 17
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Energy East Corporation
Consolidated Statements of Income - (Unaudited)
Periods Ended September 30 Three Months Nine Months
1998 1997 1998 1997
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . $654,655 $456,530 $1,646,120 $1,319,253
Natural gas. . . . . . . . . . . . . 37,576 36,299 213,755 232,083
------- ------- --------- ---------
Total Operating Revenues. . . . 692,231 492,829 1,859,875 1,551,336
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 63,172 60,583 177,344 173,272
Electricity purchased. . . . . . . . 275,405 102,833 585,971 294,292
Natural gas purchased. . . . . . . . 23,536 21,608 111,924 110,477
Other operating expenses . . . . . . 87,325 106,494 234,491 267,022
Maintenance. . . . . . . . . . . . . 25,467 25,359 85,164 79,826
Depreciation and amortization. . . . 45,104 46,062 140,318 142,378
Other taxes. . . . . . . . . . . . . 53,121 49,064 158,616 152,973
------- ------- --------- ---------
Total Operating Expenses. . . . 573,130 412,003 1,493,828 1,220,240
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 119,101 80,826 366,047 331,096
Other Income and Deductions . . . . . 6,323 3,166 11,196 12,512
Interest Charges, Net . . . . . . . . 30,481 29,623 91,405 90,131
Preferred Stock Dividends of
Subsidiary . . . . . . . . . . . . . 2,351 2,348 6,880 7,015
------- ------- --------- ---------
Income Before Federal Income Taxes. . 79,946 45,689 256,566 221,438
Federal Income Taxes. . . . . . . . . 34,896 19,760 105,992 91,924
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . $45,050 $25,929 $150,574 $129,514
======= ======= ========= =========
Earnings Per Share, basic and diluted $.71 $.38 $2.32 $1.89
Dividends Per Share . . . . . . . . . $.40 $.35 $1.15 $1.05
Average Shares Outstanding. . . . . . 63,667 67,503 64,798 68,371
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Balance Sheets - (Unaudited)
Sep. 30, Dec. 31,
1998 1997
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $35,952 $8,168
Special deposits . . . . . . . . . . . . . . . . . . . 4,498 3,170
Accounts receivable, net . . . . . . . . . . . . . . . 133,759 189,008
Fuel, at average cost. . . . . . . . . . . . . . . . . 45,299 43,706
Materials and supplies, at average cost. . . . . . . . 39,008 41,561
Prepayments. . . . . . . . . . . . . . . . . . . . . . 109,467 68,452
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . . . 9,525 2,148
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 377,508 356,213
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 5,287,083 5,234,725
Natural gas. . . . . . . . . . . . . . . . . . . . . . 591,864 576,683
Common . . . . . . . . . . . . . . . . . . . . . . . . 145,476 152,034
---------- ----------
6,024,423 5,963,442
Less accumulated depreciation. . . . . . . . . . . . . 2,172,996 2,093,274
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . . 3,851,427 3,870,168
Construction work in progress . . . . . . . . . . . . . 28,841 52,104
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 3,880,268 3,922,272
Other Property and Investments, Net . . . . . . . . . . 121,446 143,449
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 190,014 243,129
Unamortized debt expense. . . . . . . . . . . . . . . 72,752 76,418
Demand-side management program costs. . . . . . . . . 64,466 64,466
Environmental remediation costs . . . . . . . . . . . 61,800 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 131,238 113,637
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 520,270 580,550
Other assets . . . . . . . . . . . . . . . . . . . . . 40,847 26,197
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 561,117 606,747
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $4,940,339 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Balance Sheets - (Unaudited)
Sep. 30, Dec. 31,
Liabilities 1998 1997
(Thousands)
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $3,578 $38,240
Commercial paper . . . . . . . . . . . . . . . . . . . 59,900 58,000
Accounts payable and accrued liabilities . . . . . . . 123,340 124,981
Interest accrued . . . . . . . . . . . . . . . . . . . 35,362 20,500
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 42,140 6,146
Other. . . . . . . . . . . . . . . . . . . . . . . . . 68,466 79,631
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 332,786 327,498
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 100,381 81,986
Deferred income taxes - unfunded future federal
income taxes . . . . . . . . . . . . . . . . . . . . 74,159 99,126
Other . . . . . . . . . . . . . . . . . . . . . . . . 43,453 79,709
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 217,993 260,821
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 785,752 753,722
Other postretirement benefits . . . . . . . . . . . . 136,770 117,760
Environmental remediation costs . . . . . . . . . . . 81,800 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 80,112 73,021
---------- ----------
Total other liabilities. . . . . . . . . . . . . . . . 1,084,434 1,027,403
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,462,087 1,450,224
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 3,097,300 3,065,946
Commitments - -
Preferred Stock of Subsidiary
Preferred stock redeemable solely at the
option of subsidiary . . . . . . . . . . . . . . . . 104,440 134,440
Preferred stock subject to mandatory
redemption requirements. . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock (Par value of $.01 and $6.66 2/3 at
Sep. 30, 1998 and Dec. 31, 1997, respectively) . . . 633 462,250
Capital in excess of par value. . . . . . . . . . . . 1,068,522 811,648
Retained earnings . . . . . . . . . . . . . . . . . . 644,444 568,844
Treasury stock. . . . . . . . . . . . . . . . . . . . - (39,447)
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 1,713,599 1,803,295
---------- ----------
Total Liabilities and Stockholders' Equity . . . . $4,940,339 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Statements of Cash Flows - (Unaudited)
Nine Months
Periods Ended September 30 1998 1997
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . $150,574 $129,514
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . 140,318 142,378
Federal income taxes and investment tax credits
deferred, net . . . . . . . . . . . . . . . 2,414 (23,164)
Changes in current operating assets and liabilities
Accounts receivable. . . . . . . . . . . . . . 55,249 68,630
Inventory. . . . . . . . . . . . . . . . . . . 960 (5,870)
Prepayments. . . . . . . . . . . . . . . . . . (41,015) (4,253)
Accounts payable and accrued liabilities . . . (1,641) (25,177)
Taxes accrued. . . . . . . . . . . . . . . . . 35,994 39,278
Interest accrued . . . . . . . . . . . . . . . 14,862 13,354
Other, net . . . . . . . . . . . . . . . . . . . 38,276 63,736
-------- --------
Net Cash Provided by Operating Activities . . 395,991 398,426
-------- --------
Investing Activities
Utility plant additions. . . . . . . . . . . . . (100,392) (90,821)
Proceeds from governmental and other sources . . 319 1,041
Other property and investment additions. . . . . 24,934 (53,179)
-------- --------
Net Cash Used in Investing Activities . . . . (75,139) (142,959)
-------- --------
Financing Activities
Repurchase of common stock . . . . . . . . . . . (166,595) (7,245)
Purchase of treasury stock . . . . . . . . . . . - (39,565)
Repayments of first mortgage bonds and preferred
stock of subsidiary, including net premiums . (60,600) (73,000)
Changes in funds set aside for first
mortgage bond repayments. . . . . . . . . . . - 25,000
Long-term notes, net . . . . . . . . . . . . . . 7,201 (4,339)
Commercial paper, net. . . . . . . . . . . . . . 1,900 (84,900)
Dividends on common stock. . . . . . . . . . . . (74,974) (72,015)
-------- --------
Net Cash Used in Financing Activities . . . . (293,068) (256,064)
-------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . . 27,784 (597)
Cash and Cash Equivalents, Beginning of Period. . 8,168 8,253
-------- --------
Cash and Cash Equivalents, End of Period. . . . . $35,952 $7,656
======== ========
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . $62,777 $66,652
Income taxes. . . . . . . . . . . . . . . . . . $62,349 $74,246
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Statements of Retained Earnings - (Unaudited)
Nine Months
Periods ended September 30, 1998 1997
(Thousands)
Balance, beginning of period. . . . . . . . . $568,844 $489,129
Add net income. . . . . . . . . . . . . . . . 150,574 129,514
Deduct dividends on common stock. . . . . . . 74,974 71,870
-------- --------
Balance, end of period. . . . . . . . . . . . $644,444 $546,773
======== ========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Note 1. Holding Company Formation
Energy East Corporation is a diversified energy services
company with operations in New York, Massachusetts, Maine and New
Hampshire. We deliver electricity and natural gas to retail
customers and we provide electricity, natural gas and energy
management and other services to retail and wholesale customers
in the Northeast.
On May 1, 1998, Energy East Corporation became the parent of
New York State Electric & Gas Corporation (NYSEG) pursuant to an
Agreement and Plan of Share Exchange between Energy East and
NYSEG. Each share of NYSEG's outstanding common stock was
exchanged for a share of Energy East's common stock. NYSEG's
common stock was delisted from the New York Stock Exchange. The
preferred stock and debt of NYSEG were not exchanged and remain
securities of NYSEG.
Note 2. Principles of Consolidation
These financial statements consolidate our majority-owned
subsidiaries after eliminating all intercompany transactions.
Note 3. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of our consolidated results for
the interim periods. All such adjustments, other than those
related to the reorganization into the holding company structure
noted above, are of a normal recurring nature. The unaudited
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes contained in
NYSEG's annual report for the year ended December 31, 1997. Due
to the seasonal nature of our operations, financial results for
interim periods are not necessarily indicative of trends for a
twelve-month period.
Note 4. Reclassifications
Certain amounts have been reclassified on the consolidated
financial statements to conform with the 1998 presentation.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Competitive Conditions (See NYSEG's Form 10-K for the fiscal year
ended December 31, 1997, Item 7 - Liquidity and Capital Resources
- - Competitive Conditions - Electric Industry, Natural Gas
Industry and Accounting Issues; and our Form 10-Q for the quarter
ended June 30, 1998, Item 2(a) - Liquidity and Capital Resources
- - Competitive Conditions - Holding Company Structure, Electric
Industry and Natural Gas Industry.)
Electric Business
Sale of our Coal-fired Generation Assets: Taking advantage of a
strong market for generation assets in the Northeast, we put our
seven coal-fired stations and associated assets and liabilities
up for auction earlier this year. We accepted offers totaling
$1.85 billion from The AES Corporation and Edison Mission Energy
in August 1998 for those generation assets.
All proceeds, net of taxes and transaction costs, in excess
of the net book value of the generation assets, less funded
deferred taxes, will be used to write down our 18% investment in
Nine Mile Point nuclear generating unit No. 2. This treatment is
in accordance with our restructuring plan approved by the Public
Service Commission of the State of New York in January 1998.
There are a number of items such as depreciation, book value of
inventories, taxes and the exact date of the closing that will
affect the financial statements as we continue to precisely
define the specific costs of the items included in the
transactions. Any differences will affect the net proceeds.
On November 4, 1998, we received approval of the sales from
the PSC. Other regulatory approvals are expected by the end of
1998, and we expect the sales to close by the end of the first
quarter of 1999.
We are also developing strategies to satisfy our remaining
energy requirements in New York after the coal-fired stations are
sold and have requested firm proposals for power to meet those
energy requirements. The power may be purchased at market prices
that exceed the cost to generate the power from the coal-fired
stations, which would increase our operating expenses. We expect
to finalize these strategies by the end of 1998.
In approving the sale of the coal-fired stations, the PSC
stated that the $400 million in excess proceeds will be reflected
as a reduction of rate base in the calculation of earnings
subject to the 12% annual earnings cap in NYSEG's electric return
on equity calculation, with earnings in excess of 12% being
returned to customers. The methodology for reflecting the $400
million excess in the earnings cap has not been determined and,
therefore, we are unable to predict what effect, if any, this may
have on future earnings.
New York Power Pool Restructuring: The Federal Energy Regulatory
Commission issued Orders 888 and 889 in 1996 to foster the
development of competitive wholesale electricity markets by
opening up transmission services and to address the resulting
stranded costs. In subsequent orders the FERC generally affirmed
Orders 888 and 889. Various parties, including NYSEG, have
appealed these orders in the United States Court of Appeals for
the D.C. Circuit.
In response to Order 888, the New York Power Pool submitted
a compliance filing to the FERC that was accepted in 1997. NYPP
members submitted additional filings to the FERC in 1997
proposing the restructuring of the NYPP by establishing a New
York Independent System Operator, a Power Exchange and a New York
State Reliability Council. The FERC approved the formation of the
system operator and reliability council in June 1998 and
indicated that it would rule on the rates, terms and conditions
of service to be implemented by the system operator under the
system operator's tariff at a later time. These additional FERC
rulings are needed before the system operator, the reliability
council and the restructured market can begin operating. We are
unable to predict the outcome that the remaining FERC proceedings
will have on the system operator and their ultimate effect on our
financial position or results of operations.
Natural Gas Business
Natural Gas Rate Agreement: NYSEG filed a natural gas rate
agreement with the PSC in May 1998. This agreement cuts prices
for most customers by reducing natural gas revenues by $26.9
million, or 2.2%, over the course of the agreement. The PSC
approved the agreement in September 1998 after making certain
modifications, which included assuring that no customer receive a
rate increase. After seeking clarification of the modifications
from the PSC Staff, NYSEG accepted the PSC Order with the
clarifications and one modification. NYSEG requested that the
present rates for certain areas be maintained. NYSEG is waiting
for a response from the PSC.
Role of Local Distribution Companies: The PSC issued a press
release on October 7, 1998, setting forth its vision for
furthering competition in the natural gas industry in New York
State. The PSC's vision is based on their Staff's Report issued
in September 1997 and calls for natural gas utilities to become
only transporters of natural gas over a three to seven year
period. We believe the competitive marketplace, not the PSC,
should decide who will be the suppliers of natural gas and that
removing natural gas utilities from this role will result in
higher prices to consumers. Recently we received the PSC's policy
statement related to this issue. We have not yet determined its
effect on us.
Other Operations
CMP Natural Gas LLC: We signed an agreement with Central Maine
Power Company in November 1997 to form a jointly-owned company
(CMP Natural Gas) to distribute natural gas in Maine and New
Hampshire to customers who are not currently served. CMP Natural
Gas has received approval from the Maine Public Utility Commission
to provide service to 60 towns in Maine. CMP Natural Gas' plans
have been developed to coincide with the construction schedules of
two natural gas pipelines from Canada. One pipeline began
construction in mid-1998 and the other is expected to begin in
early 1999. CMP Natural Gas expects initial service to customers
in early 1999.
New Hampshire Gas Corporation: We established a presence in New
Hampshire with our purchase of a franchise and propane air
distribution system in Keene, New Hampshire. Our short-term plans
call for the continuation of the existing propane air
distribution system. Long-term plans call for bringing natural
gas to the Keene area.
Year 2000
Many of our computer systems, which include mainframe
systems and special-purpose systems, refer to years in terms of
their final two digits only. Such systems may interpret the year
2000 as the year 1900. If not corrected, those systems could
cause us to, among other things, issue inaccurate bills, report
inaccurate data or incur energy delivery problems.
We are working diligently to identify and address all of our
systems affected by this problem. We have identified and taken
appropriate corrective action on all of our mainframe systems.
Those systems are now able to process year 2000 and beyond
transactions.
We have identified approximately 6,000 items in our special-
purpose systems that are potentially affected by the Year 2000
problem. We have fixed, eliminated, replaced or found no problem
with over 80% of these items. However, additional items in our
special-purpose systems continue to be identified as we fully
review our systems. We expect our review of our special-purpose
systems and appropriate corrective action to be completed in
early 1999, except for our desktop computers. All of our desktop
computers will be replaced or certified Year 2000 compliant by
the end of the second quarter of 1999.
Our review of our computer systems revealed that most of
those requiring modifications or "fixes" do not control the
delivery of electricity and natural gas to our customers. Instead
they affect human resources, financial accounting, materials
management and other areas.
The Year 2000 issue could also adversely affect us if third
parties such as business partners, government agencies, other
utilities, financial institutions, suppliers and customers fail
to correct their Year 2000 problems. We have contacted key
external parties to determine the status of their Year 2000
programs. Some have not responded satisfactorily, and some have
not responded at all. Some contingency plans that we are
developing will assume that such third parties will not be Year
2000 compliant.
Identifying and addressing systems affected by the Year 2000
problem has been a high priority. Senior management began
investigating the Year 2000 problem in 1996. Through the third
quarter of 1998 we have spent approximately $8.5 million and
expect to spend an additional $3.0 million before we finish.
These amounts are being expensed as incurred and are being
financed entirely with internally generated funds. At this time
we believe that we have allocated adequate resources to address
our Year 2000 issues.
Our Year 2000 program is progressing on schedule and we
believe we are taking all necessary steps to address this issue
successfully. As part of our normal business practice we have
plans in place for use during emergencies, some of which could
arise from Year 2000 problems. We are completing contingency
plans to specifically address reasonably likely worst case
scenarios that could arise as a result of the Year 2000 problem.
These scenarios include interruption or failure of normal
business activities or operations such as a partial electrical
and/or natural gas system shutdown; customer service, customer
information system or communication system failure; generating
station outages; the ability to issue accurate and timely bills;
and the ability to maintain continuous operation of our computer
systems. We expect to have our contingency plans tested and ready
by mid-1999.
The PSC issued an Order on October 30, 1998, adopting a July
1, 1999 deadline for New York utilities to complete their Year
2000 readiness programs for "mission critical" systems that are
necessary to provide safe and reliable service, and for
contingency plans. We believe that our Year 2000 readiness
program for mission critical systems and for contingency plans
will be completed by July 1, 1999. The PSC Order requires the
filing of status reports with the PSC regarding certain Year 2000
issues by December 31, 1998 and July 1, 1999.
Investing and Financing Activities
Investing Activities
Capital spending for the first nine months of 1998 were $100
million. We estimate our capital spending for 1998 will be about
$150 million, primarily for extension of service and necessary
improvements to existing facilities. This spending is expected to
be financed entirely with internally generated funds.
Financing Activities
In July 1998 NYSEG redeemed, at a premium, $30 million of
6.48% preferred stock.
During the third quarter of 1998 we repurchased 707,500
shares of common stock as part of our common stock repurchase
program.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements
that are based upon management's current expectations and
information that is currently available. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-
looking statements in certain circumstances. Whenever used in
this report, the words "estimate," "expect," "believe," or
similar expressions are intended to identify such forward-looking
statements.
In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that
could cause actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, the status of our progress in addressing the Year 2000
problem; the effect on us of other entities failing to adequately
address the Year 2000 problem; regulatory developments; the
rapidly changing and increasingly competitive electric and
natural gas utility markets; the ability to obtain adequate and
timely rate relief; nuclear or environmental incidents; legal or
administrative proceedings; business conditions; technological
developments; changes in the cost or availability of capital;
factors affecting the utility industry in general, such as
deregulation and unbundling of energy services; weather
conditions; changes in electric or natural gas supply or cost;
and other considerations that may be disclosed from time to time
in our publicly disseminated documents and filings. We undertake
no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or
otherwise.
(b) Results of Operations
Three Months Ended September 30,
1998 1997 Change
(Thousands, except per share amounts)
Total Operating Revenues $692,231 $492,829 40%
Operating Income $119,101 $80,826 47%
Net Income $45,050 $25,929 74%
Average Shares Outstanding 63,667 67,503 (6%)
Earnings Per Share,
basic and diluted $.71 $.38 87%
Dividends Per Share $.40 $.35 14%
Our earnings for the third quarter of 1998 increased due to
higher electric wholesale prices and higher electric deliveries
due to warmer than normal weather. The prior year third quarter
earnings included a 24 cents per share nonrecurring charge.
Nine Months Ended September 30,
1998 1997 Change
(Thousands, except per share amounts)
Total Operating Revenues $1,859,875 $1,551,336 20%
Operating Income $366,047 $331,096 11%
Net Income $150,574 $129,514 16%
Average Shares Outstanding 64,798 68,371 (5%)
Earnings Per Share,
basic and diluted $2.32 $1.89 23%
Dividends Per Share $1.15 $1.05 10%
Our earnings increased for the nine months due to higher
electric wholesale prices, higher electric deliveries and a
reduction in the number of common shares outstanding. Those
increases were partially offset by lower natural gas retail
deliveries as a result of warmer weather during this past winter.
The prior year nine month earnings included a 24 cents per share
nonrecurring charge.
Operating Results by Business Segment
Electric Three Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 3,432 3,278 5%
Operating Revenues $654,655 $456,530 43%
Operating Expenses $524,717 $362,942 45%
Operating Income $129,938 $93,588 39%
Electric retail deliveries increased because of warmer
weather this quarter.
Operating revenues increased $198 million due to higher
electric wholesale deliveries of $182 million and higher electric
retail deliveries of $16 million.
Our $162 million increase in operating expenses was
primarily due to a $173 million increase in electricity purchased
offset by a $17 million decrease in other operating costs due to
the effect of a 1997 nonrecurring charge.
Nine Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 9,952 9,841 1%
Operating Revenues $1,646,120 $1,319,253 25%
Operating Expenses $1,303,301 $1,029,850 27%
Operating Income $342,819 $289,403 18%
Operating revenues for the nine months increased $327
million primarily due to a $316 million increase in wholesale
deliveries and a $5 million increase in retail deliveries.
Our $273 million increase in operating expenses for the nine
months was primarily due to a $291 million increase in
electricity purchased offset by a $25 million decrease in other
operating costs primarily due to the effect of a 1997
nonrecurring charge.
Natural Gas Three Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 6,794 6,665 2%
Operating Revenues $37,576 $36,299 4%
Operating Expenses $48,413 $49,061 (1%)
Operating Income ($10,837) ($12,762) 15%
The $1 million increase in natural gas operating revenues
was primarily due to higher wholesale deliveries. The decrease in
operating expenses was due to a $3 million decrease in other
operating costs due to the effect of a 1997 nonrecurring charge,
partially offset by a $2 million increase in natural gas
purchased due to higher wholesale deliveries.
Nine Months Ended September 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 37,378 40,973 (9%)
Operating Revenues $213,755 $232,083 (8%)
Operating Expenses $190,527 $190,390 -
Operating Income $23,228 $41,693 (44%)
Natural gas retail deliveries decreased because of unusually
warm weather during this past winter.
Natural gas operating revenues decreased $18 million for the
nine months. Revenues were reduced $30 million by lower retail
deliveries, primarily due to warmer weather during this past
winter. That decrease was partially offset by a $7 million
increase in wholesale deliveries and a more favorable sales mix
that added $3 million to revenues.
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(a) On May 22, 1998, we, along with fifteen other parties,
received a special notice pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
from the U.S. Environmental Protection Agency, asking whether the
recipients wished to voluntarily finance or perform the remedial
design and remedial action at the Rosen Brothers Site in the City
of Cortland, New York. The estimated total present-worth cost of
the selected remedy is $3,140,000. The EPA also requested
reimbursement of past costs at the site of approximately
$692,000, plus interest.
On September 25, 1998, we, along with approximately 12 other
parties, entered into a consent decree with the EPA under which
we and the other settling parties will perform the selected
remedy and reimburse the EPA for the requested amount of past
costs. The EPA has agreed not to sue us and to protect us from
other claims with respect to the response and remediation costs
at the Rosen Brothers Site. (See NYSEG's Form 10-K for the fiscal
year ended December 31, 1997, Item 3. Legal Proceedings.)
(b) On August 14, 1997, we were notified by the New York State
Department of Environmental Conservation that the NYSDEC was
contemplating enforcement action against us with respect to
violations of regulations concerning opacity of air emissions at
all of our New York coal-fired stations. We are in the process of
negotiating a consent decree with the NYSDEC under which we will
undertake to bring our New York coal-fired stations into
compliance with the opacity regulations. NYSDEC has also
indicated that it will include in the consent decree a penalty
for exceedances in 1997 of the nitrogen oxide cap at our coal-
fired stations. We will pay a penalty of less than $350,000, and
be liable to pay penalties for any future violations. We
anticipate that this decree will become final before the end of
1998.
Item 5. Other Information
Our next annual meeting is tentatively scheduled for April
23, 1999. We amended our By-Laws to provide that any stockholder
who at the annual meeting wishes to nominate a person for
election to the board of directors or transact other business
must give at least 90 days but not more than 120 days advance
written notice. The notice must also meet certain other
requirements. We also amended our By-Laws to provide that the
holders of a majority of the shares of common stock may request
that a special meeting of stockholders be called.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ENERGY EAST CORPORATION
(Registrant)
By Wesley W. von Schack
Wesley W. von Schack
Chairman and Chief Financial Officer
Date: November 13, 1998
EXHIBIT INDEX
(a) The following exhibits are delivered with this report:
Exhibit No.
3-2 - By-Laws of the Company as amended October 9, 1998.
27 - Financial Data Schedule.