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
For the quarterly period ended March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-2987.
NIAGARA MOHAWK POWER CORPORATION
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(Exact name of registrant as specified in its charter)
State of New York 15-0265555
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Erie Boulevard West Syracuse, New York 13202
(Address of principal executive offices) (Zip Code)
(315) 474-1511
Registrant's telephone number, including area code
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common stock, $1 par value, outstanding at April 30, 1997 -
144,390,619
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
FORM 10-Q - For The Quarter Ended March 31, 1997
INDEX
PART I. FINANCIAL INFORMATION
Glossary of Terms
Item 1. Financial Statements.
a) Consolidated Statements of Income -
Three Months Ended March 31, 1997 and 1996
b) Consolidated Balance Sheets - March 31,
1997 and December 31, 1996
c) Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996
d) Notes to Consolidated Financial Statements
e) Review by Independent Accountants
f) Independent Accountants' Report on the
Limited Review of the Interim Financial
Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 6. Exhibits and Reports on Form 8-K.
Signature
Exhibit Index
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
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GLOSSARY OF TERMS
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TERM DEFINITION
Dth Dekatherms
FAC Fuel Adjustment Clause
GAAP Generally Accepted Accounting Principles
GwHrs Gigawatt-hours
IPP Independent Power Producer
Kwh Kilowatt-hour
Mwh Megawatt-hour
NRC Nuclear Regulatory Commission
PPA Power Purchase Agreement
PRP Potentially Responsible Party
PSC New York State Public Service Commission
SFAS Statement of Financial Accounting Standards No. 71
No. 71 "Accounting for the Effects of Certain Types of Regulation"
SFAS Statement of Financial Accounting Standards No. 101
No. 101 "Regulated Enterprises - Accounting for the Discontinuation
of Application of FASB Statement No. 71"
SFAS Statement of Financial Accounting Standards No. 121
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of"
SFAS Statement of Financial Accounting Standards No. 128
No. 128 "Earnings per Share"
Unit 1 Nine Mile Point Nuclear Station Unit No. 1
Unit 2 Nine Mile Point Nuclear Station Unit No. 2
PART 1. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS.
- -----------------------------
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- ---------------------------------------------
THREE MONTHS ENDED MARCH 31,
---------------------------
1997 1996
--------- ----------
(In thousands of dollars)
OPERATING REVENUES:
Electric $ 877,369 $ 851,137
Gas 286,463 311,926
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1,163,832 1,163,063
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OPERATING EXPENSES:
Fuel for electric generation 37,465 49,564
Electricity purchased 328,803 287,308
Gas purchased 148,631 189,995
Other operation and
maintenance expenses 206,665 209,022
Depreciation and amortization 84,222 82,064
Federal and foreign income taxes 72,639 56,623
Other taxes 126,109 130,478
---------- ----------
1,004,534 1,005,054
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OPERATING INCOME 159,298 158,009
OTHER INCOME AND (DEDUCTIONS):
Allowance for other funds used
during construction 1,439 408
Federal and foreign income taxes 4,162 3,804
Other items (net) 5,661 2,452
---------- ----------
11,262 6,664
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INCOME BEFORE INTEREST CHARGES 170,560 164,673
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INTEREST CHARGES:
Interest on long-term debt 67,960 68,191
Other interest 768 1,382
Allowance for borrowed funds used
during construction (1,190) (1,022)
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67,538 68,551
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NET INCOME 103,022 96,122
Dividends on preferred stock 9,399 9,619
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BALANCE AVAILABLE FOR COMMON STOCK $ 93,623 $ 86,503
========== ==========
Average number of shares of common
stock outstanding
(in thousands) 144,389 144,333
Balance available per average
share of common stock $ .65 $ .60
The accompanying notes are an integral part of these financial
statements
/TABLE
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
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CONSOLIDATED BALANCE SHEETS
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ASSETS MARCH 31, 1997
- ------ (UNAUDITED) DECEMBER 31, 1996
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(In thousands of dollars)
UTILITY PLANT:
Electric plant $ 8,675,634 $ 8,611,419
Nuclear fuel 575,486 573,041
Gas plant 1,076,118 1,082,298
Common plant 306,363 292,591
Construction work in progress 256,634 279,992
----------- -----------
Total utility plant 10,890,235 10,839,341
Less-Accumulated depreciation and
amortization 3,970,505 3,881,726
Net utility plant 6,919,730 6,957,615
----------- -----------
OTHER PROPERTY AND INVESTMENTS 263,290 257,145
----------- -----------
CURRENT ASSETS:
Cash, including temporary cash
investments of $425,515 and
$223,829, respectively 467,504 325,398
Accounts receivable (less allowance
for doubtful accounts of $71,700
and $52,100, respectively) 386,400 373,305
Materials and supplies, at average cost:
Coal and oil for production of
electricity 20,763 20,788
Gas storage 5,932 43,431
Other 120,744 120,914
Prepaid taxes 70,894 11,976
Other 13,864 25,329
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1,086,101 921,141
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REGULATORY ASSETS (NOTE 3):
Regulatory tax asset 387,376 390,994
Deferred finance charges 239,880 239,880
Deferred environmental
restoration costs (Note 2) 225,000 225,000
Unamortized debt expense 63,645 65,993
Postretirement benefits other
than pensions 59,285 60,482
Other 196,282 206,352
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1,171,468 1,188,701
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OTHER ASSETS 74,421 77,428
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$ 9,515,010 $ 9,402,030
=========== ===========
The accompanying notes are an integral part of these financial
statements
/TABLE
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
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CONSOLIDATED BALANCE SHEETS
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CAPITALIZATION AND LIABILITIES
- ------------------------------
MARCH 31, 1997
(UNAUDITED) DECEMBER 31, 1996
-------------- -----------------
(In thousands of dollars)
CAPITALIZATION:
COMMON STOCKHOLDERS' EQUITY:
Common stock - $1 par value;
authorized 185,000,000
shares; issued 144,390,619
and 144,365,214 shares,
respectively $ 144,391 $ 144,365
Capital stock premium and
expense 1,781,394 1,783,725
Retained earnings 751,105 657,482
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2,676,890 2,585,572
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CUMULATIVE PREFERRED STOCK, AUTHORIZED 3,400,000
SHARES, $100 PAR VALUE:
Non-redeemable (optionally
redeemable), issued
2,100,000 shares 210,000 210,000
Redeemable (mandatorily
redeemable), issued
240,000 shares 22,200 22,200
CUMULATIVE PREFERRED STOCK, AUTHORIZED 19,600,000
SHARES, $25 PAR VALUE:
Non-redeemable (optionally
redeemable), issued
9,200,000 shares 230,000 230,000
Redeemable (mandatorily
redeemable), issued
2,864,005 shares 64,530 64,530
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526,730 526,730
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Long-term debt 3,478,628 3,477,879
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TOTAL CAPITALIZATION 6,682,248 6,590,181
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CURRENT LIABILITIES:
Long-term debt due within
one year 44,784 48,084
Sinking fund requirements on
redeemable preferred stock 8,870 8,870
Accounts payable 210,039 271,830
Payable on outstanding bank
checks 20,913 32,008
Customers' deposits 15,665 15,505
Accrued taxes 80,991 4,216
Accrued interest 73,045 63,252
Accrued vacation pay 36,460 36,436
Other 52,861 52,455
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543,628 532,656
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REGULATORY LIABILITIES (NOTE 3):
Deferred finance charges 239,880 239,880
---------- ----------
OTHER LIABILITIES:
Accumulated deferred income
taxes 1,349,583 1,331,913
Employee pension and other
benefits 239,895 238,688
Deferred pension settlement
gain 17,253 19,269
Unbilled revenues 32,081 49,881
Other 185,442 174,562
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1,824,254 1,814,313
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 3):
Liability for environmental
restoration 225,000 225,000
---------- ----------
$9,515,010 $9,402,030
========== ==========
The accompanying notes are an integral part of these financial
statements
/TABLE
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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INCREASE (DECREASE) IN CASH
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(UNAUDITED)
- -----------
THREE MONTHS ENDED MARCH 31,
1997 1996
------------- ------------
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $103,022 $ 96,122
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 84,222 82,064
Amortization of nuclear fuel 7,526 10,917
Provision for deferred income
taxes 21,288 16,715
Increase in net accounts
receivable (30,895) (47,875)
Decrease in materials and
supplies 37,626 35,991
Decrease in accounts payable
and accrued expenses (58,066) (45,933)
Increase in accrued interest
and taxes 86,568 56,493
Changes in other assets and
liabilities (20,173) (15,670)
--------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 231,118 188,824
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions (49,668) (51,792)
Nuclear fuel (2,445) (2,912)
--------- --------
Acquisition of utility plant (52,113) (54,704)
Decrease in materials and supplies
related to construction 68 846
Decrease in accounts payable and
accrued expenses related to
construction (14,517) (11,483)
(Increase) decrease in other
investments (6,258) 33,971
Other (3,290) (6,895)
--------- --------
NET CASH USED IN INVESTING
ACTIVITIES (76,110) (38,265)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt - 80,000
Net change in revolving credit
agreements - (170,000)
Reductions of preferred stock - (2,500)
Reductions in long-term debt (3,300) (19,341)
Dividends paid (9,399) (9,619)
Other (203) (396)
-------- --------
NET CASH USED IN FINANCING
ACTIVITIES (12,902) (121,856)
-------- --------
NET INCREASE IN CASH 142,106 28,703
Cash at beginning of period 325,398 153,475
-------- --------
CASH AT END OF PERIOD $467,504 $182,178
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 59,074 $ 61,291
Income taxes paid $ 11,470 $ 17,367
The accompanying notes are an integral part of these financial
statements
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
Niagara Mohawk Power Corporation and subsidiary companies (the
"Company"), in the opinion of management, has included adjustments
(which include normal recurring adjustments) necessary for a fair
statement of the results of operations for the interim periods
presented. The consolidated financial statements for 1997 are
subject to adjustment at the end of the year when they will be
audited by independent accountants. The consolidated financial
statements and notes thereto should be read in conjunction with the
financial statements and notes for the years ended December 31,
1996, 1995 and 1994 included in the Company's 1996 Annual Report to
Shareholders on Form 10-K.
The Company's electric sales tend to be substantially higher in
summer and winter months as related to weather patterns in its
service territory; gas sales tend to peak in the winter.
Notwithstanding other factors, the Company's quarterly net income
will generally fluctuate accordingly. Therefore, the earnings for
the three-month period ended March 31, 1997, should not be taken as
an indication of earnings for all or any part of the balance of the
year.
At December 31, 1996, the Company discontinued application of
regulatory accounting principles to the Company's fossil and hydro
generation business. Accordingly, existing regulatory assets
related to this business, amounting to approximately $103.6 million
($67.4 million after tax or 47 cents per share) were charged
against 1996 income as an extraordinary non-cash charge.
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128. SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to companies with
publicly held common stock. SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the
income statements for all entities with complex capital structures.
In compliance with the requirements of this standard, the Company
will adopt SFAS No. 128 in the fourth quarter of 1997. The Company
does not expect that the adoption of SFAS No. 128 will have a
significant impact on the reporting of EPS for the Company,
however, the announced agreement in principle to terminate or
restructure IPP contracts is expected to result in the issuance of
46 million shares of common stock, representing approximately 25%
of the anticipated fully-diluted outstanding common shares.
Certain amounts have been reclassified on the accompanying
Consolidated Financial Statements to conform with the 1997
presentation.
NOTE 2. CONTINGENCIES.
ENVIRONMENTAL ISSUES: The public utility industry typically
utilizes and/or generates in its operations a broad range of
potentially hazardous wastes and by-products. The Company believes
it is handling identified wastes and by-products in a manner
consistent with federal, state and local requirements and has
implemented an environmental audit program to identify any
potential areas of concern and assure compliance with such
requirements. The Company is also currently conducting a program
to investigate and restore, as necessary to meet current
environmental standards, certain properties associated with its
former gas manufacturing process and other properties which the
Company has learned may be contaminated with industrial waste, as
well as investigating identified industrial waste sites as to which
it may be determined that the Company contributed. The Company has
also been advised that various federal, state or local agencies
believe certain properties require investigation and has
prioritized the sites based on available information in order to
enhance the management of investigation and remediation, if
necessary.
The Company is currently aware of 87 sites with which it has been
or may be associated, including 43 which are Company-owned. With
respect to non-owned sites, the Company may be required to
contribute some proportionate share of remedial costs.
Investigations at each of the Company-owned sites are designed to
(1) determine if environmental contamination problems exist, (2) if
necessary, determine the appropriate remedial actions required for
site restoration and (3) where appropriate, identify other parties
who should bear some or all of the cost of remediation. Legal
action against such other parties will be initiated where
appropriate. After site investigations are completed, the Company
expects to determine site-specific remedial actions and to estimate
the attendant costs for restoration. However, since technologies
are still developing the ultimate cost of remedial actions may
change substantially.
Estimates of the cost of remediation and post-remedial monitoring
are based upon a variety of factors, including identified or
potential contaminants; location, size and use of the site;
proximity to sensitive resources; status of regulatory
investigation and knowledge of activities at similarly situated
sites; and the United States Environmental Protection Agency figure
for average cost to remediate a site. Actual Company expenditures
are dependent upon the total cost of investigation and remediation
and the ultimate determination of the Company's share of
responsibility for such costs, as well as the financial viability
of other identified responsible parties since clean-up obligations
are joint and several. The Company has denied any responsibility
in certain of these PRP sites and is contesting liability
accordingly.
As a consequence of site characterizations and assessments
completed to date and negotiations with PRP's, the Company has
accrued a liability in the amount of $225 million, which is
reflected in the Company's Consolidated Balance Sheets at March 31,
1997 and December 31, 1996. This liability represents the low end
of the range of its share of the estimated cost for investigation
and remediation. The potential high end of the range is presently
estimated at approximately $850 million, including approximately
$340 million in the unlikely event the Company is required to
assume 100% responsibility at non-owned sites. In addition, the
Company has recorded a regulatory asset representing the
remediation obligations to be recovered from ratepayers.
Where appropriate, the Company has provided notices of insurance
claims to carriers with respect to the investigation and
remediation costs for manufactured gas plant, industrial waste
sites and sites for which the Company has been identified as a PRP.
The Company has settled some of these claims and deferred the
amount recovered, and continues to pursue others, but is unable to
predict what the final ratemaking disposition will be.
TAX ASSESSMENTS: The Internal Revenue Service ("IRS") had
conducted an examination of the Company's Federal income tax
returns for the years 1987 and 1988 and had submitted a Revenue
Agents' Report to the Company. The IRS had proposed various
adjustments to the Company's federal income tax liability for these
years which could have increased the Company's federal income tax
liability by approximately $80 million, before assessment of
penalties and interest. Included in these proposed adjustments
were several significant issues involving Unit 2. In a letter
dated April 10, 1997, the Company was notified by the Appeals
Division of the IRS that a tentative settlement agreement with the
Company had received final approval. The settlement agreement
resulted in a net tax refund to the Company of an immaterial
amount.
In addition, the IRS has conducted an examination of the Company's
federal income tax returns for the years 1989 and 1990 and issued
a Revenue Agents' Report. The IRS has raised an issue concerning
the deductibility of payments made to IPPs in accordance with
certain contracts that include a provision for a tracking account.
A tracking account represents amounts that these mandated contracts
required the Company to pay IPPs in excess of the Company's avoided
costs, including a carrying charge. The IRS proposes to disallow
a current deduction for amounts paid in excess of the avoided costs
of the Company. Although the Company believes that any such
disallowances for the years 1989 and 1990 will not have a material
impact on its financial position or results of operations, it
believes that a disallowance for these above-market payments for
the years subsequent to 1990 could have a material adverse affect
on its cash flows. To the extent that contracts involving tracking
accounts are terminated or restructured under the agreement-in-
principle with IPPs as described in Note 3, then it is possible
that the effects of any proposed disallowance would be mitigated.
The Company is vigorously defending its position on this issue.
The IRS has commenced its examination of the Company's federal
income tax returns for the years 1991 through 1993.
LITIGATION: In March 1993, Inter-Power of New York, Inc. ("Inter-
Power"), filed a complaint against the Company and certain of its
officers and employees in the Supreme Court of the State of New
York, Albany County ("NYS Supreme Court"). Inter-Power alleged,
among other matters, fraud, negligent misrepresentation and breach
of contract in connection with the Company's alleged termination of
a PPA in January 1993. The plaintiff sought enforcement of the
original contract or compensatory and punitive damages in an
aggregate amount that would not exceed $1 billion, excluding pre-
judgment interest.
In early 1994, the NYS Supreme Court dismissed two of the
plaintiff's claims; this dismissal was upheld by the Appellate
Division, Third Department of the NYS Supreme Court. Subsequently,
the NYS Supreme Court granted the Company's motion for summary
judgment on the remaining causes of action in Inter-Power's
complaint. In August 1994, Inter-Power appealed this decision and
on July 27, 1995, the Appellate Division, Third Department affirmed
the granting of summary judgment as to all counts, except for one
dealing with an alleged breach of the PPA relating to the Company's
having declared the agreement null and void on the grounds that
Inter-Power had failed to provide it with information regarding its
fuel supply in a timely fashion. This one breach of contract claim
was remanded to the NYS Supreme Court for further consideration.
Discovery on this one breach of contract claim is currently in
progress.
The Company is unable to predict the ultimate disposition of this
lawsuit. However, the Company believes it has meritorious defenses
and intends to defend this lawsuit vigorously, but can neither
provide any judgment regarding the likely outcome nor provide any
estimate or range of possible loss. Accordingly, no provision for
liability, if any, that may result from this lawsuit has been made
in the Company's financial statements.
NOTE 3. RATE AND REGULATORY ISSUES AND CONTINGENCIES.
The Company's financial statements conform to GAAP, as applied to
regulated public utilities and reflect the application of SFAS No.
71. As discussed in Note 1, the Company discontinued application
of regulatory accounting principles to the Company's fossil and
hydro generation business. Substantively, SFAS No. 71 permits a
public utility regulated on a cost-of-service basis to defer
certain costs when authorized to do so by the regulator which would
otherwise be charged to expense. These deferred costs are known as
regulatory assets, which in the case of the Company are
approximately $932 million, net of approximately $240 million of
regulatory liabilities at March 31, 1997. These regulatory assets
are probable of recovery. The portion of the $932 million which
has been allocated to the nuclear generation and electric
transmission and distribution business is approximately $770
million, which is net of approximately $240 million of regulatory
liabilities. Regulatory assets allocated to the rate-regulated gas
distribution business are $162 million. Generally, regulatory
assets and liabilities were allocated to the portion of the
business that incurred the underlying transaction that resulted in
the recognition of the regulatory asset or liability. The
allocation methods used between electric and gas are consistent
with those used in prior regulatory proceedings.
The Company has concluded that the termination or restructuring of
IPP contracts and implementation of PowerChoice, or a similar
proposal, is the probable outcome of negotiations that have taken
place since the PowerChoice announcement. Under PowerChoice, the
separated non-nuclear generation business would no longer be rate-
regulated on a cost-of-service basis and, accordingly, regulatory
assets related to the non-nuclear power generation business,
amounting to approximately $103.6 million ($67.4 million after tax
or 47 cents per share) at December 31, 1996, were charged against
income as an extraordinary non-cash charge.
Of the remaining electric business, under PowerChoice, the Company
expects that its nuclear generation and electric transmission and
distribution business would continue to be rate-regulated on a
cost-of-service basis and, accordingly, the Company would continue
to apply SFAS No. 71 to these businesses.
PowerChoice and the termination or restructuring costs of IPP
contracts would result in rates that reflect reduced or stable
costs that the Company believes would meet the Governor's stated
economic objectives as to energy prices in New York State as well
as the PSC's objectives (see Form 10-K for fiscal year ended
December 31, 1996, Part II, Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - "PSC
Competitive Opportunities Proceeding - Electric"). Therefore, the
Company expects the PSC would continue to apply the concept of
cost-of-service based rates to the nuclear generation and
transmission and distribution business. The Company expects that
these cost-of-service based rates could be charged to and collected
from customers without causing unanticipated reduction in demand.
The Company proposes, and believes it is probable that the PSC
would approve, deferral and recovery of the termination or
restructuring costs of IPP contracts over a period not to exceed
ten years. To the extent that deferral of the termination or
restructuring cost would not be approved by the PSC and the Company
determines, nonetheless, to effectuate the termination or
restructuring, that amount would be charged to expense, which could
have a material adverse effect on the financial condition, and in
the year of the write-off, the results of operations of the
Company. Furthermore, the Company does not expect the PSC to
provide a return on the regulatory asset associated with IPP
termination or restructuring costs. SFAS No. 71 does not require
the Company to earn a return on regulatory assets in assessing its
applicability. The Company believes that the prices it would
charge for electric service, assuming no reduction in demand,
including a non-bypassable transition charge, over the ten-year
period would be sufficient to recover the regulatory asset for the
termination or restructuring costs of IPP contracts and provide
recovery of and a return on the remainder of its regulated assets,
as appropriate. The Company expects that the reported amounts of
future net income would be adversely affected by a lack of a return
on the regulatory asset associated with the IPP termination or
restructuring and the expected lower returns of the unregulated
non-nuclear generating business.
The Company has been made aware of a recent request by the SEC
Chief Accountant to the Public Utilities Committee of the American
Institute of Certified Public Accountants to develop guidance on
applying SFAS No. 101. The Emerging Issues Task Force ("EITF") has
Issue No. 97-4 "Deregulation of the Pricing of Electricity-Issues
Related to the Application of SFAS No. 71 and SFAS No. 101" on its
agenda. It is the Company's understanding that the guidance may
include when to discontinue SFAS No. 71, as well as the accounting
applicable to recovering strandable costs on the transmission and
distribution business that originate from generation assets. The
Company cannot predict whether and when such guidance will be
issued or the attendant consequences on the Company's financial
condition or results of operations.
With the probable implementation of PowerChoice, specifically the
separation of non-nuclear generation as an entity that would face
market prices, the Company is required to assess the carrying
amounts of its long-lived assets in accordance with SFAS No. 121.
SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the Company is required
to estimate future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition. The Company has
determined that there is no impairment of its non-nuclear
generating assets. In certain instances, the Company has
considered opportunities to invest in changes in fuel sources that
are technologically available, to improve cash flow. In one
instance, the Company has considered the value of relocating a unit
to a region where demand is greater. To the extent an impairment
loss could not be otherwise avoided, the Company believes it would
be able to recover the loss through a non-bypassable transition fee
proposed in PowerChoice. The accounting for the recovery could be
impacted by the actions that may be taken by the EITF as described
above. In reaching conclusions as to impairment of non-nuclear
generating assets, the Company must make significant estimates and
judgments as to the future price of electricity, capacity factors
and cost of operation of each of its generating units and, where
necessary, the fair market value of each unit. As PowerChoice is
implemented and generation markets become open to competition,
these estimates and judgments may change. An update of the SFAS
No. 121 assessment must be prepared when conditions occur which in
the opinion of management may have impaired the value of these
assets.
As described in Form 10-K for fiscal year ended December 31, 1996,
Part II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Announced Agreement-in-
Principle to Terminate or Restructure 44 IPP Contracts," the
conclusion of the termination or restructuring of IPP contracts,
and closing of the financing necessary to implement such
termination or restructuring, as well as implementation of
PowerChoice, is subject to a number of contingencies. In the event
the Company is unable to successfully bring these events to
conclusion, it would pursue a traditional rate request. However,
notwithstanding such a rate request, it is likely that application
of SFAS No. 71 would be discontinued. The resulting after-tax
charges against income, based on regulatory assets associated with
the nuclear generation and transmission and distribution businesses
as of March 31, 1997, would be approximately $500.5 million or
$3.47 per share. Various requirements under applicable law and
regulations and under corporate instruments, including those with
respect to issuance of debt and equity securities, payment of
common and preferred dividends, the continued availability of the
Company's senior debt facility and certain types of transfers of
assets could be adversely impacted by any such write-downs.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Price Waterhouse LLP, have
made limited reviews (based on procedures adopted by the American
Institute of Certified Public Accountants) of the unaudited
Consolidated Balance Sheet of Niagara Mohawk Power Corporation and
Subsidiary Companies as of March 31, 1997 and the unaudited
Consolidated Statements of Income and Cash Flows for the three-
month periods ended March 31, 1997 and 1996. The accountants'
report regarding their limited reviews of the Form 10-Q of Niagara
Mohawk Power Corporation and its subsidiaries appears on the next
page. That report does not express an opinion on the interim
unaudited consolidated financial information. Price Waterhouse LLP
has not carried out any significant or additional audit tests
beyond those which would have been necessary if their report had
not been included. Accordingly, such report is not a "report" or
"part of the Registration Statement" within the meaning of Sections
7 and 11 of the Securities Act of 1933 and the liability provisions
of Section 11 of such Act do not apply.
REPORT OF INDEPENDENT ACCOUNTANTS
May 14, 1997
To the Stockholders and
Board of Directors of
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
We have reviewed the condensed consolidated balance sheet of
Niagara Mohawk Power Corporation and its subsidiaries as of March
31, 1997, and the related condensed consolidated statements of
income and of cash flows for the three-month periods ended March
31, 1997 and 1996. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the condensed consolidated financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We previously audited in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1996, and the related consolidated statements of income, of
retained earnings and of cash flows for the year then ended (not
presented herein), and in our report dated March 13, 1997, we
expressed an unqualified opinion (containing explanatory paragraphs
with respect to the Company's application of Statement of Financial
Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation" [SFAS No. 71] for its nuclear generation,
electric transmission and distribution and gas businesses and
discontinuation of SFAS No. 71 for its non-nuclear generation
business in 1996). In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of
December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
To the Stockholders and
Board of Directors
May 14, 1997
Page 2
As discussed in Note 3, the Company believes that it continues to
meet the requirements for application of SFAS No. 71 for its
nuclear generation, electric transmission and distribution and gas
businesses. In the event that the Company is unable to complete
the termination or restructuring of independent power producer
contracts and implement PowerChoice, this conclusion could change
in 1997 and beyond, resulting in material adverse effects on the
Company's financial condition and results of operations.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
FINANCIAL CHALLENGES
The Company faces significant challenges in its efforts to maintain
its financial condition in the face of expanding competition.
While utilities across the nation must address these concerns to
varying degrees, the Company believes that it is more financially
vulnerable because of its large industrial customer base, an
oversupply of high-cost mandated power purchases from IPPs, an
excess supply of wholesale power at relatively low prices, a high
tax burden, a stagnant economy in the Company's service territory
and significant investments in nuclear plants. Moreover, solving
the problems the Company faces, including the implementation of
PowerChoice, requires the cooperation and agreement of third
parties outside the Company's control and, thus, limits the options
available to solve those problems and keep the Company financially
viable.
UNIT 1 REFUELING AND MAINTENANCE OUTAGE
Some owners of older General Electric Company boiling water
reactors, including the Company, have experienced cracking in
horizontal welds in the plants' core shrouds. In response to
industry findings, the Company installed pre-emptive modifications
to the Unit 1 core shroud during a 1995 refueling and maintenance
outage. The core shroud, a stainless steel cylinder inside the
reactor vessel, surrounds the fuel and directs the flow of reactor
water through the fuel assemblies.
Inspections conducted as part of the March 1997 refueling and
maintenance outage, detected cracking in vertical welds not
reinforced by the 1995 repairs. On April 8, 1997 the Company filed
a comprehensive inspection and analysis report with the NRC that
concluded that the condition of the Unit 1 core shroud supports the
safe restart and operation of the plant.
On May 8, 1997, the NRC approved the Company's request to operate
Unit 1 until a mid-cycle outage scheduled in approximately 14
months. The Company agreed to propose an inspection plan for the
mid-cycle outage and submit the plan to the NRC at least three
months before the outage is scheduled to begin. The plan which
will specify the inspection methods to be used, will provide
details on inspection of the shroud repair components and the
shroud's horizontal, vertical and ring segment welds.
The refueling and maintenance outage, originally planned to be
completed in early April 1997, was completed on May 10. In
February 1997, the Company met with the NRC staff to discuss
alleged violations of regulations at Unit 1 and Unit 2. In April
1997, the Company received a notice of a $200,000 fine from the NRC
for violations at Unit 1 and Unit 2. The penalty is for violations
related to corrective actions and design control. The Company paid
the fine in May 1997 and is implementing appropriate corrective
actions.
PSC COMPETITIVE OPPORTUNITIES PROCEEDING - ELECTRIC
(See Form 10-K for fiscal year ended December 31, 1996, Part II,
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - "PSC Competitive Opportunities
Proceeding - Electric.")
In February 1997, the PSC issued an Order on the potential Dairylea
Cooperative, Inc. ("Dairylea") pilot program and stated that the
utilities would have 45 days to work together and submit refined
terms and conditions of the program; implementation would be
expected within 90 days after such submission. Alternatively,
utilities were permitted to file settlement agreements or testimony
in the individual rates and restructuring cases that include retail
access proposals similar to the Dairylea proposal.
On March 27, 1997, the Company submitted a Request for Rehearing of
the Order, stating its belief that the PSC lacks authority to order
involuntary retail wheeling. The Company's many concerns with the
proposed Dairylea pilot program include: (a) the possible
perception that any rate discounts ordered in this program should
be expected when future retail access is extended to all of the
Company's customers, (b) the fact that the rate discounts proposed
by Dairylea may, in effect, constitute a partial disallowance of
stranded costs, and (c) the diversion of resources from activities
needed to advance toward full retail access for all customers. The
Company is unable to predict the PSC's response to its request.
Subject to action on its Request for Rehearing, and in a good faith
attempt to comply with the Order, on April 11, 1997 the Company
submitted its proposal for a retail access pilot program for
commercial farms and food processors. The Company estimates that
it has approximately 863,000 Mwh in sales representing
approximately $85 million in revenue that could potentially be
eligible for this program. The Company's proposal is structured
such that customer participation will not strand any costs or
diminish the Company's profitability. PSC action on the proposal
may be forthcoming in late May; the Company cannot predict whether
it will be ordered to actually implement the program, and if so,
whether the program will be structured in accordance with the
Company's proposal. The Company cannot, at this time, predict
whether it will implement the program, or whether it will seek
regulatory and/or legal relief from future orders to implement.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 versus Three Months Ended March
- -----------------------------------------------------------------
31, 1996
- --------
The following discussion presents the material changes in results
of operations for the first quarter of 1997 in comparison to the
same period in 1996. The Company's quarterly results of operations
reflect the seasonal nature of its business, with peak electric
loads in summer and winter periods. Gas sales peak principally in
the winter. The earnings for the three month period should not be
taken as an indication of earnings for all or any part of the
balance of the year.
Earnings for the first quarter were $93.6 million or 65 cents per
share, as compared with $86.5 million or 60 cents per share for the
first quarter of 1996. Earnings per share increased 5 cents per
share, despite lower electric and natural gas sales that occurred
as a result of warmer weather. Higher gas margin, resulting
primarily from the restructuring of gas rates and the timing of the
recognition of interstate gas pipeline transportation cost under
the new multi-year gas rate settlement agreement, added 8 cents per
share and an increase in bad debt expense reduced earnings by 2
cents per share. Such restructuring of gas rates and the change in
recognition of gas cost will cause the company to experience a
higher gas margin during high volume periods, such as in the winter
months, and a lower gas margin during the low volume periods, such
as in the summer months. The gas margin favorability in the first
quarter (which was 2 cents per share lower than expected due to the
milder than normal weather) due to the change in the timing of the
recognition of pipeline costs will reverse during the second and
third quarters, which are lower sales volume periods.
ELECTRIC REVENUES
Electric revenues increased $26.2 million or 3.1% from 1996. FAC
revenues increased $35.1 million, primarily as a result of the
Company's increased payments to the IPPs recovered through the FAC,
offset by a decrease in volume and mix of sales to ultimate
customers of $8.9 million.
ELECTRIC SALES
Electric sales to ultimate consumers were approximately 8.8 billion
Kwh in the first quarter of 1997, a 1.8% decrease from 1996
primarily as a result of warmer weather. After adjusting for the
effects of weather, sales to ultimate consumers increased 0.9%.
Sales for resale decreased 9 million Kwh (0.8%) resulting in a net
decrease in total electric sales of 292 million Kwh (2.9%).
THREE MONTHS ENDED MARCH 31,
ELECTRIC REVENUES (Thousands) SALES (GwHrs)
---------------------------------- --------------------------
% %
1997 1996 Change 1997 1996 Change
Residential $352,919 $355,778 ( 0.8) 2,877 2,991 ( 3.8)
Commercial 314,291 309,855 1.4 2,988 3,021 ( 1.1)
Industrial 129,943 125,874 3.2 1,738 1,754 ( 0.9)
Industrial - Special 14,922 14,524 2.7 1,099 1,093 0.5
Other 13,888 13,126 5.8 64 64 -
-------- -------- ------ ----- ------ ------
Total to Ultimate
Consumers 825,963 819,157 0.8 8,766 8,923 ( 1.8)
Other Electric Systems 23,949 28,195 (15.1) 1,183 1,192 ( 0.8)
Miscellaneous/Subsidiary 27,457 3,785 625.4 - 126 -
-------- -------- ------ ----- ------ ------
TOTAL $877,369 $851,137 3.1 9,949 10,241 (2.9)
======== ======== ====== ===== ====== ======
/TABLE
As indicated in the table below, internal generation decreased in
1997, principally due to the outage at Unit 1.
The Company's management of its IPP power supply generally divides
the projects into three groups: hydroelectric, "must run"
cogeneration and schedulable cogeneration projects.
Due to high precipitation and spring run-off levels so far this
year, hydroelectric IPP projects produced and delivered an increase
of 68 GwHrs or 15.1% under PPAs resulting in increased payments to
those IPPs of $8.4 million.
A substantial portion of the Company's portfolio of IPP projects
operate on a "must run" basis. This means that they tend to run at
maximum production levels regardless of the need or economic value
of the electricity produced. Must run IPPs produced and delivered
an increase of 50 GwHrs or 2.2% under PPAs resulting in increased
payments to those IPPs of $5.1 million, in part due to escalating
contract rates.
Quantities from schedulable cogeneration IPPs increased 234 GwHrs
or 33.7%. Payments to schedulable IPPs increased $9.9 million, in
part due to escalating contract rates. The terms of these PPAs
allow the Company to schedule energy deliveries from the facilities
and then pay for the energy delivered. The Company is also
required to make fixed payments, so long as the IPP plants are
available for service. (See Form 10-K for the fiscal year ended
December 31, 1996, Part II, Item 8. Notes to Consolidated
Financial Statements - "Note 9. Commitments and Contingencies -
Long-term Contracts for the Purchase of Electric Power.")
THREE MONTHS ENDED MARCH 31,
GwHrs Cost (Millions) Cents/Kwh
---------------------- -------------------------- ------------
% %
1997 1996 Change 1997 1996 Change 1997 1996
FUEL FOR ELECTRIC GENERATION:
Coal 1,728 1,935 (10.7) $ 24.0 $ 27.6 (13.0) 1.4 1.4
Oil 71 244 (70.9) 3.7 9.9 (62.6) 5.2 4.1
Natural Gas 27 1 2600.0 1.3 0.2 550.0 4.8 20.0
Nuclear 1,871 2,343 (20.1) 9.2 13.1 (29.8) 0.5 0.6
Hydro 990 1,026 (3.5) - - - - -
----- ----- ------ ------ ------ ------ --- ---
4,687 5,549 (15.5) 38.2 50.8 (24.8) 0.8 0.9
----- ----- ------ ------ ------ ------ --- ---
ELECTRICITY PURCHASED:
IPPs:
Capacity - - - 56.6 53.2 6.4 - -
Energy and taxes 3,759 3,407 10.3 237.5 217.5 9.2 6.3 6.4
------ ------ ------ -------- ------ ------- --- ---
Total IPP purchases 3,759 3,407 10.3 294.1 270.7 8.6 7.8 7.9
Other 2,288 2,312 (1.0) 30.6 31.7 (3.5) 1.3 1.4
------ ------ ------ -------- ------ ------- --- ---
6,047 5,719 5.7 324.7 302.4 7.4 5.4 5.3
------ ------ ------ -------- ------ ------- --- ---
Total Supply 10,734 11,268 (4.7) 362.9 353.2 2.7 3.4 3.2
------ ------ ------ -------- ------ ------- --- ---
Fuel adjustment
clause - - - 3.4 (16.3) (120.9) - -
Losses/Company use 785 1,027 (23.6) - - - - -
------ ------ ------ -------- ------ ------- --- ---
Sales 9,949 10,241 (2.9) $366.3 $336.9 8.7 3.7 3.3
====== ====== ====== ======== ====== ======= === ===
/TABLE
GAS REVENUES
Gas revenues decreased $25.5 million or 8.2% in 1997 from the
comparable period in 1996 as set forth in the table below:
Sales to ultimate consumers $(32.4) million
Spot market sales (20.8)
Purchased gas adjustment clause revenues 30.4
Change in base rates (2.7)
-------
$(25.5) million
=======
GAS SALES
Due to warmer weather during the first quarter of 1997, gas sales
to ultimate consumers decreased 5.8 million Dth or 13.5% from the
first quarter of 1996. After adjusting for the effects of weather,
sales to ultimate consumers decreased 2.3% primarily due to the
migration of certain large commercial sales customers to the
transportation class. Spot market sales (sales for resale) which
are generally from the higher priced gas available to the Company
and therefore yield margins that are substantially lower than
traditional sales to ultimate consumers, also decreased. In
addition, changes in purchased gas adjustment clause revenues are
generally margin-neutral.
THREE MONTHS ENDED MARCH 31,
GAS REVENUES (Thousands) SALES (Thousands of Dth)
------------------------------- -------------------------------
% %
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ----
Residential $188,687 $191,772 (1.6) 25,764 28,387 (9.2)
Commercial 72,500 81,099 (10.6) 10,540 12,903 (18.3)
Industrial 3,412 7,189 (52.5) 678 1,476 (54.1)
-------- -------- ------- ------ ------ ------
Total to Ultimate
Consumers 264,599 280,060 (5.5) 36,982 42,766 (13.5)
Transportation of
Customer-Owned Gas 15,313 14,057 8.9 41,702 32,405 28.7
Spot Market Sales 3,082 23,880 (87.1) 1,088 5,583 (80.5)
Miscellaneous 3,469 (6,071) (157.1) - - -
-------- -------- ------- ------ ------ ------
TOTAL TO SYSTEM
CORE CUSTOMERS $286,463 $311,926 (8.2) 79,772 80,754 (1.2)
======== ======== ======= ====== ====== ======
The total cost of gas included in expense decreased 21.8% in 1997.
This was the result of a 6.5 million decrease in Dth purchased and
withdrawn from storage for ultimate consumer sales ($19.6 million),
a $15.2 million decrease in Dth purchased for spot market sales,
and a $25.2 million decrease in purchased gas costs and certain
other items recognized and recovered through the purchased gas
adjustment clause, partially offset by a 16.3% increase in the
average cost per Dth purchased ($18.6 million). The Company's net
cost per Dth sold, as charged to expense and excluding spot market
purchases, decreased to $3.82 in 1997 from $3.85 in 1996.
BAD DEBT EXPENSE for the first quarter of 1997 was $21.3 million as
compared with $16.6 million in 1996. The increase in bad debt
expense reflects the implementation of the risk assessment
methodology in the third quarter of 1996, which puts more emphasis
on past-due balances. Previously, the Company followed regulatory
practice and consequently focused on final billed accounts only
(typically accounts that are no longer active). As a result, bad
debt expense will vary more directly with revenues, which are
seasonal, to some degree.
The increase in FEDERAL AND FOREIGN INCOME TAXES (NET) of
approximately $15.7 million was primarily due to an increase in
pre-tax income.
OTHER TAXES decreased by $4.4 million primarily as a result of
lower real estate taxes ($3.8 million).
OTHER ITEMS (NET) increased $3.2 million primarily due to higher
interest income ($3.8 million) as a result of an increase in
temporary cash investments.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
With reference to the Company's 1996 Form 10-K Annual Report,
Item 3. Legal Proceedings, the following matter is updated:
Norcon Litigation
-----------------
With regard to the complaint filed against the Company by
Norcon Power Partners, L.P. ("Norcon"), on March 25, 1997,
the U.S. Court of Appeals for the Second Circuit ordered that
the question of whether there exists under New York
commercial law the right to demand firm security on an
electric contract should be certified to the N.Y. Court of
Appeals, the highest New York court, for final resolution.
The Second Circuit order effectively stayed the U.S. District
Court's order against the Company in Norcon, pending final
disposition by the N.Y. Court of Appeals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 11 - Computation of the Average Number of Shares of
Common Stock Outstanding for the Three Months Ended March 31,
1997 and 1996.
Exhibit 12 - Statement Showing Computations of Ratio of
Earnings to Fixed Charges, Ratio of Earnings to Fixed Charges
without AFC and Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends for the Twelve Months Ended March
31, 1997.
Exhibit 15 - Accountants' Acknowledgement Letter.
Exhibit 27 - Financial Data Schedule.
In accordance with Paragraph 4(iii) of Item 601(b) of
Regulation S-K, the Company agrees to furnish to the
Securities and Exchange Commission, upon request, a copy of
the agreements comprising the $804 million senior debt
facility that the Company completed with a bank group during
March 1996. The total amount of long-term debt authorized
under such agreement does not exceed 10 percent of the total
consolidated assets of the Company and its subsidiaries.
(b) Report on Form 8-K:
Form 8-K Reporting Date - March 10, 1997.
Item reported - Item 5. Other Events.
Registrant filed information concerning the March 10, 1997
announced agreement-in-principle to restructure or terminate
44 power purchase contracts for a combination of cash and
securities.
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
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.
NIAGARA MOHAWK POWER CORPORATION
(Registrant)
Date: May 14, 1997 By /s/ Steven W. Tasker
--------------------
Steven W. Tasker
Vice President-Controller and
Principal Accounting Officer
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
EXHIBIT INDEX
- -------------
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
11 Computation of the Average Number of Shares of Common
Stock Outstanding for the Three Months Ended March 31,
1997 and 1996.
12 Statement Showing Computations of Ratio of Earnings to
Fixed Charges, Ratio of Earnings to Fixed Charges without
AFC and Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends for the Twelve Months Ended March 31,
1997.
15 Accountants' Acknowledgement Letter.
27 Financial Data Schedule.
EXHIBIT 11
- ----------
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
Computation of the Average Number of Shares of Common Stock Outstanding
For the Three Months Ended March 31, 1997 and 1996
(4)
Average Number of
Shares Outstanding As
(1) (2) (3) Shown on Consolidated
Shares of Number of Share Statement of Income
Common Days Days (3 divided by number
Stock Outstanding (2 x 1) of Days in Period)
--------- ----------- ------- --------------------
FOR THE THREE MONTHS
ENDED MARCH 31:
JANUARY 1 - MARCH 31, 1997 144,365,214 90 12,992,869,260
SHARES ISSUED -
ACQUISITION - SYRACUSE
SUBURBAN GAS COMPANY, INC.-
JANUARY 6 25,405 85 2,159,425
----------- --------------
144,390,619 12,995,028,685 144,389,208
=========== ============== ===========
January 1 - March 31, 1996 144,332,123 91 13,134,223,193
Shared issued -
Acquisition - Syracuse
Suburban Gas Company, Inc.-
February 5 732 56 40,992
----------- --------------
144,332,855 13,134,264,185 144,332,573
=========== ============== ===========
NOTE: Earnings per share calculated on both a primary and fully diluted basis are the
same due to the effects of rounding.
/TABLE
EXHIBIT 12
- ----------
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
Statement Showing Computation of Ratio of Earnings to Fixed
Charges, Ratio of Earnings to Fixed Charges without AFC and Ratio
of Earnings to Fixed Charges and Preferred Stock Dividends for the
Twelve Months Ended March 31, 1997 (in thousands of dollars)
A. Net income (a) $117,290
B. Taxes Based on Income or Profits 81,879
--------
C. Earnings, Before Income Taxes 199,169
D. Fixed Charges (b) 307,251
--------
E. Earnings Before Income Taxes and
Fixed Charges 506,420
F. Allowance for Funds Used During
Construction (AFC) 8,554
--------
G. Earnings Before Income Taxes and
Fixed Charges without AFC $497,866
========
PREFERRED DIVIDEND FACTOR:
H. Preferred Dividend Requirements $ 38,061
--------
I. Ratio of Pre-tax Income to Net
Income (C/A) 1.698
--------
J. Preferred Dividend Factor (HxI) $ 64,628
K. Fixed Charges as Above (D) 307,251
--------
L. Fixed Charges and Preferred Dividends
Combined $371,879
========
M. Ratio of Earnings to Fixed
Charges (E/D) 1.65
========
N. Ratio of Earnings to Fixed Charges
without AFC (G/D) 1.62
========
O. Ratio of Earnings to Fixed Charges
and Preferred Dividends Combined (E/L) 1.36
========
(a) Includes the extraordinary item of $67,364 recorded in
December 1996 for the discontinuance of regulatory accounting
principles, net of income taxes of $36,273.
(b) Includes a portion of rentals deemed representative of the
interest factor ($26,373).
/TABLE
EXHIBIT 15
- ----------
May 14, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Niagara Mohawk Power Corporation has included our
report dated May 14, 1997 (issued pursuant to the provisions of
Statement on Auditing Standards No. 71) in the Registration
Statements on Form S-8 (Nos. 33-36189, 33-42771 and 333-13781) and
in the Prospectus constituting part of the Registration Statements
on Form S-3 (Nos. 33-45898, 33-50703, 33-51073, 33-54827 and 33-
55546). We are also aware of our responsibilities under the
Securities Act of 1933.
Yours very truly,
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP