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 September 30, 1997
- -------------------------------------------------
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
- --------------------------------
(Exact name of registrant as specified in its charter)
State of New York 15-0265555
- ----------------- ----------
(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 October 31, 1997 -
144,419,351
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
FORM 10-Q - For the Quarter Ended September 30, 1997
INDEX
- -----
PART I. FINANCIAL INFORMATION
------------------------------
Glossary of Terms
Item 1. Financial Statements.
a) Consolidated Statements of Income -
Three Months and Nine Months ended
September 30, 1997 and 1996
b) Consolidated Balance Sheets - September 30,
1997 and December 31, 1996
c) Consolidated Statements of Cash Flows -
Nine Months ended September 30, 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 5. Other Information.
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
- ---- ----------
ALJ Administrative Law Judge
Dth Dekatherms
FAC Fuel Adjustment Clause
GAAP Generally Accepted Accounting Principles
GRT New York State Gross Receipts Tax
GWh Gigawatt-hours
IPP Independent Power Producer
KWh Kilowatt-hours
MRA Master Restructuring Agreement
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"
Unit 1 Nine Mile Point Nuclear Station Unit No. 1
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 SEPTEMBER 30,
--------------------------------
1997 1996
--------- ---------
(In thousands of dollars)
OPERATING REVENUES:
Electric $ 827,697 $ 829,370
Gas 68,873 66,343
---------- ---------
896,570 895,713
---------- ---------
OPERATING EXPENSES:
Fuel for electric generation 54,674 55,129
Electricity purchased 293,324 286,085
Gas purchased 41,625 26,113
Other operation and maintenance
expenses 198,805 284,237
Depreciation and amortization 85,148 82,475
Federal and foreign income taxes 17,843 (6,287)
Other taxes 112,820 114,555
---------- ----------
804,239 842,307
---------- ----------
OPERATING INCOME 92,331 53,406
---------- ----------
OTHER INCOME AND (DEDUCTIONS):
Allowance for other funds used
during construction 1,306 1,138
Federal and foreign income taxes 248 289
Other items (net) 6,178 4,162
---------- ----------
7,732 5,589
---------- ----------
INCOME BEFORE INTEREST CHARGES 100,063 58,995
---------- ----------
INTEREST CHARGES:
Interest on long-term debt 67,689 68,301
Other interest 1,773 4,550
Allowance for borrowed funds used
during construction (1,082) (940)
---------- ----------
68,380 71,911
---------- ----------
NET INCOME/(LOSS) 31,683 (12,916)
Dividends on preferred stock 9,353 9,609
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BALANCE AVAILABLE FOR COMMON STOCK $ 22,330 $ (22,525)
========== ==========
Average number of shares of common
stock outstanding (in thousands) 144,417 144,364
Balance available per average
share of common stock $ .15 $ (.16)
The accompanying notes are an integral part of these financial statements
/TABLE
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
--------- ----------
(In thousands of dollars)
OPERATING REVENUES:
Electric $2,509,603 $2,484,964
Gas 496,497 534,583
---------- ----------
3,006,100 3,019,547
---------- ----------
OPERATING EXPENSES:
Fuel for electric generation 127,331 141,630
Electricity purchased 939,125 874,450
Gas purchased 253,180 296,665
Other operation and maintenance
expenses 605,262 693,602
Depreciation and amortization 254,169 246,681
Federal and foreign income taxes 118,514 79,728
Other taxes 354,218 362,013
---------- ----------
2,651,799 2,694,769
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OPERATING INCOME 354,301 324,778
---------- ----------
OTHER INCOME AND (DEDUCTIONS):
Allowance for other funds used
during construction 3,942 2,340
Federal and foreign income taxes 5,560 4,950
Other items (net) 16,911 13,345
---------- ----------
26,413 20,635
---------- ----------
INCOME BEFORE INTEREST CHARGES 380,714 345,413
---------- ----------
INTEREST CHARGES:
Interest on long-term debt 204,578 205,089
Other interest 3,946 6,721
Allowance for borrowed funds used
during construction (3,264) (2,595)
---------- ----------
205,260 209,215
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NET INCOME/(LOSS) 175,454 136,198
Dividends on preferred stock 28,161 28,760
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BALANCE AVAILABLE FOR COMMON STOCK $ 147,293 $ 107,438
========== ==========
Average number of shares of common
stock outstanding (in thousands) 144,399 144,344
Balance available per average
share of common stock $ 1.02 $ .74
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
- ------ SEPTEMBER 30, 1997
(UNAUDITED) DECEMBER 31, 1996
------------------ -----------------
(In thousands of dollars)
UTILITY PLANT:
Electric plant $ 8,720,988 $ 8,611,419
Gas plant 1,110,219 1,082,298
Nuclear fuel 575,918 573,041
Common plant 315,631 292,591
Construction work in progress 273,411 279,992
---------- ----------
Total utility plant 10,996,167 10,839,341
Less-Accumulated depreciation
and amortization 4,131,333 3,881,726
--------- ----------
Net utility plant 6,864,834 6,957,615
--------- ----------
OTHER PROPERTY AND INVESTMENTS 247,739 257,145
--------- ----------
CURRENT ASSETS:
Cash, including temporary cash
investments of $566,136 and
$223,829, respectively 606,689 325,398
Accounts receivable (less allowance for
doubtful accounts of $67,700 and
$52,100, respectively) 291,136 373,305
Materials and supplies, at average cost:
Coal and oil for production of
electricity 16,852 20,788
Gas storage 45,414 43,431
Other 119,371 120,914
Prepaid taxes 51,570 11,976
Other 107,512 25,329
---------- ----------
1,238,544 921,141
---------- ----------
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 59,304 65,993
Postretirement benefits other than
pensions 57,405 60,482
Other 182,943 206,352
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1,151,908 1,188,701
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OTHER ASSETS 72,574 77,428
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$9,575,599 $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
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SEPTEMBER 30, 1997
(UNAUDITED) DECEMBER 31, 1996
------------------ -----------------
(In thousands of dollars)
CAPITALIZATION:
COMMON STOCKHOLDERS' EQUITY:
Common stock - $1 par value; authorized
185,000,000 shares; issued 144,419,351
and 144,365,214 shares, respectively $ 144,419 $ 144,365
Capital stock premium and expense 1,783,633 1,783,725
Retained earnings 804,775 657,482
---------- ----------
2,732,827 2,585,572
---------- ----------
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
222,000 and 240,000 shares, respectively 20,400 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
2,581,204 and 2,864,005 shares,
respectively 56,210 64,530
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516,610 526,730
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Long-term debt 3,416,586 3,477,879
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TOTAL CAPITALIZATION 6,666,023 6,590,181
---------- ----------
CURRENT LIABILITIES:
Long-term debt due within one year 67,124 48,084
Sinking fund requirements on redeemable
preferred stock 10,120 8,870
Accounts payable 253,549 271,830
Payable on outstanding bank checks 46,449 32,008
Customers' deposits 17,065 15,505
Accrued taxes 30,640 4,216
Accrued interest 71,565 63,252
Accrued vacation pay 36,508 36,436
Other 46,889 52,455
---------- ----------
579,909 532,656
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REGULATORY LIABILITIES (NOTE 3):
Deferred finance charges 239,880 239,880
---------- ----------
OTHER LIABILITIES:
Accumulated deferred income taxes 1,361,345 1,331,913
Employee pension and other benefits 241,720 238,688
Deferred pension settlement gain 14,145 19,269
Unbilled revenues 25,281 49,881
Other 222,296 174,562
---------- ----------
1,864,787 1,814,313
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 3):
Liability for environmental restoration 225,000 225,000
---------- ----------
$9,575,599 $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
- -------------------------------------
INCREASE (DECREASE) IN CASH (UNAUDITED)
- ---------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
------------- ------------
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 175,454 $ 136,198
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 254,169 246,681
Amortization of nuclear fuel 20,598 30,040
Provision for deferred income taxes 33,050 1,986
Decrease in net accounts receivable 57,569 164,205
(Increase) decrease in materials and
supplies 2,879 (5,683)
Decrease in accounts payable and
accrued expenses (1,709) (14,465)
Increase in accrued interest and taxes 34,737 25,172
Changes in other assets and liabilities (29,721) (5,907)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 547,026 578,227
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction additions (183,831) (186,860)
Nuclear fuel (2,877) (29,061)
---------- ----------
Acquisition of utility plant (186,708) (215,921)
Decrease in materials and supplies
related to construction 617 3,578
Decrease in accounts payable and accrued
expenses related to construction (427) (3,616)
(Increase) decrease in other investments (4,054) 10,226
Other 5,505 (5,972)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (185,067) (211,705)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt - 105,000
Net change in revolving credit agreements - (170,000)
Reductions of preferred stock (8,870) (6,800)
Reductions in long-term debt (44,600) (29,341)
Dividends paid (28,161) (28,760)
Other 963 (9,039)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (80,668) (138,940)
---------- ----------
NET INCREASE IN CASH 281,291 227,582
Cash at beginning of period 325,398 153,475
---------- ----------
CASH AT END OF PERIOD $606,689 $381,057
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $199,460 $205,702
Income taxes paid $63,116 $80,499
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
and nine-month periods ended September 30, 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
("FASB") issued Statement of Financial Accounting Standards
No. 128 "Earnings per Share" ("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 MRA entered into by the Company
on July 9, 1997 to terminate, restate or amend IPP
contracts is expected to result in the issuance of up to 46
million shares of common stock, representing approximately
25% of the anticipated fully-diluted outstanding common
shares. These shares will be issued upon the closing of
the MRA, which is contingent upon regulatory and other
approvals.
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 89 sites with which it
has been or may be associated, including 46 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 September 30, 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 $835 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. In its PowerChoice settlement, the
Company has proposed the continued application of deferral
accounting for cost differences resulting from this effort.
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. To date, the Company
has reached settlements with a number of insurance
carriers, resulting in payments to the Company of
approximately $36 million, net of costs incurred in
pursuing recoveries. The Company has proposed, in its
PowerChoice settlement, to amortize this amount over a ten
year period, but is unable to predict what the final
ratemaking disposition will be.
TAX ASSESSMENTS: (See Form 10-Q for the quarter ended
March 31, 1997, Part I, Item 1. Financial Statements -
"Note 2. Contingencies - Tax assessments.")
The Internal Revenue Service ("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 restated or amended under the MRA with IPPs
as described in Note 3, then it is possible that the
effects of any proposed disallowance would be mitigated.
The IRS has commenced its examination of the Company's
federal income tax returns or the years 1991 through
1993.The Company is vigorously defending its position on
this issue.
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 has been in progress.
A motion for summary judgement seeking dismissal of the
remaining cause of action has been submitted to the NYS
Supreme Court.
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 $912 million, net of
approximately $240 million of regulatory liabilities at
September 30, 1997. These regulatory assets are probable
of recovery. The portion of the $912 million which has
been allocated to the nuclear generation and electric
transmission and distribution business is approximately
$765 million, which is net of approximately $240 million of
regulatory liabilities. Regulatory assets allocated to the
rate-regulated gas distribution business are $147 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 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. It is expected that the Company's IPP
contracts, including those restructured under the MRA and
those not so restructured will continue to be the
obligations of the nuclear generation and transmission and
distribution business.
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 generally 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 specific 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. In the year
of implementation of PowerChoice, it is likely that the
Company will have a nominal amount of either net income or
loss.
The Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on Issue No.
97-4 "Deregulation of the Pricing of Electricity-Issues
Related to the Application of SFAS No. 71 and SFAS No. 101"
in July 1997. The Task Force reached the following
conclusions: (1) the future recognition of regulatory
assets for the portion of the business that no longer
qualifies for application of SFAS No. 71 depends on the
regulators' treatment of the recovery of those costs and
other stranded assets from cash flows of other aspects of
the business still considered to be regulated and (2) a
utility should discontinue the application of SFAS No. 71
when the legislative and regulatory plan has been enacted,
including transition plans to a competitive environment and
the handling of stranded costs subject to future rate
recovery. As discussed in Note 1, the Company discontinued
the application of SFAS No. 71 and applied SFAS No. 101
with respect to the fossil and hydro generation business at
December 31, 1996, in a manner consistent with the EITF
consensus.
With the probable implementation of PowerChoice, which now
includes the sale of the non-nuclear generation business,
the Company is required to assess the carrying amounts of
its long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("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 or
when assets are to be disposed of. 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/or its disposition. The
Company has determined that there is no impairment of its
fossil and hydro generating assets. To the extent the
proceeds resulting from the sale of the fossil and hydro
assets were not sufficient to avoid a loss, the Company
believes it would be able to recover such loss through the
non-bypassable transition fee proposed in PowerChoice. The
PowerChoice settlement provides for deferral and future
recovery of losses, if any, resulting from the sale of the
non-nuclear generating assets. 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. The Company's fossil and hydro generation
plant assets had a net book value of approximately $1
billion at September 30, 1997.
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" and Forms 8-K filed July 10,
1997, and October 17, 1997, the conclusion of the
termination or restatement or amendment of IPP contracts,
and closing of the financing necessary to implement such
termination or restatement or amendment, 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 and liabilities associated with the
nuclear generation and transmission and distribution
businesses as of September 30, 1997, would be approximately
$497 million or $3.44 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 September 30, 1997 and the
unaudited Consolidated Statements of Income for the three-month
and nine-month periods ended September 30, 1997 and 1996 and the
unaudited Consolidated Statements of Cash Flows for the nine-
months ended September 30, 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.
PRICE WATERHOUSE LLP
ONE MONY PLAZA
SYRACUSE NY 13202
TELEPHONE 315-474-6571
REPORT OF INDEPENDENT ACCOUNTANTS
November 7, 1997
To the Stockholders and Board of Directors of
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, NY 13202
We have reviewed the condensed consolidated balance sheet of
Niagara Mohawk Power Corporation and its subsidiaries as of
September 30, 1997, and the related condensed consolidated
statements of income for the three-month and nine-month periods
ended September 30, 1997 and 1996 and of cash flows for the nine
months ended September 30, 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
To the Stockholders and
Board of Directors
November 7, 1997
Page 2
material respects, in relation to the consolidated balance sheet
from which it has been derived.
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
- ------------------------
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.
MASTER RESTRUCTURING AGREEMENT WITH 16 IPPs TO TERMINATE,
RESTATE OR AMEND 29 CONTRACTS AND REVISED POWERCHOICE PROPOSAL
On July 9, 1997, the Company entered into the MRA with 16 IPPs
who have 29 PPAs with the Company. Pursuant to the MRA, such
PPAs will be terminated, restated or amended, in exchange for an
aggregate of $3,555,000,000 in cash, $50,000,000 in short term
notes or cash (at the Company's option), 46 million shares of the
Company's common stock and certain fixed price swap contracts.
(See Exhibit 99.3 of Form 8-K, filed July 10, 1997 for a schedule
setting forth the quantities and prices for the restated or
amended contracts.) The closing of the MRA is conditioned upon,
among other things, the Company and the IPPs negotiating their
individual restated and amended contracts, the receipt of all
regulatory approvals, the receipt of all consents by third
parties necessary for the transactions contemplated by the MRA
(including the termination of the existing power purchase
contracts and the termination or amendment of all related third
party agreements), the IPPs entering into new third party
arrangements which will enable each IPP to restructure its
projects on a reasonably satisfactory economic basis, the Company
having completed all necessary financing arrangements and the
Company and the IPPs having received all necessary approvals from
their respective boards of directors, shareholders and partners.
While one or more IPPs may under certain circumstances terminate
the MRA with respect to itself, the Company's obligation to close
the MRA is subject to its determination that as a result of any
such terminations the benefits anticipated to be received by the
Company pursuant to the MRA have not been materially and
adversely affected. The foregoing is qualified in its entirety
by the text of the MRA, a copy of which was filed as Exhibit
10.28 in the Company's Form 8-K, on July 10, 1997.
The MRA formalizes an agreement in principle announced March 10,
1997 between the Company and 19 developers representing 44
contracts. Prior to the execution of the MRA, the Company
withdrew its offer with respect to a subgroup of three developers
representing 15 hydro contracts. Because the agreement in
principle called for the subgroup to be compensated solely
through restructured contracts, their departure did not change
the amount of cash and stock in the overall agreement, nor did it
materially impact the cost reductions associated with the
agreement. The Company has reached a settlement with one hydro
developer and hopes to achieve settlements with the remaining
members of the subgroup.
The MRA specifically contemplated that two IPPs, Oxbow Power of
North Tonawanda, New York, Inc. ("Oxbow") and NorCon Power
Partners, L.P. ("NorCon") would enter into further negotiations
concerning their treatment under the MRA. Following such
negotiations, Oxbow has withdrawn from the MRA, but, based on the
value of its allocation under the MRA and the terms of its
existing PPA, the Company does not believe Oxbow's withdrawal
will materially impact the cost reductions associated with the
MRA. The Company and NorCon have agreed to replace NorCon's
initial allocation under the MRA with an all cash allocation
which has, in the Company's estimation, a value approximately $60
million higher than NorCon's initial allocation. The Company
expects that prior to the consummation of the MRA, the mix of
consideration to be received by the IPPs may be renegotiated.
On October 10, 1997, the Company filed its PowerChoice settlement
with the PSC, which incorporates the terms of the MRA. The
settlement will be the subject of evidentiary and public
statement hearings before an ALJ. The PSC will review the
settlement and the ALJ's analysis in open session before reaching
a decision. The Company expects a decision from the PSC by early
1998 which should allow for the consummation of the MRA in the
first half of 1998. The closing of the MRA is conditioned upon
the factors mentioned above.
The settlement establishes a five year rate plan that would
reduce average residential and commercial prices by 3.2% over the
first three years. This reduction would include certain savings
that will result from partial reductions of the New York State
Gross Receipts Tax. Industrial customers would see average
reductions of 25%; these decreases would include discounts
currently offered to some industrial customers through optional
and flexible rate programs. During the term of the settlement,
the Company would be permitted to defer certain costs, associated
primarily with environmental remediation, nuclear decommissioning
and related costs, and changes in laws, regulations, rules and
order. In years four and five of its rate plan, the Company
could request an increase in prices subject to a cap of 1% of the
all-in price, excluding commodity costs (e.g., transmission,
distribution, and forecasted Competitive Transition Charges
("CTC")). This price cap is separate from the recovery of
deferrals established in years one through four, as well as the
generation incentive (described below) and variation in the MRA
contracts cost resulting from the indexing provisions of these
contracts.
The settlement provides that the MRA and the contracts executed
thereto are found to be prudent. The settlement further provides
that the Company shall have a reasonable opportunity to recover
its stranded costs, including those associated with the MRA and
the contracts executed thereto, through a CTC and, under certain
circumstances, through exit fees and in back up rates.
Under the settlement, a regulatory asset would be established
representing the costs of the MRA. In this way, the costs of the
MRA would be deferred and amortized over a period not to exceed
ten years. In order to achieve the price levels in the
settlement rate plan, the Company accepted a limited projected
recovery of carrying charges on the regulatory asset. In
limiting such recovery, the Company would be agreeing to absorb a
portion of stranded costs, which would result in a very low
return on equity during the settlement period.
The settlement calls for the Company to divest all its fossil and
hydro generation assets. Divestiture is intended to be
accomplished through an auction. Winning bids would be selected
within 11 months of the Commission's approval of the auction
plan, which will be filed separately with the Commission. The
Company could receive an incentive based on the auction sale
proceeds as an incentive to obtain maximum value in the sale.
This incentive would be recovered either from sale proceeds or if
necessary, through a surcharge. If the Company does not receive
an acceptable, non-negative bid for an asset, the Company agrees
to form a subsidiary holding any such assets and then to legally
separate this subsidiary from the Company through a spin-off to
shareholders or otherwise. If a bid of zero or below is received
for an asset, the Company would keep the asset as part of its
regulated business for future consideration. The foregoing
process would quantify the stranded costs associated with the
Company's fossil and hydro generating assets. The Company would
have a reasonable opportunity to recover these costs through the
CTC and otherwise as described above. After the foregoing
process is complete, the Company would agree not to own any non-
nuclear generating assets in the State of New York, subject to
certain limited exceptions provided in the settlement.
The settlement contemplates that the Company's nuclear plants
will remain part of the Company's regulated business and that the
Company will continue efforts to pursue a statewide solution such
as the New York Nuclear Operating Company. The settlement
stipulates that absent a statewide solution, the Company will
file a detailed plan for analyzing proposed solutions for its
nuclear assets, including the feasibility of an auction, transfer
and/or divestiture.
All customers would have retail choice by December 1999 regarding
the business that supplies them with the electric commodity. The
Company would continue to deliver such commodity through its
distribution and transmission facilities. The Company also would
have the obligation to be the so-called provider of last resort
for those customers who do not exercise their right to choose a
new supplier of the electric commodity.
All of the foregoing discussion of the PowerChoice Settlement is
qualified in its entirety by the text of the Settlement, a copy
of which was filed as Exhibit 99.1 in the Company's Form 8-K, on
October 17, 1997.
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" and Form 10-Q for the
quarter ended March 31, 1997, Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - "PSC Competitive Opportunities Proceeding -
Electric" and Form 10-Q for the quarter ended June 30, 1997, Part
I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "PSC Competitive
Opportunities Proceeding - Electric.")
On August 27, 1997, the PSC requested comments on its staff's
tentative conclusions about how nuclear generation and fossil
generation should be treated after decisions are made on the
individual electric restructuring agreements currently pending
before the PSC. The PSC staff concluded that beyond the
transition period (the period covered by the individual
restructuring agreements), nuclear generation should operate on a
competitive basis. In addition, the PSC staff concluded that a
sale of generation plants to third parties is the preferred means
of determining the fair market value of generation plants and
offers the greatest potential for the mitigation of stranded
costs. The PSC staff also concluded that recovery of sunk costs,
including post shutdown costs, would be subject to review by the
PSC and this process should take into account mitigation measures
taken by the utility, including the steps it has taken to
encourage competition in its service area.
In October 1997, the majority of utilities with interests in
nuclear power plants, including the Company, requested that the
PSC reconsider its staff's nuclear proposal. In addition, the
utilities raised the following issues: impediments to nuclear
plants operating in a competitive mode; impediments to the sale
of plants; responsibility for decommissioning and disposal of
spent fuel; safety and health concerns; and environmental and
fuel diversity benefits. In light of all of these issues, the
utilities recommended that a more formal process be developed to
address those issues.
The three investor-owned utilities, Rochester Gas and Electric
Corporation, Consolidated Edison Company of New York, Inc. and
the Company, which are currently pursuing formation of a nuclear
operating company in New York State also filed a response with
the PSC in October 1997. The response stated that a forced
divestiture of the nuclear plants would add uncertainty to
developing a statewide approach to operating the plants and
requested that such a forced divestiture proposal be rescinded.
The response also stated that implementation of a consolidated
six-unit operation would contribute to the mitigation of
unrecovered nuclear costs. The New York Power Authority, which
is also pursuing formation of the nuclear operating company,
submitted its own comments which were similar to the comments of
the three utilities.
PSC PROPOSAL ON THE FUTURE OF THE NATURAL GAS INDUSTRY
On September 8, 1997, the PSC issued for comment its staff's
position paper on the future of the natural gas industry, which
includes recommendations for increasing competition and expanding
customer choice in the natural gas marketplace. The staff
proposed, among other things, that all regulated natural gas
utilities exit the business of purchasing natural gas for
customers over the next five years. Instead, regulated utilities
would serve only to deliver natural gas purchased by customers
from competitive suppliers. If this proposal is adopted by the
PSC, then it would eliminate the need to regulate natural gas
purchasing practices since market forces would establish natural
gas prices.
However, the PSC staff recognizes that a number of issues need to
be resolved in order for this proposal to be successful, such as
the issue of what to do with contracts that the local utilities
have with interstate pipelines that extend beyond the proposed
five-year transition period, the obligation of the utility to
serve as supplier of last resort, and the issue of system
reliability.
The Company plans to submit its comments to the PSC by the
November 20, 1997 deadline. With the exception of the issues to
be resolved by the PSC, the Company does not believe that this
proposal will have a material adverse affect on its results of
operations or financial condition, since the Company's natural
gas margin is derived from the delivery service and not from the
commodity sale. The foregoing constitutes a forward-looking
statement, as defined in Section 21E of the Securities Exchange
Act of 1934, by the Company and the actual results and
developments may differ due to the factor discussed above. The
resolution of the issues identified by the PSC could result in
stranded costs for the Company. The Company is unable to predict
how the PSC will resolve those issues.
FINANCING PLANS AND FINANCIAL POSITION
(See Form 10-K for the fiscal year ended December 31, 1996, Part
II, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - "Financial Position,
Liquidity and Capital Resources" and Form 10-Q for the quarter
ended June 30, 1997, Part I, Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations -
"Financing Plans and Financial Position.")
On October 14, 1997, Standard & Poor's ("S&P") raised its ratings
on the Company's first mortgage bonds to BB+ from BB. S&P stated
that this rating revision is the result of its effort to
incorporate into its ratings of corporate issues "a more vigorous
analysis of ultimate recovery potential to supplement the
analysis of default risk." In addition, Moody's changed the
credit rating outlook for the Company to positive following the
filing of the PowerChoice settlement agreement.
During March 1996, the Company completed an $804 million senior
debt facility with a bank group for the purposes of consolidating
and refinancing certain of the Company's existing working capital
lines of credit and letter of credit facilities and providing
additional reserves of bank credit. This senior debt facility
will enhance the Company's financial flexibility during the
period 1997 through June 1999. The senior debt facility consists
of a $255 million term loan facility, a $125 million revolving
credit facility and $424 million for letters of credit. The
letter of credit facility provides credit support for the
adjustable rate pollution control revenue bonds issued through
the New York State Energy Research and Development Authority.
The interest rate applicable to the senior debt facility is
variable based on certain rate options available under the
agreement and currently approximates 7.4% (but capped at 15%).
As of September 30, 1997, the amount outstanding under the senior
debt facility was $542 million, consisting of $105 million under
the term loan facility, a $424 million letter of credit and a $13
million letter of credit under the revolving credit facility,
leaving the Company with $262 million of borrowing capability
under the facility. The facility expires on June 30, 1999
(subject to earlier termination if the Company separates its
fossil/hydro generation business from its transmission and
distribution business, or any other significant restructuring
plan).
On October 23, 1997, the Board of Directors authorized the
solicitation of consents from its preferred shareholders, as
required by the Company's Certificate of Incorporation, to
increase the amount of unsecured debt the Company may issue from
the present level of approximately $700 million by up to an
additional $5 billion. Such approval would become effective upon
receipt of consents from the holders of shares representing a
majority of the total votes of the preferred stock.
The Company plans to use over half of this amount in connection
with the MRA. In addition, the Company believes that the ability
to use unsecured indebtedness will increase its flexibility in
planning and financing its business activities.
If the necessary consents are received, all holders of preferred
stock of record on the record date will receive a special cash
payment in the amount of $1 per share (or 25 cents per share for
$25 par preferred stocks). In addition, fees of up to
approximately $5.5 million could be paid in connection with the
solicitation, depending on the number of consents received.
The Company is unable to determine the outcome of this
solicitation.
UNIT 1 OUTAGE
On September 15, 1997, Unit 1 was taken out of service due to
leaking in one of four back-up condensers. The standby condensers
serve as a back-up system for the removal of reactor steam. The
condensers are maintained in a ready state during normal plant
operations. Tests and inspections were conducted on the remaining
condensers and similar conditions were found. Unit 1 will remain
shut down until the replacement of all four condensers is
complete (currently anticipated to be December).
RESULTS OF OPERATIONS
The following discussion presents the material changes in results
of operations for the three months and nine months ended
September 30, 1997 in comparison to the same periods in 1996.
The Company's 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 months and nine months periods should not be taken
as an indication of earnings for all or any part of the balance
of the year.
THREE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS THREE MONTHS ENDED
SEPTEMBER 30, 1996
Earnings for the third quarter 1997 were $22.3 million or 15
cents per share, as compared with a loss of $22.5 million or 16
cents per share in the third quarter of 1996. Earnings for the
third quarter were higher primarily as a result of a decrease in
operation and maintenance expense of $85.4 million or 38 cents
per share. Operation and maintenance expense for the third
quarter of 1997 was lower primarily because the third quarter of
1996 included the recording of a charge of $68.5 million for bad
debt expense, reflecting an increased allowance for doubtful
customer bills to recognize the Company's assessment of the
increased risk of collecting significantly higher levels of past-
due amounts. This was partially offset in the three months ended
September 30, 1997, by higher customer discounts that reduced
earnings by 3 cents per share and a lower gas margin of 5 cents
per share, resulting primarily from the restructuring of gas
rates and the timing of the recognition of interstate gas
pipeline transportation costs under the new multi-year gas rate
settlement agreement.
ELECTRIC REVENUES
Electric revenues decreased $1.7 million or 0.2% from 1996,
primarily as a result of a decrease in revenues from sales to
other electric utilities of $5.3 million. This was partially
offset by an increase in volume and mix of sales to ultimate
customers.
ELECTRIC SALES
Electric sales to ultimate consumers were approximately 8.4
billion KWh in the third quarter of 1997, a 1.2% increase from
1996. After adjusting for the effects of weather, sales to
ultimate consumers increased 3.0%. Sales for resale decreased
379 million KWh (28.9%) resulting in a net decrease in total
electric sales of 381 million KWh (3.9%).
Electric fuel and purchased power costs increased $6.8 million or
2.0%. This increase is the result of a $14.5 million increase in
costs deferred and recovered through the operation of the FAC, a
$7.1 million increase in actual fuel costs, and a $14.8 million
decrease in actual purchased power costs (including a $11.7
million or 4.4% decrease in payments to IPPs).
GAS REVENUES
Gas revenues increased $2.5 million or 3.8% in the third quarter
of 1997 from the comparable period in 1996 caused primarily by
higher residential sales.
GAS SALES
Gas sales to ultimate consumers decreased 0.3 million Dth or 5.6%
from the third quarter of 1996 primarily as a result of lower
commercial sales. After adjusting for the effects of weather,
sales to ultimate consumers decreased 18.2%. 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,
decreased. In addition, changes in purchased gas adjustment
clause revenues are generally margin-neutral.
The total cost of gas included in expense increased $15.5 million
or 59.4%. This was the result of a $17.0 million increase in
purchased gas costs and certain other items recognized and
recovered through the purchased gas adjustment clause and a 27.1%
increase in the average cost per Dth purchased ($8.2 million),
partially offset by a 1.0 million decrease in Dth purchased and
withdrawn from storage for ultimate consumer sales ($5.9 million)
and a $3.8 million decrease in purchases for spot market sales.
OTHER OPERATION AND MAINTENANCE EXPENSE decreased $85.4 million,
primarily as a result of the recording of a charge of $68.5
million for bad debt expense in the third quarter of 1996. The
charge was necessary to properly recognize the increased risk of
collecting significantly higher levels of past-due customer
bills.
FEDERAL AND FOREIGN INCOME TAXES (NET) increased $24.2 million
primarily due to an increase in pre-tax income.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1996
Earnings for the first nine months of 1997 were $147.3 million or
$1.02 per share, as compared with $107.4 million or 74 cents per
share in 1996. Earnings for the first nine months of 1997 were
higher primarily as a result of a decrease in bad debt expense.
Bad debt expense was lower because the Company recorded a charge
of $68.5 million for bad debt expense in the third quarter of
1996, reflecting an increased allowance for doubtful customer
bills to recognize the Company's assessment of the increased risk
of collecting significantly higher levels of past-due amounts.
This was partially offset by higher customer discounts that
reduced earnings by 6 cents per share.
ELECTRIC REVENUES
Electric revenues for the first nine months of 1997 increased
$24.6 million or 1.0% from the comparable period in 1996. FAC
revenues increased $44.7 million, primarily as a result of the
Company's increased payments to the IPPs recovered through the
FAC, offset by a decrease in revenues from sales to other
electric utilities of $19.4 million.
ELECTRIC SALES
Electric sales to ultimate consumers were approximately 25.2
billion KWh in the first nine months of 1997, a 0.4% decrease
from the same period in 1996. After adjusting for the effects of
weather, sales to ultimate consumers would have increased 1.2%.
Sales for resale decreased 985 million KWh (24.3%), resulting in
a net decrease in total electric sales of 1,397 million KWh
(4.7%).
NINE MONTHS ENDED SEPTEMBER 30,
ELECTRIC REVENUES (Thousands) SALES (GWh)
---------------------------------- --------------------------
% %
1997 1996 Change 1997 1996 Change
Residential $ 941,663 $ 958,368 (1.7) 7,574 7,767 (2.5)
Commercial 935,809 936,885 (0.1) 8,737 8,790 (0.6)
Industrial 401,774 393,093 2.2 5,413 5,374 0.7
Industrial - Special 46,137 43,709 5.6 3,341 3,230 3.4
Other 40,149 39,821 0.8 165 178 (7.3)
--------- ---------- ------ ------ ------ ----
Total to Ultimate
Consumers 2,365,532 2,371,876 (0.3) 25,230 25,339 (0.4)
Other Electric Systems 65,961 85,385 (22.7) 3,066 4,051 (24.3)
Miscellaneous/Subsidiary 78,110 27,703 182.0 - 303 (100.0)
---------- --------- ------ ----- ------- ----
TOTAL $2,509,603 $2,484,964 1.0 28,296 29,693 (4.7)
========== ========== ====== ====== ====== ====
/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 categories: hydroelectric, "must
run" cogeneration and schedulable cogeneration projects.
Following a higher than normal spring run off, the precipitation
in the Summer months was lower than usual. As a result,
hydroelectric IPP projects delivered 79 GWh or 6.1% under PPAs
less than they did for the same period last year, representing
decreased payments to those IPPs of $2.8 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. Output from "must run"
cogeneration IPPs is 37 GWh or 0.6% lower than produced at the
same time last year. However, payments to those IPPs were $8.6
million higher. This is due to a combination of turndown
arrangements with individual projects and escalating contract
rates. A turndown arrangement is an agreement where the Company
compensates an IPP (when economic) to reduce the output from
their facility. Although output is reduced, the net economic
impact is favorable to the Company and its customers when the
electricity is replaced from the market or other sources.
Quantities purchased from schedulable cogeneration IPPs increased
269 GWh or 12.6% and payments increased $16.5 million. The
increased payments are largely due to escalating contract rates
for both energy (variable) and capacity (fixed). The terms of
these PPAs with schedulable IPP units allow the Company to
schedule (with certain constraints) energy deliveries and pay for
the energy supplied. In addition, the Company is required to
make fixed payments if the IPP plants remain 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.")
NINE MONTHS ENDED SEPTEMBER 30,
GWh Cost (Millions) Cents/KWh
----------------------- -------------------------- ------------
% %
1997 1996 Change 1997 1996 Change 1997 1996
FUEL FOR ELECTRIC GENERATION:
Coal 5,512 5,314 3.7 $ 78.0 $ 75.2 3.7 1.4 1.4
Oil 284 392 (27.6) 15.1 17.0 (11.2) 5.3 4.3
Natural Gas 352 244 44.3 9.0 7.1 26.8 2.6 2.9
Nuclear 5,150 6,417 (19.7) 25.3 36.1 (29.9) 0.5 0.6
Hydro 2,329 2,883 (19.2) - - - - -
------ ------ ----- -------- -------- ----- --- ---
13,627 15,250 (10.6) 127.4 135.4 (5.9) 0.9 0.9
------ ------ ----- -------- -------- ----- --- ---
ELECTRICITY PURCHASED:
IPPs:
Capacity - - - 166.6 158.4 5.2 - -
Energy and taxes 10,180 10,027 1.5 663.8 649.7 2.2 6.5 6.5
------ ------ ------ --------- -------- ------- --- ---
Total IPP purchases 10,180 10,027 1.5 830.4 808.1 2.8 8.2 8.1
Other 7,008 7,159 (2.1) 95.9 98.0 (2.1) 1.4 1.4
------ ------ ------ --------- -------- ------- --- ---
Total Supply 17,188 17,186 - 926.3 906.1 2.2 5.4 5.3
------ ------ ------ --------- -------- ------- --- ---
30,815 32,436 (5.0) 1,053.7 1,041.5 1.2 3.4 3.2
------ ------ ------ --------- -------- ------- --- ---
Fuel adjustment
clause - - - 12.7 (25.4) (150.0) - -
Losses/Company use 2,519 2,743 (8.2) - - - - -
------ ------ ------ --------- -------- ------- --- ---
Sales 28,296 29,693 (4.7) $1,066.4 $1,016.1 5.0 3.8 3.4
====== ====== ====== ========= ======== ======= === ===
/TABLE
GAS REVENUES
Gas revenues decreased $38.1 million or 7.1% in the first nine
months of 1997 from the comparable period in 1996 as set forth in
the table below:
Sales to ultimate consumers $(35.5) million
Spot market sales (27.0)
Change in base rates (4.5)
Purchased gas adjustment clause revenues 28.9
-------
$(38.1) million
=======
GAS SALES
Gas sales to ultimate consumers for the first nine months of 1997
decreased 6.4 million Dth or 9.5% from 1996. After adjusting for
the effects of weather, sales to ultimate consumers decreased
2.8%. 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.
NINE MONTHS ENDED SEPTEMBER 30,
GAS REVENUES (Thousands) SALES (Thousands of Dth)
------------------------------- -------------------------------
% %
1997 1996 Change 1997 1996 Change
Residential $330,096 $326,778 1.0 42,409 44,692 (5.1)
Commercial 112,995 127,638 (11.5) 16,947 19,900 (14.8)
Industrial 5,343 11,205 (52.3) 1,154 2,301 (49.8)
-------- -------- --------- ------- ------- --------
Total to Ultimate
Consumers 448,434 465,621 (3.7) 60,510 66,893 (9.5)
Transportation of
Customer-Owned Gas 39,667 35,806 10.8 113,314 95,965 18.1
Spot Market Sales 6,300 33,299 (81.1) 3,053 9,298 (67.2)
Miscellaneous 2,096 (143) 1,565.7 19 22 (13.6)
-------- -------- --------- ------- ------- --------
TOTAL TO SYSTEM
CORE CUSTOMERS $496,497 $534,583 (7.1) 176,896 172,178 2.7
======== ======== ========= ======= ======= ========
The total cost of gas included in expense decreased $43.5 million
or 14.7%. This was the result of a 4.6 million decrease in Dth
purchased and withdrawn from storage for ultimate consumer sales
($16.0 million), a $20.9 million decrease in Dth purchased for
spot market sales, and a $14.5 million decrease in purchased gas
costs and certain other items recognized and recovered through
the purchased gas adjustment clause, partially offset by a $7.9
million increase in the average cost per Dth purchased. The
Company's net cost per Dth sold, as charged to expense and
excluding spot market purchases, decreased to an average of $4.05
in the first nine months of 1997 from $4.11 in 1996, the
comparable period.
OTHER OPERATION AND MAINTENANCE EXPENSE decreased $88.3 million,
primarily as a result of the recording of a charge of $68.5
million for bad debt expense in the third quarter of 1996. The
charge was necessary to properly recognize the increased risk of
collecting significantly higher levels of past-due customer
bills.
The increase in FEDERAL AND FOREIGN INCOME TAXES (NET) of
approximately $38.2 million was primarily due to an increase in
pre-tax income.
PART II. OTHER INFORMATION
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
ITEM 1. LEGAL PROCEEDINGS.
(See Form 10-K for fiscal year ended December 31, 1996,
Part I, Item 3. Legal Proceedings and Form 10-Q for the
quarter ended March 31, 1997, Part II, Item 1. Legal
Proceedings - "Norcon Litigation.")
ITEM 5. OTHER INFORMATION.
In September 1997, the Company formed a new wholly-owned
subsidiary, Opinac North America, Inc. Opinac North
America, Inc. owns Opinac Energy Corp.(a Canadian
corporation) and Plum Street Enterprises, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 10-4 - Employment Agreement between NMPC and
William F. Edwards, dated September 25, 1997.
Exhibit 11 - Computation of the Average Number of Shares of
Common Stock Outstanding for the Three Months and Nine
Months Ended September 30, 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
September 30, 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) Reports on Form 8-K:
Form 8-K Reporting Date - July 9, 1997
Item reported - Item 5. Other Events.
Registrant filed information concerning the MRA.
Form 8-K Reporting Date - October 10, 1997
Item reported - Item 5. Other Events.
Registrant filed information concerning the PowerChoice
settlement.
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: November 13, 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
- ------- -----------
10-4 Employment Agreement between NMPC and William F. Edwards,
dated September 25, 1997.
11 Computation of the Average Number of Shares of Common Stock
Outstanding for the Three Months and Nine Months Ended
September 30, 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 September 30,
1997.
15 Accountants' Acknowledgement Letter.
27 Financial Data Schedule.
EXHIBIT 10-4
EMPLOYMENT AGREEMENT
Agreement made as of the 25th day of September, 1997, between NIAGARA MOHAWK
POWER CORPORATION (the "Company"), and William F. Edwards(the "Executive").
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept/continue employment with the Company, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the Company and the Executive hereby agree as follows:
1. Term of Agreement. The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning September 25, 1997
and expiring on September 24, 2000, subject to earlier termination as provided
under paragraph 4 hereof. This Agreement shall be extended automatically by
one year commencing on September 25, 1998 and on September 25th of each year
thereafter, unless either party notifies the other to the contrary not later
than sixty (60) days prior to such date.
Notwithstanding any such notice by the Company, this Agreement shall remain in
effect for a period of thirty-six months from the date of a "Change in
Control" (as that term is defined in Schedule B hereto, unless such notice was
given at least 18 months prior to the date of the Change in Control).
2. Duties. The Executive shall serve the Company as its Senior Vice
President and Chief Financial Officer. During the term of this Agreement, the
Executive shall, except during vacation or sick leave, devote the whole of
theExecutive's time, attention and skill to the business of the Company during
usual business hours (and outside those hours when reasonably necessary to the
Executive's duties hereunder); faithfully and diligently perform such duties
and exercise such powers as may be from time to time assigned to or vested in
the Executive by the Company's Board of Directors (the "Board") or by any
officer of the Company superior to the Executive; obey the directions of the
Board and of any officer of the Company superior to the Executive; and use the
Executive's best efforts to promote the interests of the Company. The
Executive may be required in pursuance of the Executive's duties hereunder to
perform services for any company controlling, controlled by or under common
control with the Company (such companies hereinafter collectively called
"Affiliates") and to accept such offices in any Affiliates as the Board may
require. The Executive shall obey all policies of the Company and applicable
policies of its Affiliates.
3. Compensation. During the term of this Agreement:
a. The Company shall pay the Executive a base salary at an annual rate of
$190,000, which shall be payable periodically in accordance with the Company's
then prevailing payroll practices, or such greater amount as the Company may
from time to time determine;
b. The Executive shall be entitled to participate in the Company's
Supplemental Executive Retirement Plan ("SERP") according to its terms, as
modified by Schedule A hereto;
c. The Executive shall be entitled to participate in the Company's Officers
Incentive Compensation Plan, Stock Option Plan,Performance Share Unit Plan,
1995 Stock Incentive Plan, and Officer Long Term Incentive Plan, and any
successors thereto, in accordance with the terms thereof; and
d. The Executive shall be entitled to such expense accounts, vacation time,
sick leave, perquisites of office, fringe benefits, insurance coverage, and
other terms and conditions of employment as the Company generally provides to
its employees having rank and seniority at the Company comparable to the
Executive.
4. Termination. The Company shall continue to employ the Executive, and the
Executive shall continue to work for the Company, during the term of this
Agreement, unless the Agreement is terminated in accordance with the following
provisions:
a. This Agreement shall terminate automatically upon the death of the
Executive. Any right or benefit accrued on behalf of the Executive or to
which the Executive became entitled under the terms of this Agreement prior to
death (other than payment of base salary in respect of the period following
the Executive's death), and any obligation of the Company to the Executive in
respect of any such right or benefit, shall not be extinguished by reason of
the Executive's death. Any base salary earned and unpaid as of the date of
the Executive's death shall be paid to the Executive's estate in accordance
with paragraph 4g below.
b. By notice to the Executive, the Company may terminate this Agreement upon
the "Disability" of the Executive. The Executive shall be deemed to incur a
Disability when (i) a physician selected by the Company advises the Company
that the Executive's physical or mental condition has rendered the Executive
unable to perform the essential functions of the Executive's position in a
reasonable manner, with or without reasonable accommodation and will continue
to render him unable to perform the essential functions of the Executive's
position in such manner, for a period exceeding 12 consecutive months, or (ii)
due to a physical or mental condition, the Executive has not performed the
essential functions of the Executive's position in a reasonable manner, with
or without reasonable accommodation, for a period of 12 consecutive months.
Following termination of this Agreement pursuant to clause (i) of the
preceding sentence of this paragraph, the Executive shall continue to receive
his base salary under paragraph 3a hereof for a period of 12 months from the
date of his Disability, reduced by any benefits payable during such period
under the Company's short-term disability plan and long-term disability plan.
Thereafter, or in the event of termination of this Agreement pursuant to
clause (ii) of the preceding sentence, the Executive shall receive benefits
under the Company's long-term disability plan in lieu of any further base
salary under paragraph 3a hereof.
c. By notice to the Executive, the Company may terminate the Executive's
employment at any time for "Cause". The Company must deliver such notice
within ninety (90) days after the Board both (i) has or should have had
knowledge of conduct or an event allegedly constituting Cause, and (ii) has
reason to believe that such conduct or event could be grounds for Cause. For
purposes of this Agreement "Cause" shall mean (i) the Executive is convicted
of, or has plead guilty or nolo contendere to, a felony; (ii) the willful and
continued failure by the Executive to perform substantially his duties with
the Company (other than any such failure resulting from incapacity due to
physical or mental illness) after a demand for substantial performance is
delivered to the Executive by the Company which specifically identifies the
manner in which the Company believes the Executive has not substantially
performed his duties; (iii) the Executive engages in conduct that constitutes
gross neglect or willful misconduct in carrying out his duties under this
Agreement involving material economic harm to the Company or any of its
subsidiaries; or (iv) the Executive has engaged in a material breach of
Sections 6 or 7 of this Agreement. In the event the termination notice is
based on clause (ii) of the preceding sentence, the Executive shall have ten
(10) business days following receipt of the notice of termination to cure his
conduct, to the extent such cure is possible, and if the Executive does not
cure within the ten (10) business day period, his termination of employment in
accordance with such termination notice shall be deemed to be for Cause. The
determination of Cause shall be made by the Board upon the recommendation of
the Compensation and Succession Committee of the Board. Following a Change in
Control, such determination shall be made in a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the membership of the
Board, excluding members who are employees of the Company, at a meeting called
for the purpose of determining that Executive has engaged in conduct which
constitutes Cause (and at which Executive had a reasonable opportunity,
together with his counsel, to be heard before the Board prior to such vote).
The Executive shall not be entitled to the payment of any additional
compensation from the Company, except to the extent provided in paragraph 4h
hereof, in the event of the termination of his employment for Cause.
d. If any of the following events, any of which shall constitute "Good
Reason", occurs within thirty-six months after a Change in Control, the
Executive, by notice of the Company, may voluntarily terminate the Executive's
employment for Good Reason within ninety (90) days after the Executive both
(i) has or should have had knowledge of conduct or an event allegedly
constituting Good Reason, and (ii) has reason to believe that such conduct or
event could be grounds for Good Reason. In such event, the Executive shall be
entitled to the severance benefits set forth in paragraph 4g below.
(i) the Company assigns any duties to the Executive which are materially
inconsistent in any adverse respect with the Executive's position, duties,
offices, responsibilities or reporting requirements immediately prior to a
Change in Control, including any diminution of such duties or
responsibilities; or
(ii) the Company reduces the Executive's base salary, including salary
deferrals, as in effect immediately prior to a Change in Control; or
(iii) the Company discontinues any bonus or other compensation plan or any
other benefit, retirement plan (including the SERP), stock ownership plan,
stock purchase plan, stock option plan, life insurance plan, health plan,
disability plan or similar plan (as the same existed immediately prior to the
Change in Control) in which the Executive participated or was eligible to
participate in immediately prior to the Change in Control and in lieu thereof
does not make available plans providing at least comparable benefits; or
(iv) the Company takes action which adversely affects the Executive's
participation in, or eligibility for, or materially reduces the Executive's
benefits under, any of the plans described in (iii) above, or deprives the
Executive of any material fringe benefit enjoyed by the Executive immediately
prior to the Change in Control, or fails to provide the Executive with the
number of paid vacation days to which the Executive was entitled immediately
prior to the Change in Control; or
(v) the Company requires the Executive to be based at any office or location
other than one within a 50-mile radius of the office or location at which the
Executive was based immediately prior to the Change in Control; or
(vi) the Company purports to terminate the Executive's employment otherwise
than as expressly permitted by this Agreement; or
(vii) the Company fails to comply with and satisfy Section 5 hereof, provided
that such successor has received prior written notice from the Company or from
the Executive of the requirements of Section 5 hereof.
The Executive shall have the sole right to determine, in good faith, whether
any of the above events has occurred.
e. The Company may terminate the Executive's employment at any time without
Cause.
f. In the event that the Executive's employment is terminated by the Company
without Cause prior to a Change in Control, the Company shall pay the
Executive a lump sum severance benefit, equal to two years' base salary at the
rate in effect as of the date of termination, plus the greater of (i) two
times the most recent annual bonus paid to the Executive under the
Corporation's Annual Officers Incentive Compensation Plan (the "OICP") or any
similar annual bonus plan (excluding the pro rata bonus referred to in the
next sentence) or (ii) two times the average annual bonus paid to the
Executive for the three prior years under the OICP or such similar plan
(excluding the pro rata annual bonus referred to in the next sentence). If
one hundred eighty (180) days or more have elapsed in the Company's fiscal
year in which such termination occurs, the Company shall also pay the
Executive in a lump sum, within ninety (90) days after the end of such fiscal
year, a pro rata portion of Executive's annual bonus in an amount equal to (A)
the bonus which would have been payable to Executive under OICP or any similar
plan for the fiscal year in which Executive's termination occurs, multiplied
by (B) a fraction, the numerator of which is the number of days in the fiscal
year in which the termination occurs through the termination date and the
denominator of which is three hundred sixty-five (365). For purposes of the
first sentence of this paragraph 4f, there shall be taken into account as
bonus paid to the Executive for each of the years 1996 and 1997 under the OICP
one-half of the sum of (x) cash payments with respect to Restricted Stock
Units (and related Dividend Equivalents) granted to the Executive under the
Corporation's 1995 Stock Incentive Plan and (y) the result of multiplying the
number of Stock Appreciation Rights granted to the Executive under the
Corporation's 1995 Stock Incentive Plan by the difference between (1) the
value of one share of the Corporation's common stock on December 31, 1997 and
(2) the Base Value ($10.75). If the termination of the Executive's employment
occurs prior to December 31, 1997 and prior to a Change in Control, the amount
of any adjustments to the severance benefit required as a result of the
preceding sentence of this paragraph 4f shall be paid to the Executive in
alump sum no later than March 15, 1998.
In addition, in the event that the Executive's employment is terminated by the
Company without cause prior to a Change in Control, the Executive (and his
eligible dependents) shall be entitled to continue participation in the
Company's employee benefit plans for a two-year period from the date of
termination, provided, however, that if Executive cannot continue to
participate in any of the benefit plans, the Company shall otherwise provide
equivalent benefits to the Executive and his dependents on the same after-tax
basis as if continued participated had been permitted. Notwithstanding the
foregoing, in the event Executive becomes employed by another employer and
becomes eligible to participate in an employee benefit plan of such employer,
the benefits described herein shall be secondary to such benefits during the
period of Executive's eligibility, but only to the extent that the Company
reimburses Executive for any increased cost and provides any additional
benefits necessary to give Executive the benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated by the
Company without Cause prior to a Change in Control, the Executive shall be
entitled to (i) be covered by a life insurance policy providing a death
benefit, equal to 2.5 times the Executive's base salary at the rate in effect
as of the time of termination, payable to a beneficiary or beneficiaries
designated by the Executive, the premiums for which will be paid by the
Company for the balance of the Executive's life and (ii) payment by the
Company of all fees and expenses of any executive recruiting, counseling or
placement firm selected by the Executive for the purposes of seeking new
employment following his termination of employment.
g. In the event that the Executive's employment is terminated following a
Change in Control, either by the Company without Cause or by the Executive for
Good Reason, the Company shall pay the Executive a lump sum severance benefit,
equal to four years' base salary at the rate in effect as of the date of
termination.
In addition, in the event that the Executive's employment is terminated by the
Company without Cause or by the Executive for Good Reason following a Change
in Control, the (i) Executive (and his eligible dependents) shall be entitled
to continue participation (the premiums for which will be paid by the Company)
in the Company's employee benefit plans providing medical, prescription drug,
dental, and hospitalization benefits for the remainder of the Executive's life
(ii) the Executive shall be entitled to continue participation (the premiums
for which will be paid by the Company) in the Company's other employee benefit
plans for a four year period from the date of termination; provided, however,
that if Executive cannot continue to participate in any of the benefit plans,
the Company shall otherwise provide equivalent benefits to the Executive and
his dependents on the same after-tax basis as if continued participation had
been permitted. Notwithstanding the foregoing, in the event Executive becomes
employed by another employer and becomes eligible to participate in an
employee benefit plan of such employer, the benefits described herein shall be
secondary to such benefits during the period of Executive's eligibility, but
only to the extent that the Company reimburses Executive for any increased
cost and provides any additional benefits necessary to give Executive the
benefits provided hereunder.
Furthermore, in the event that the Executive's employment is terminated
following a Change in Control, either by the Company without Cause or by the
Executive for Good Reason, the Executive shall be entitled to (i) be covered
by a life insurance policy providing a death benefit, equal to 2.5 times the
Executive's base salary at the rate in effect as of the time of termination,
payable to a beneficiary or beneficiaries designated by the Executive, the
premiums for which will be paid by the Company for the balance of the
Executive's life and (ii) payment by the Company of all fees and expenses of
any executive recruiting, counseling or placement firm selected by the
Executive for the purposes of seeking new employment following his termination
of employment.
h. Upon termination pursuant to paragraphs 4a, b, c, d, or e above, the
Company shall pay the Executive or the Executive's estate any base salary
earned and unpaid to the date of termination.
i. Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution (or
any acceleration of any payment, award, benefit or distribution) by the
Company or any entity which effectuates a Change in Control (or any of its
affiliated entities) to or for the benefit of the Executive (whether pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this paragraph 4i)(the "Payments")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Company shall pay to
the Executive (or to the Internal Revenue Service on behalf of the Executive)
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any Excise Tax) imposed upon
the Gross-Up Payment, the Executive retains (or has had paid to the Internal
Revenue Service on his behalf) an amount of the Gross-Up Payment equal to the
sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any
deductions disallowed because of the inclusion of the Gross-Up Payment in the
Executive's adjusted gross income and the highest applicable marginal rate of
federal income taxation for the calendar year in which the Gross-up Payment is
to be made. For purposes of determining the amount of the Gross-up Payment,
the Executive shall be deemed (i) pay federal income taxes at the highest
marginal rates of federal income taxation for the calendar year in which the
Gross-up Payment is to be made, (ii) pay applicable state and local income
taxes at the highest marginal rate of taxation for the calendar year in which
the Gross-up Payment is to be made, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes and (iii) have otherwise allowable deductions for federal income tax
purposes at least equal to the Gross-up Payment.
j. All determinations required to be made under such paragraph 4i,
including whether and when a Gross-up Payment is required, the amount of such
Gross-up Payment and the assumptions to be utilized in arriving at such
determinations, shall be made by the public accounting firm that is retained
by the Company as of the date immediately prior to the Change in Control (the
"Accounting Firm") which shall provide detailed supporting calculations both
to the Company and the Executive within fifteen (15) business days of the
receipt of notice from the Company or the Executive that there has been a
Payment, or such earlier time as is requested by the Company (collectively,
the "Determination"). In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, the Executive may appoint another nationally recognized public
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company and the Company shall enter into any agreement requested by the
Accounting Firm in connection with the performance of the services hereunder.
The Gross-up Payment under subparagraph 4i with respect to any Payments shall
be made no later than thirty (30) days following such Payment. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion to such effect, and to the
effect that failure to report the Excise Tax, if any, on the Executive's
applicable federal income tax return will not result in the imposition of a
negligence or similar penalty. The Determination by the Accounting Firm shall
be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the Code
at the time of the Determination, it is possible that Gross-up Payment which
will not have been made by the Company should have been made ("Underpayment")
or Gross-up Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be made
hereunder. In the event that the Executive thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section 1274(b)
(2) (B) of the Code) shall be promptly paid by the Company to or for the
benefit of the Executive. In the event the amount of Gross-up Payment exceeds
the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been
made and any such Overpayment (together with interest at the rate provided in
Section 1274(b) (2) of the Code) shall be promptly paid by Executive (to the
extent he has received a refund if the applicable Excise Tax has been paid to
the Internal Revenue Service) to or for the benefit of the Company. The
Executive shall cooperate, to the extent his expenses are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with the
Excise Tax.
k. Upon the occurrence of a Change in Control the Company shall pay promptly
as incurred, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably thereafter incur as a result of any
contest, litigation or arbitration (regardless of the outcome thereof) by the
Company, or by the Executive of the validity of, or liability under, this
Agreement or the SERP (including any contest by the Executive about the amount
of any payment pursuant to this Agreement or pursuant to the SERP), plus in
each case interest on any delayed payment at the rate of 150% of the Prime
Rate posted by the Chase Manhattan Bank, N.A. or its successor, provided,
however, that the Company shall not be liable for the Executive's legal fees
and expenses if the Executive's position in such contest, litigation or
arbitration is found by the neutral decision-maker to be frivolous.
l. Notwithstanding anything contained in this Section 4 to the contrary,
upon termination of the Executive's employment after completion of eight (8)
years of continuous service with the Company (as determined pursuant to the
SERP), the Executive and his eligible dependents shall be entitled to receive
medical, prescription drug, dental and hospitalization benefits equal to those
provided by the Company to the Executive on March 26, 1997 for the remainder
of the Executive's life, the cost of which shall be paid in full by the
Company (if applicable, on the same after-tax basis to the executive as if the
Executive had continued participation in the Company's employee benefit plans
providing such benefits). If the Executive is less than age 55 at the date of
such termination of employment, the Executive shall be entitled to receive
such benefits upon attaining age 55 and prior thereto the Executive, if
applicable, shall be entitled to the medical, prescription drug, dental and
hospitalization benefits provided by paragraphs 4f or g above.
5. Successor Liability. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and to agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform. As used in this
Agreement, "Company" shall mean the company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
6. Confidential Information. The Executive agrees to keep secret and retain
in the strictest confidence all confidential matters which relate to the
Company, its subsidiaries and affiliates, including, without limitation,
customer lists, client lists, trade secrets, pricing policies and other
business affairs of the Company, its subsidiaries and affiliates learned by
him from the Company or any such subsidiary or affiliate or otherwise before
or after the date of this Agreement, and not to disclose any such confidential
matter to anyone outside the Company or any of its subsidiaries or affiliates,
whether during or after his period of service with the Company, except (i) as
such disclosure may be required or appropriate in connection with his work as
an employee of the Company or (ii) when required to do so by a court of law,
by any governmental agency having supervisory authority over the business of
the Company or by any administrative or legislative body (including a
committee thereof) with apparent jurisdiction to order him to divulge,
disclose or make accessible such information. The Executive agrees to give
the Company advance written notice of any disclosure pursuant to clause (ii)
of the preceding sentence and to cooperate with any efforts by the Company to
limit the extent of such disclosure. Upon request by the Company, the
Executive agrees to deliver promptly to the Company upon termination of his
services for the Company, or at any time thereafter as the Company may
request, all Company subsidiary or affiliate memoranda, notes, records,
reports,manuals, drawings, designs, computer file in any media and other
documents (and all copies thereof) relating to the Company's or any
subsidiary's or affiliate's business and all property of the Company or any
subsidiary or affiliate associated therewith, which he may then possess or
have under his direct control, other than personal notes, diaries, Rolodexes
and correspondence.
7. Non-Compete and Non-Solicitation. During the Executive's employment by
the Company and for a period of one year following the termination thereof for
any reason (other than following a Change in Control), the Executive covenants
and agrees that he will not for himself or on behalf of any other person,
partnership, company or corporation, directly or indirectly, acquire any
financial or beneficial interest in (except as provided in the next sentence),
provide consulting services to, be employed by, or own, manage, operate or
control any business which is in competition with a business engaged in by the
Company or any of its subsidiaries or affiliates in any state of the United
States in which any of them are engaged in business at the time of such
termination of employment for as long as they carry on a business therein.
Notwithstanding the preceding sentence, the Executive shall not be prohibited
from owning less than five (5%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company.
The Executive hereby covenants and agrees that, at all times during the period
of his employment and for a period of one year immediately following the
termination thereof for any reason (other than following a Change in Control),
the Executive shall not employ or seek to employ any person employed at that
time by the Company or any of its subsidiaries, or otherwise encourage or
entice such person or entity to leave such employment. It is the intention
of the parties hereto that the restrictions contained in this Section be
enforceable to the fullest extent permitted by applicable law. Therefore, to
the extent any court of competent jurisdiction shall determine that any
portion of the foregoing restrictions is excessive, such provision shall not
be entirely void, but rather shall be limited or revised only to the extent
necessary to make it enforceable. Specifically, if any court of competent
jurisdiction should hold that any portion of the foregoing description is
overly broad as to one or more states of the United States, then that state or
states shall be eliminated from the territory to which the restrictions of
paragraph (a) of this Section applies and the restrictions shall remain
applicable in all other states of the United States.
8. No Mitigation. The Executive shall not be required to mitigate the
amount of any payments or benefits provided for in paragraph 4f or 4g hereof
by seeking other employment or otherwise and no amounts earned by the
Executive shall be used to reduce or offset the amounts payable hereunder,
except as otherwise provided in paragraph 4f or 4g.
9. Ownership of Work Product. Any and all improvements, inventions,
discoveries, formulae, processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively, "Work Products")
within the scope of any business of the Company or any Affiliate which the
Executive may conceive or make or have conceived or made during the
Executive's employment with the Company shall be and are the sole and
exclusive property of the Company, and that the Executive, whenever requested
to do so by the Company, at its expense, shall execute and sign any and
allapplications, assignments or other instruments and do all other things
which the Company may deem necessary or appropriate (i) to apply for, obtain,
maintain, enforce, or defend letters patent of the United States or any
foreign country for any Work Product, or (ii) to assign, transfer, convey or
otherwise make available to the Company the sole and exclusive right, title
and interest in and to any Work Product.
10. Arbitration. Any dispute or controversy between the parties relating to
this Agreement (except any dispute relating to Sections 6 or 7 hereof) or
relating to or arising out of the Executive's employment with the Company,
shall be settled by binding arbitration in the City of Syracuse, State of New
York, pursuant to the Employment Dispute Resolution Rules of the American
Arbitration Association and shall be subject to the provisions of Article 75
of the New York Civil Practice Law and Rules. Judgment upon the award may be
entered in any court of competent jurisdiction. Notwithstanding anything
herein to the contrary, if any dispute arises between the parties under
Sections 6 or 7 hereof, or if the Company makes any claim under Sections 6 or
7, the Company shall not be required to arbitrate such dispute or claim but
shall have the right to institute judicial proceedings in any court of
competent jurisdiction with respect to such dispute or claim. If such
judicial proceedings are instituted, the parties agree that such proceedings
shall not be stayed or delayed pending the outcome of any arbitration
proceedings hereunder.
11. Notices. Any notice or other communication required or permitted under
this Agreement shall be effective only if it is in writing and delivered
personally or sent by certified mail, postage prepaid, or overnight delivery
addressed as follows:
If to the Company:
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, New York 13202
ATTN: Corporate Secretary
If to the Executive:
6109 Lakeshore Road
Cicero, NY 13039
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and supersedes, and is in full substitution for
any and all prior understandings or agreements, oral or written, with respect
to the Executive's employment.
13. Amendment. This Agreement may be amended only by an instrument in
writing signed by the parties hereto, and any provision hereof may be waived
only by an instrument in writing signed by the party or parties against whom
or which enforcement of such waiver is sought. The failure of either party
hereto at any time to require the performance by the other party hereto of any
provision hereof shall in no way affect the full right to require such
performance at any time thereafter, nor shall the waiver by either party
hereto of a breach of any provision hereof be taken or held to be a waiver of
any succeeding breach of such provision or a waiver of the provision itself or
a waiver of any other provision of this Agreement.
14. Obligation to Provide Benefits. The company may utilize certain
financing vehicles, including a trust, to provide a source of funding for the
Company's obligations under this Agreement. Any such financing vehicles will
be subject to the claims of the general creditors of the Company. No such
financing vehicles shall relieve the Company, or its successors, of its
obligation to provide benefits under this Agreement, except to the extent the
Executive receives payments directly from such financing vehicle.
15. Miscellaneous. This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this Agreement nor
any right or obligation hereunder may be assigned by the Company (except to an
Affiliate) or by the Executive without the prior written consent of the other
party. This Agreement shall be binding upon any successor to the Company,
whether by merger, consolidation, reorganization, purchase of all or
substantially all of the stock or assets of the Company, or by operation of
law.
16. Severability. If any provision of this Agreement, or portion thereof,
is so broad, in scope or duration, so as to be unenforceable, such provision
or portion thereof shall be interpreted to be only so broad as is enforceable.
17. Governing Law. This Agreement shall be governed by and construed
inaccordance with the laws of the State of New York without reference to
principles of conflicts of law.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute
one and the same instrument.
19. Performance Covenant. The Executive represents and warrants to the
Company that the Executive is not party to any agreement which would prohibit
the Executive from entering into this Agreement or performing fully the
Executive's obligations hereunder.
20. Survival of Covenants. The obligations of the Executive set forth in
Sections 6, 7, 9 and 10 represent independent covenants by which the Executive
is and will remain bound notwithstanding any breach by the Company, and shall
survive the termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement
as of the date first written above.
____________________________ NIAGARA MOHAWK POWER CORPORATION
William F. Edwards
By:______________________________
DAVID J. ARRINGTON
Senior Vice President -
Human Resources
SCHEDULE A
Modifications in Respect of William F. Edwards ("Executive") to the
Supplemental Executive Retirement Plan ("SERP") of the Niagara Mohawk Power
Corporation ("Company")
I. Subsection 1.8 of Section I of the SERP is hereby modified to provide
that the term "Earnings" shall mean the sum of the (I) Executive's base annual
salary, whether or not deferred and including any elective before-tax
contributions made by th Executive to a plan qualified under Section 401(k) of
the Internal Revenue Code, averaged over the final 36 months of the
Executive's employment with the Company and (ii) the average of the annual
bonus earned by the Executive under the Corporation's Annual Officers
Incentive Compensation Plan ("OICP"), whether or not deferred, in respect of
the final 36 months of the Executive's employment with the Company. If (A)
the Executive is an employee of the Company on December 31, 1997 or (B) prior
to December 31, 1997 the Executive's employment is terminated and the
Executive is entitled to payment under Article 9 of the Corporation's 1995
Stock Incentive Plan ("SIP") for all or a portion of the Stock Units and Stock
Appreciation Rights granted to the Executive under SIP, there shall be taken
into account for purposes of the preceding sentence as an annual bonus under
the OICP, the sum of (x) cash payments made with respect to Stock Units (and
related Dividend Equivalents) granted to the Executive under the SIP and (y)
the result of multiplying the number of Stock Appreciation Rights granted to
the Executive under the SIP, prorated if applicable to Article 9 of the SIP,
by the difference between (1) the value of one share of the Corporation's
common stock on December 31, 1997 and (2) the Base Value ($10.75).
Notwithstanding the preceding sentence, if a Change in Control occurs prior to
December 31, 1997 (and, if applicable, prior to the Executive's termination of
employment), there shall be taken into account for purposes of the first
sentence hereof as an annual bonus under the OICP the cash payments with
respect to Stock Units (and related Dividend Equivalents) and Stock
Appreciation Rights which are payable to the Executive pursuant to Article 13
of the SIP.
II. Subsection 2.1 of Section II of the SERP is hereby modified to provide
that full SERP benefits are vested following eight (8) years of continuous
service with the Company (i.e., 60% of Earnings (as modified above) without
reduction for an Early Commencement Factor) regardless of the Executive's
years of continuous service with the Company. If the Executive is less than
age 55 at the date of such termination of employment, the Executive shall be
entitled to receive benefits commencing no earlier than age 55, calculated
pursuant to Section III of the SERP without reduction for an Early
Commencement Factor.
III. Subsection 4.3 of Section IV of the SERP is hereby modified to provide
that in the event of (x) the Executive's involuntary termination of
employment by the Company, at any time, other than for Cause, (y) the
termination of this Agreement on account of the Executive's Disability or (z)
the Executive's termination of employment for Good Reason within the 36 full
calendar month period following a Change in Control (as defined in Schedule B
of this Agreement), the Executive shall be 100% vested in his full SERP
benefit (i.e., 60% of Earnings (as modified above) without reduction for an
Early Commencement Factor) regardless of the Executive's years of continuous
service with the Company. If the Executive is less than age 55 at the date of
such termination of employment, the Executive shall be entitled to receive
benefits commencing no earlier than age 55, calculated pursuant to Section III
of the SERP without reduction for an Early Commencement Factor.
IV. Except as provided above, the provisions of the SERP shall apply and
control participation therein and the payment of benefits thereunder.
SCHEDULE B
For purposes of this Agreement, the term "Change in Control" shall mean:
(1) The acquisition by any individual, entity or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
asamended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of either (I) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute a
Change of Control:
(I) any acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege), (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (I), (ii) and
(iii) of subparagraph (3) of this Schedule B are satisfied; or
(2) Individuals who, as of the date hereof, constitute the Company's Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger
or consolidation, (i) more than 75% of,respectively, the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding the Company,
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and
any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common stock or Outstanding Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a complete liquidation
or dissolution of the Company or (ii) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation,
with respect to which following such sale or other disposition, (A) more than
75% of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition
in substantially the same proportion as their ownership, immediately prior to
such sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 20% or more
of the Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of directors
of such corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board providing for such
sale or other disposition of assets of the Company.
EXHIBIT 11
NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
- ---------------------------------------------------------
Computation of the Average Number of Shares of Common Stock Outstanding
For the Three Months and Nine Months Ended September 30, 1997 and 1996
(4)
Average Number
of Shares
Outstanding as
Shown on
Consolidated
Statement
(1) (2) (3) of Income
Shares of Number Share (3 divided by
Common of Days Days Number of Days
Stock Outstanding (2 X 1) in Period)
--------- ----------- ------- --------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30:
JULY 1 - SEPTEMBER 30, 1997 144,390,619 92 13,283,936,948
SHARES ISSUED -
ACQUISITION - SYRACUSE
SUBURBAN GAS COMPANY, INC. - 28,732 86 2,470,952
----------- --------------
144,419,351 13,286,407,900 144,417,477
=========== ============== ===========
July 1 - September 30, 1996 144,349,839 92 13,280,185,188
Shares Issued -
Acquisition - Syracuse
Suburban Gas Company, Inc. - 15,375 83 1,276,125
----------- --------------
144,365,214 13,281,461,313 144,363,710
=========== ============== ===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30:
JANUARY 1 - SEPTEMBER 30, 1997 144,365,214 273 39,411,703,422
SHARES ISSUED AT VARIOUS
TIMES DURING THE PERIOD -
ACQUISITION - SYRACUSE
SUBURBAN GAS COMPANY, INC. - 54,137 *<F1> 9,279,492
----------- --------------
144,419,351 39,420,982,914 144,399,205
=========== ============== ===========
January 1 - September 30, 1996 144,332,123 274 39,547,001,702
Shares issued at various
times during the period -
Acquisition - Syracuse
Suburban Gas Company, Inc. - 33,091 *<F1> 3,353,281
----------- --------------
144,365,214 39,550,354,983 144,344,361
=========== ============== ===========
NOTE: Earnings per share calculated on both a primary and fully diluted basis are the
same due to the effects of rounding.
<FN>
<F1>* Number of days outstanding not shown as shares represent an accumulation of
weekly, monthly or quarterly issues throughout the period. Share days for
shares issued are based on the total number of days each share was outstanding
during the period.
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 September 30, 1997
(In thousands of dollars)
A. Net Income (a) $ 149,646
B. Taxes Based on Income or Profits 104,397
---------
C. Earnings, Before Income Taxes 254,043
D. Fixed Charges (b) 304,695
---------
E. Earnings Before Income Taxes and
Fixed Charges 558,738
F. Allowance for Funds Used During
Construction (AFC) 9,626
---------
G. Earnings Before Income Taxes and
Fixed Charges without AFC $ 549,112
=========
PREFERRED DIVIDEND FACTOR:
H. Preferred Dividend Requirements $ 37,682
---------
I. Ratio of Pre-tax Income to Net
Income (C/A) 1.698
---------
J. Preferred Dividend Factor (HxI) $ 63,984
K. Fixed Charges as Above (D) 304,695
---------
L. Fixed Charges and Preferred Dividends
Combined $ 368,679
=========
M. Ratio of Earnings to Fixed
Charges (E/D) 1.83
=========
N. Ratio of Earnings to Fixed Charges
without AFC (G/D) 1.80
=========
O. Ratio of Earnings to Fixed Charges
and Preferred Dividends Combined (E/L) 1.52
=========
(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 ($26,258).
EXHIBIT 15
- ----------
November 7, 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 November 7, 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. 33-50703, 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
- ------------------------