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
June 30, 1998
For the quarterly period ended. . . . . . . .. . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . .to. . . . . . . . .
1-14766
Commission file number. . . . . . . . . . . .. . . . . . . . . .
Energy East Corporation
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Exact name of registrant as specified in its charter)
New York 14-1798693
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 12904, Albany, NY 12212-2904
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Address of principal executive offices) (Zip Code)
518-434-3049
Registrant's telephone number, including area code . . . . . . .
N/A
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares of common stock (par value $.01 per
share) outstanding as of July 31, 1998 was 63,807,477.
TABLE OF CONTENTS
PART I
Page
Item 1. Financial Statements . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(a) Liquidity and Capital Resources . . . . . 7
(b) Results of Operations . . . . . . . . . . 10
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 15
(b) Reports on Form 8-K . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 16
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Energy East Corporation
Consolidated Statements of Income - (Unaudited)
Three Months Six Months
Periods Ended June 30 1998 1997 1998 1997
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . $485,877 $411,453 $991,465 $862,723
Natural gas. . . . . . . . . . . . . 54,535 58,917 176,179 195,784
------- ------- --------- ---------
Total Operating Revenues. . . . . 540,412 470,370 1,167,644 1,058,507
------- ------- --------- ---------
Operating Expenses
Fuel used in electric generation . . 55,080 52,706 114,172 112,689
Electricity purchased. . . . . . . . 164,355 98,247 310,566 191,459
Natural gas purchased. . . . . . . . 31,251 28,462 88,388 88,869
Other operating expenses . . . . . . 73,998 80,967 147,166 160,528
Maintenance. . . . . . . . . . . . . 27,748 30,550 59,697 54,467
Depreciation and amortization. . . . 47,619 48,027 95,214 96,316
Other taxes. . . . . . . . . . . . . 50,556 48,668 105,495 103,909
------- ------- --------- ---------
Total Operating Expenses. . . . . 450,607 387,627 920,698 808,237
------- ------- --------- ---------
Operating Income. . . . . . . . . . . 89,805 82,743 246,946 250,270
Other Income and Deductions . . . . . 2,151 4,578 4,873 9,346
Interest Charges, Net . . . . . . . . 30,289 29,882 60,924 60,508
Preferred Stock Dividends of
Subsidiary.. . . . . . . . . . . . . 2,260 2,352 4,529 4,667
------- ------- --------- ---------
Income Before Federal Income Taxes. . 55,105 45,931 176,620 175,749
Federal Income Taxes. . . . . . . . . 25,752 22,008 71,096 72,164
------- ------- --------- ---------
Net Income. . . . . . . . . . . . . . $29,353 $23,923 $105,524 $103,585
======= ======= ========= =========
Earnings Per Share, basic and diluted $.46 $.35 $1.61 $1.51
Dividends Per Share . . . . . . . . . $.40 $.35 $.75 $.70
Average Shares Outstanding. . . . . . 64,349 68,279 65,373 68,813
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Balance Sheets - (Unaudited)
June 30, Dec. 31,
1998 1997
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $59,642 $8,168
Special deposits . . . . . . . . . . . . . . . . . . . 3,008 3,170
Accounts receivable, net . . . . . . . . . . . . . . . 150,887 189,008
Fuel, at average cost. . . . . . . . . . . . . . . . . 39,959 43,706
Materials and supplies, at average cost. . . . . . . . 40,559 41,561
Prepayments. . . . . . . . . . . . . . . . . . . . . . 77,494 68,452
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . . . 13,963 2,148
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 385,512 356,213
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 5,272,753 5,234,725
Natural gas. . . . . . . . . . . . . . . . . . . . . . 583,211 576,683
Common . . . . . . . . . . . . . . . . . . . . . . . . 142,905 152,034
---------- ----------
5,998,869 5,963,442
Less accumulated depreciation. . . . . . . . . . . . . 2,147,579 2,093,274
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . . 3,851,290 3,870,168
Construction work in progress. . . . . . . . . . . . . 53,383 52,104
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 3,904,673 3,922,272
Other Property and Investments, Net . . . . . . . . . . 123,500 143,449
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 190,242 243,129
Unamortized debt expense. . . . . . . . . . . . . . . 73,974 76,418
Demand-side management program costs. . . . . . . . . 64,466 64,466
Environmental remediation costs . . . . . . . . . . . 62,500 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 132,549 113,637
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 523,731 580,550
Other assets . . . . . . . . . . . . . . . . . . . . . 35,643 26,197
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 559,374 606,747
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $4,973,059 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Balance Sheets - (Unaudited)
June 30, Dec. 31,
Liabilities 1998 1997
(Thousands)
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $7,321 $38,240
Current portion of preferred stock . . . . . . . . . . 30,000 -
Commercial paper . . . . . . . . . . . . . . . . . . . 70,000 58,000
Accounts payable and accrued liabilities . . . . . . . 142,031 124,981
Interest accrued . . . . . . . . . . . . . . . . . . . 19,658 20,500
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 38,842 6,146
Other. . . . . . . . . . . . . . . . . . . . . . . . . 60,002 79,631
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 367,854 327,498
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 101,499 81,986
Deferred income taxes - unfunded future federal
income taxes . . . . . . . . . . . . . . . . . . . . 74,428 99,126
Other . . . . . . . . . . . . . . . . . . . . . . . . 41,067 79,709
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 216,994 260,821
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 780,207 753,722
Other postretirement benefits . . . . . . . . . . . . 130,263 117,760
Environmental remediation costs . . . . . . . . . . . 82,500 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 81,953 73,021
---------- ---------
Total other liabilities. . . . . . . . . . . . . . . . 1,074,923 1,027,403
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,459,113 1,450,224
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 3,118,884 3,065,946
Commitments - -
Preferred Stock of Subsidiary
Preferred stock redeemable solely at the
option of subsidiary . . . . . . . . . . . . . . . . 104,440 134,440
Preferred stock subject to mandatory
redemption requirements. . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock (Par value of $.01 and $6.66 2/3 at
June 30, 1998 and December 31, 1997, respectively) . 640 462,250
Capital in excess of par value. . . . . . . . . . . . 1,099,159 811,648
Retained earnings . . . . . . . . . . . . . . . . . . 624,936 568,844
Treasury stock. . . . . . . . . . . . . . . . . . . . - (39,447)
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 1,724,735 1,803,295
---------- ----------
Total Liabilities and Stockholders' Equity . . . . $4,973,059 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Statements of Cash Flows - (Unaudited)
Six Months
Periods Ended June 30 1998 1997
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $105,524 $103,585
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 95,214 96,316
Federal income taxes and investment tax credits
deferred, net. . . . . . . . . . . . . . . . . (4,445) (23,381)
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . 38,121 53,485
Inventory. . . . . . . . . . . . . . . . . . . . 4,749 957
Accounts payable and accrued liabilities . . . . 17,050 (28,658)
Taxes accrued. . . . . . . . . . . . . . . . . . 32,696 42,825
Other, net . . . . . . . . . . . . . . . . . . . . 6,879 27,146
------- -------
Net Cash Provided by Operating Activities . . . 295,788 272,275
------- -------
Investing Activities
Utility plant capital expenditures . . . . . . . . (76,619) (55,842)
Proceeds from governmental and other sources . . . 316 911
Expenditures for other property and investments. . 25,200 (804)
------- -------
Net Cash Used in Investing Activities . . . . . (51,103) (55,735)
------- -------
Financing Activities
Repurchase of common stock . . . . . . . . . . . . (135,359) (7,254)
Purchase of treasury stock . . . . . . . . . . . . - (39,565)
Repayments of first mortgage bonds . . . . . . . . (30,000) (48,000)
Changes in funds set aside for first
mortgage bond repayments . . . . . . . . . . . . - 25,000
Long-term notes, net . . . . . . . . . . . . . . . 9,580 (1,667)
Commercial paper, net. . . . . . . . . . . . . . . 12,000 (91,500)
Dividends on common stock. . . . . . . . . . . . . (49,432) (48,385)
------- -------
Net Cash Used in Financing Activities . . . . . (193,211) (211,371)
------- -------
Net Increase in Cash and Cash Equivalents . . . . . 51,474 5,169
Cash and Cash Equivalents, Beginning of Period. . . 8,168 8,253
------- -------
Cash and Cash Equivalents, End of Period. . . . . . $59,642 $13,422
======= =======
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $52,553 $55,230
Income taxes. . . . . . . . . . . . . . . . . . . $37,346 $53,661
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Energy East Corporation
Consolidated Statements of Retained Earnings - (Unaudited)
Six Months
Periods ended June 30 1998 1997
(Thousands)
Balance, beginning of period. . . . . . . . . . $568,844 $489,129
Add net income. . . . . . . . . . . . . . . . . 105,524 103,585
Deduct dividends on common stock. . . . . . . . 49,432 48,244
-------- --------
Balance, end of period. . . . . . . . . . . . . $624,936 $544,470
======== ========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Note 1. Holding Company Formation
On May 1, 1998, New York State Electric & Gas Corporation
(NYSEG) was reorganized into a holding company structure pursuant
to an Agreement and Plan of Share Exchange between NYSEG and
Energy East Corporation (Energy East or company). NYSEG's
outstanding common stock was exchanged on a share-for-share basis
for Energy East's common stock and Energy East became the parent
of NYSEG. Energy East's common stock is listed on the New York
Stock Exchange under the symbol NEG. NYSEG's common stock was
delisted from the New York Stock Exchange. The preferred stock
and debt of NYSEG were not exchanged and remain securities of
NYSEG.
Note 2. Principles of Consolidation
Energy East's 1997 and 1998 consolidated financial
statements include the company's subsidiaries, NYSEG, NGE
Generation, Inc. (GenSub) and NGE Enterprises, Inc. (NGE
Enterprises).
Note 3. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the company's consolidated
results for the interim periods. All such adjustments, other
than those related to the reorganization into the holding company
structure noted above, are of a normal recurring nature. The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
contained in NYSEG's annual report for the year ended December
31, 1997. Due to the seasonal nature of the company's
operations, financial results for interim periods are not neces-
sarily indicative of trends for a twelve-month period.
Note 4. Reclassifications
Certain amounts have been reclassified on the consolidated
financial statements to conform with the 1998 presentation.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Competitive Conditions (See NYSEG's Form 10-K for the fiscal year
ended December 31, 1997, Item 7 - Liquidity and Capital Resources
- - Competitive Conditions - Electric Industry, Natural Gas
Industry and Accounting Issues; and NYSEG's Form 10-Q for the
quarter ended March 31, 1998, Item 2(a) - Liquidity and Capital
Resources - Competitive Conditions - Electric Industry and
Natural Gas Industry.)
Holding Company Structure
On May 1, 1998, Energy East became the parent of NYSEG.
Subsidiaries of the company include NYSEG, GenSub and NGE
Enterprises. NYSEG is a regulated utility transmitting and
delivering electricity, transporting and delivering natural gas,
and generating electricity from its nuclear and hydroelectric
stations. GenSub produces electricity from seven coal-fired
stations. NGE Enterprises, a holding company, has subsidiaries
that provide energy services.
Electric Industry
Generation Business: All of GenSub's generating units are in
service for the summer peak load period, including the two units,
with a total generating capacity of 92 megawatts, that were
placed on long-term cold standby in 1995 and 1996.
NYSEG put GenSub's seven coal-fired generating stations and
associated assets and liabilities up for auction earlier this
year. NYSEG and GenSub accepted offers totaling $1.85 billion
from The AES Corporation and Edison Mission Energy in August
1998, for the generation assets. The contract with The AES
Corporation is for the purchase of the generation assets in New
York State, and the contract with Edison Mission Energy is for
the purchase of the Homer City Generating Station in
Pennsylvania. The total sales price provides full recovery of
the net book value of the generation assets. There are a number
of items such as depreciation, book value of inventories and
taxes that between now and the date of the closing will affect
the financial statements as NYSEG and GenSub continue to
precisely define the specific costs of the items included in the
transactions. Pursuant to NYSEG's restructuring plan approved by
the Public Service Commission of the State of New York (PSC) in
January 1998 all proceeds, net of taxes and transaction costs, in
excess of the net book value of the generation assets, less
funded deferred taxes, will be used to write down NYSEG's 18%
investment in Nine Mile Point nuclear generating unit No. 2.
This transaction, including the writeoff and writedown at
NYSEG of the coal-fired and nuclear generation assets, and
corresponding common stock equity, will not adversely affect the
financial condition of Energy East or any of its subsidiaries.
For regulatory purposes, any reduction in NYSEG's common stock
equity balance resulting from such writeoff and writedown of the
generation assets, or the repurchase of common stock, is
eliminated before NYSEG's electric return on equity is calculated
in accordance with the 12% earnings cap approved by the PSC in
January 1998 in NYSEG's restructuring plan.
NYSEG and GenSub will file with the appropriate regulatory
bodies seeking approval of the sales, and the sales are expected
to close early next year. Energy East plans to use the proceeds
from the sales to repurchase common stock and expand its energy
distribution system throughout the Northeast.
FERC Orders 888 and 889: The Federal Energy Regulatory
Commission (FERC) issued Orders 888 and 889 in April 1996,
adopting rules to facilitate the development of competitive
wholesale electricity markets by opening up transmission services
and to address the resulting stranded costs. In subsequent orders
the FERC generally affirmed Orders 888 and 889. Various parties,
including NYSEG, have filed petitions for review of these orders
with the United States Courts of Appeals in various circuits.
The FERC accepted, in February 1997, a compliance filing of
the New York Power Pool (NYPP), of which NYSEG is a member, in
response to Order 888. NYPP members submitted additional filings
to the FERC in 1997 proposing the restructuring of the NYPP by
establishing an Independent System Operator (NYISO), a Power
Exchange and a New York State Reliability Council (NYSRC). The
FERC approved the formation of the NYISO and NYSRC in June 1998
and indicated that it would later rule on the rates, terms and
conditions of service to be implemented by the NYISO under the
NYISO tariff. These additional FERC rulings are needed before the
NYISO, NYSRC and the restructured market can commence operation.
The company is unable to predict the outcome that the remaining
FERC proceedings will have on the NYISO and their ultimate effect
on the company's financial position or results of operations.
Natural Gas Industry
Joint Venture with Central Maine Power Company: The Maine Public
Utilities Commission approved the joint venture's application to
provide natural gas service to the Augusta, Bangor, Bath-
Brunswick, Bethel, Waterville and Windham communities. The joint
venture's plans have been developed to coincide with the
construction schedules of two pipelines from Canada, with initial
service to customers anticipated by the end of 1998.
NYSEG's Natural Gas Rate Settlement Agreement: NYSEG filed a
natural gas rate settlement agreement with the Public Service
Commission of the State of New York (PSC) on May 26, 1998.
Subject to final approval by the PSC, this settlement agreement
will reduce prices for most customers. The settlement agreement
is expected to become effective September 1, 1998 and continue
through August 31, 2002.
The settlement agreement provides for a reduction of $26.9
million, or 2.2%, in NYSEG's natural gas revenues over the term
of the agreement. An earnings sharing mechanism in the settlement
agreement provides that any excess of the average earned equity
returns, as determined for the first 24 months of the agreement
and then for the remaining term of the agreement, will be shared
equally between customers and shareholders. If NYSEG's gas-
related equity ratio is 48% or higher, the average earned equity
return sharing threshold will be 13%. If the gas-related equity
ratio is below 48%, the average earned equity return sharing
threshold will be 12.5%.
Investing Activities
Capital expenditures for the first six months of 1998 were
$77 million. The company estimates its capital expenditures for
1998 will be about $150 million, primarily for extension of
service and necessary improvements to existing facilities. These
expenditures are expected to be financed entirely with internally
generated funds.
Financing Activities
During the second quarter of 1998 the company repurchased
500,100 shares of common stock as part of its common stock
repurchase program.
In July 1998 NYSEG redeemed, at a premium, $30 million of
6.48% preferred stock.
Forward-Looking Statements
This Form 10-Q quarterly report includes certain forward-
looking statements that are based upon management's current
expectations and information currently available. Whenever used
in this report, the words "estimate," "expect," or similar
expressions are intended to identify forward-looking statements.
In addition to the assumptions and other factors referred to
specifically in connection with such statements, factors that
could cause actual results to differ materially from those
contemplated in any forward-looking statements include, among
others, regulatory developments; the rapidly changing and
increasingly competitive electric and natural gas utility
markets; the ability to obtain adequate and timely rate relief;
cost recovery, including the potential effect of stranded costs;
legal or administrative proceedings; business conditions;
technological developments; changes in the cost or availability
of capital; labor developments; nuclear or environmental
incidents; factors affecting the utility industry in general,
such as deregulation and unbundling of energy services; weather
conditions; changes in fuel supply or cost; and other
considerations that may be disclosed from time to time in the
company's publicly disseminated documents and filings. The
company undertakes no obligation to update publicly any forward-
looking statements, whether as a result of new information,
future events or otherwise.
(b) Results of Operations
Three Months Ended June 30,
1998 1997 Change
(Thousands, except per share amounts)
Total Operating Revenues $540,412 $470,370 15%
Operating Income $89,805 $82,743 9%
Net Income $29,353 $23,923 23%
Average Shares Outstanding 64,349 68,279 (6%)
Earnings Per Share,
basic and diluted $.46 $.35 31%
Dividends Per Share $.40 $.35 14%
Earnings per share for the second quarter of 1998 improved
primarily due to cost control efforts, higher electric deliveries
and a reduction in the number of common shares outstanding,
partially offset by lower natural gas retail deliveries due to
warmer weather.
Six Months Ended June 30,
1998 1997 Change
(Thousands, except per share amounts)
Total Operating Revenues $1,167,644 $1,058,507 10%
Operating Income $246,946 $250,270 (1%)
Net Income $105,524 $103,585 2%
Average Shares Outstanding 65,373 68,813 (5%)
Earnings Per Share,
basic and diluted $1.61 $1.51 7%
Dividends Per Share $.75 $.70 7%
Earnings per share increased for the six months primarily
due to cost control efforts, a reduction in the number of common
shares outstanding and higher electric wholesale deliveries.
Those increases were partially offset by lower electric and
natural gas retail deliveries primarily because of unusually warm
weather during the heating season in the first quarter of this
year.
Operating Results by Business Segment
Electric Three Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 3,130 3,071 2%
Operating Revenues $485,877 $411,453 18%
Operating Expenses $394,262 $334,939 18%
Operating Income $91,615 $76,514 20%
Operating revenues increased $74 million due to higher
electric wholesale deliveries of $71 million and higher electric
retail deliveries of $3 million.
The $59 million increase in operating expenses was primarily
due to a $67 million increase in electricity purchased for
wholesale deliveries, partially offset by a $1 million decrease
in electricity purchased for retail deliveries and a $10 million
decrease in various operating and maintenance costs.
Six Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 6,520 6,563 (1%)
Operating Revenues $991,465 $862,723 15%
Operating Expenses $778,584 $666,908 17%
Operating Income $212,881 $195,815 9%
Electric retail deliveries decreased primarily because of
unusually warm weather during the heating season in the first
quarter of this year.
The $129 million increase in operating revenues was
primarily due to a $134 million increase in wholesale deliveries,
partially offset by an $11 million decrease in retail deliveries.
Operating expenses for the six months increased $112 million
primarily due to a $123 million increase in electricity purchased
for wholesale deliveries, partially offset by a $4 million
decrease in electricity purchased for retail deliveries and a $9
million decrease in various operating and maintenance costs.
Natural Gas Three Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 9,305 10,889 (15%)
Operating Revenues $54,535 $58,917 (7%)
Operating Expenses $56,345 $52,688 7%
Operating Income ($1,810) $6,229 (129%)
Natural gas retail deliveries decreased because of warmer
weather this quarter.
The $4 million decrease in natural gas operating revenues
was primarily due to lower retail deliveries that reduced
revenues $13 million, partially offset by increases of $3 million
and $2 million in wholesale sales and other revenues,
respectively, and a more favorable sales mix that added $4
million to revenues.
Natural gas operating expenses increased $4 million for the
quarter primarily due to a $3 million increase in natural gas
purchased.
Six Months Ended June 30,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 30,584 34,308 (11%)
Operating Revenues $176,179 $195,784 (10%)
Operating Expenses $142,114 $141,329 1%
Operating Income $34,065 $54,455 (37%)
Natural gas operating revenues decreased $20 million for the
six months. Revenues were reduced $30 million by lower retail
deliveries, primarily due to warmer weather. That decrease was
partially offset by increases of $5 million and $2 million in
wholesale sales and other revenues, respectively, and a more
favorable sales mix that added $4 million to revenues.
PART II - OTHER INFORM ATION
Item 1. Legal Proceedings
(a) By letter dated April 20, 1992, the Environmental Protection
Agency (EPA) notified NYSEG that it had been identified as a
potentially responsible party (PRP) at the Bern Metal Removal
Site (Bern Metal Site) in Buffalo, New York. Six other PRPs have
been identified by the EPA. The EPA has taken response actions at
the Bern Metal Site, including investigation, excavation, and
removal of drums and contaminated soil, and implementation of
measures to prevent surface water run-off. The EPA demanded that
NYSEG reimburse the EPA Hazardous Substances Superfund $2 million
in response costs incurred to date by the EPA, with interest
accruing from the date of the demand. In September 1995 NYSEG and
the EPA reached an agreement on a consent order under which NYSEG
would pay the sum of $10,000 in return for a covenant by the EPA
not to sue NYSEG for the EPA's response costs, and to protect
NYSEG from claims of contribution by other PRPs for such costs
incurred to date. The consent order was approved and in July 1998
NYSEG paid $10,000 to the EPA. (See NYSEG's Form 10-K for the
fiscal year ended December 31, 1997, Item 3. Legal Proceedings.)
(b) On May 22, 1998, NYSEG, along with fifteen other parties,
received a special notice pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980
(CERCLA) from the EPA, asking whether the recipients wished to
voluntarily finance or perform the remedial design and remedial
action at the Rosen Brothers Site in the City of Cortland, New
York. The estimated total present-worth cost of the selected
remedy is $3,140,000. The EPA also requested reimbursement of
past costs at the site of approximately $692,000, plus interest.
Pursuant to the special notice procedures of CERCLA, NYSEG, along
with certain other parties that received the special notice,
submitted a "good faith offer" on July 21, 1998, to voluntarily
contribute to the cost of the remedial design and remedial
action. NYSEG has entered into discussions with the other PRPs at
the site in an attempt to reach an agreement concerning
allocation of costs. Such discussions are proceeding under the
supervision of an alternative dispute resolution specialist
retained by the EPA. (See NYSEG's Form 10-K for the fiscal year
ended December 31, 1997, Item 3. Legal Proceedings.)
(c) NYSEG, on June 15, 1998, commenced an action in the New York
State Supreme Court, Tompkins County against Niagara Mohawk Power
Corporation (NiMo) seeking an order enjoining NiMo from
transferring operating responsibility for the Nine Mile Point
nuclear generating unit No. 2 (NMP2) to the New York Nuclear
Operating Company (NYNOC) without NYSEG's consent. NYSEG has an
undivided 18% interest in NMP2, which is operated by NiMo.
Ownership of NMP2 is shared with NiMo 41%, Long Island Power
Authority 18%, Rochester Gas and Electric Corporation 14% and
Central Hudson Gas & Electric Corporation 9%. The lawsuit also
seeks to recover damages for funds used by NiMo to promote the
establishment of NYNOC and the transfer of operating
responsibility for NMP2 to NYNOC. NYNOC was established for the
purpose of assuming operation of all of the nuclear generating
units in New York State. NYSEG believes that the establishment of
NYNOC will not result in either improved operational performance
or reduced costs sufficient to offset the development and
implementation expenses likely to be incurred by its creation. On
July 7, 1998, NYSEG served an amended complaint on NiMo alleging
that NiMo had breached its fiduciary obligation to NYSEG by
engaging in negotiations with a third party for the sale of NMP2,
including NYSEG's share, without advising NYSEG of those
negotiations, or allowing it to participate in the negotiations,
and by NiMo conducting the negotiations in a manner designed to
limit the interest of the third party in purchasing NMP2.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
A report on Form 8-K dated May 1, 1998, was filed to report
certain information under Item 5, "Other Events" and Item 7,
"Financial Statements and Exhibits."
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ENERGY EAST CORPORATION
(Registrant)
By Wesley W. von Schack
Wesley W. von Schack
Chairman and Chief Financial Officer
Date: August 13, 1998
EXHIBIT INDEX
(a)(1) The following exhibits are delivered with this report:
Exhibit No.
3-1 - By-Laws of the Company as amended June 5, 1998.
(A)10-1 - 1997 Stock Option Plan Amendment No. 1.
(A)10-2 - Non-Statutory Stock Option Award Agreement Amendment
No.1.
27 - Financial Data Schedule.
(a)(2) The follow exhibit is incorporated herein by reference:
Exhibit No. Filed in As Exhibit No.
(A)10-3 - Amended and Restated Employment Agreement
for W. W. von Schack - New York State
Electric & Gas Corporation's Form 10-Q
for the quarter ended June 30, 1998 -
File No. 1-3103-2. 10-52
(A)10-4 - Amended and Restated Employment Agreement
for M. I. German - New York State Electric
& Gas Corporation's Form 10-Q for the
quarter ended June 30, 1998 - File No.
1-3103-2. 10-53
(A)10-5 - Amended and Restated Employment Agreement
for K. M. Jasinski - New York State Electric
& Gas Corporation's Form 10-Q for the
quarter ended June 30, 1998 - File No.
1-3103-2. 10-54
(A) Management contract or compensatory plan or arrangement.