ML20070R326

New York State Electric & Gas 1993 Annual Rept

ML20070R326
Person / Time
Site:	Nine Mile Point
Issue date:	12/31/1993
From:	NEW YORK STATE ELECTRIC & GAS CORP.
To:
Shared Package
ML17059A306	List: ML17059A305 ML17059A307 ML17059A308 ML18041A027 ML20070R318 ML20070R326
References
NUDOCS 9405200164
Download: ML20070R326 (52)

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' Financial' Highlights 1993 1992 % Change ? At Decernber 31 Total Assets (000) $ 5,276,016 $5.07-',916 4 Capitalization (000) $3,511,826 . 53.630.901 (3)~ Capital 5tructure (irk ludes current maturities): Long-term Debt 18.6 % 50 % (a) Preferred 5 tot k

9. A

-'.2% 31 Common liguity 42.0% 42 3% (1) Operating Results (000) Total Operating Revenues 51,800.1i9 $ 1,691,6H9 6 Operating Expenses 51 A99,493 $1.367,926 10 ' Net income S166,028" S183 968 (10) - Earnings for Commun Nock $ 165,390* $ 162.973 (11) Retail Megawatt hour Sales 13,088 13.29) (2) Dekathernw of Natural Gas Delhered 58,0i6 56.366 3 - Per Common Share Earmngs S 2.0H* 52.10 (.13 ) Dis idends 52.lM $ 2.14 2 Ikxik Value (year end) $22.H9 522.85 J Market Value iyear end) $30.75 $32,50 (5) I Other information j Common Stock Price Range 528 'J.-36 % $26 % 32 % Retmn on Average Djuity 9.1% 10.6% (14) Market--to-Ik>ok Ratio f year end) 13 f% 142 % (6) Ascrage Common Shares Outstanding ((K H O 69,990 67,972 3 .f Conunon Shareholders (year end) 58,990 61,183 (4)

• Net income, earnings for common stock and earnings per common share for 1993 include the i

effects of restructuring expenses that decreased net income and earnings for common stock by $17 milhon and decreased earnings per share by 25 cents. Dividends (Dollars Per Share) Earnings (Dollars Per Share) 2.70' 2.43i 2.48 2.36 2.40 2.33,

• Excluding the effect of an April 1988 2 06 2,10 2.14 2.18 0,7f g,-g l

eq g, f g. adjustment to the 1987 Nino Mile Point 2 f 2.00 2.02 gg r l f.} [ q@ Qi ? write-off. I Gj pg R c/g 4F .n Cr. t Excluding the effect of a December 1989 j l gN [d; y J. sa l-I adjustment to the 1987 Nine Mile Point 2 a l " !.j f ', f4' [ write-off. [t i {f 8 Excluding the cifect of a December 1993 e m ( e ( j -4 h I restructunng charge, 1988 1989 1990 1991 1992 1993 1988 1989 1990 1991 1992 1993 l l

Letter to Shareholders I u nic h,3 00 w oh a sense of urgein y .nid pliil. l'igent s liet ause NBl'(; is 1 u nig i onipctitn e nsks llut il los l IIC\\ l'l l.Il t il !)ch lit'. l'll4 lc lit TatlNe w t' i I alt' R'sl h illt lillg.lggt t'>sn l'l\\ alHl da isn cly Competition \\\\ here ts the competition i onung in un' i l i The Pm N.nioiul 1 ocigs Pohcy M t j opened ihe d. i< u for i ompetnion m .e J the clei tot w hoicsale m.n ket. We i 1 edesal l'ncigs Regulait iiv (iinnnis-sion's t Irla:) ( inter Mn nuensihol s ~ < ompenniin w olnn the iutuul gas ) indnsoy on % 6 einlici 1, py>3 l ( )tir l.irgi' likltistilal t lisli illler s.n t' lillei icilllig it i gelk i.lle flicir < iw Il l .i@4($fkf.d... _ i sitr ch 's trit pt R t's.lle IIR fea sulp ~. -N g clu toi itv. <.i on n c..u a ame w hen x.

g. K 1. ; ".

s.p- - ponuols. due to nund.ned costs sot b [.. as taxes and pun iuses of elecini u3 5 lit ifil tintegillateil Ik tn tiilllis ) ~ ptf ner.th irs ( N ( '( 's ) An(I tlH' W Cak a co in.nny n: New Yoik Naie ( ontinues e if I (Icl)IUss NJleN piltling ltiftht'[ s 1 pressnic on cln int pn( es Ill ll15% fJ l)lt l!\\ t II.tliging tJll\\ tu rflitict ti, w e i all IH ) l4 H nM'l licll.L\\ t '.t s.I [.; '. - icpol in il-t h n en un inops ly. We nurt aw anniijure the demanils of the nuiker J mn 4 (.ariw <nson wi pr : niat plat e.n d.u iink kit We innsi take ,,1:. t h "W ' 'l ' " I " ' V ic a;n ~ t t, a: is I' . r t :i : t) A l'c r[fr Our Strategy uo yj Tins p.ist N 6 einher u e anniinni ed a t v inipichensn e sir.degy 1.i nuke t he pos e of i >nr electot av more < < nupenin e ( )nr sir.negs h i( nws < >n i i nst < i sniti al. ilupl< n ed sales.nu l tic u h!c rates 2

~. 5' Our cost (ontrol effods include: This brings me to our third area of about 20 percent oser the next three

• A one-thint, or about $1on million, focus, ficxih!c raict NY51'G needs the years. 71 peicent of this increase is reduction in our forecasted !W6 flexibility to use our excess capacity due to the costs of purchasing capital expendames with further to encourage economic dewlopment electricity fnun unregulated NL'Gs reductions anticipated m future and meet the unnpetitive needs of and taxes. We must find ways to yea rs_

our large customers. We were the first reduce those increases.

• A 5 percent reduction in operating utility in New York state to receive and maintenance expenses in each appnival to use a flexible rate for We continue to strengthen our of the next two years. Ily PM this high-use electric customers. Thus far nnancial condition. In June 1993 Standml & Poor's (S&P) upgraded will sac about 5 in milhon we h.n e used this rate to negotiate our securities. This followed similar annually. As part of this cuiback, omtracts wiih two of our largest upgrade fnun Moody % and Fitch we hae reduced our uork force by industrial customers. These tw o inwstors 5enice in Pr>2. In October about 800 people, or 16 percent.

agreements retain about 520 million 3 19'J3 SA P C""CI"dCd th31 * "f" through aurition. carly reinement in annual electric tes enues. stringent hnancial benclunarks an-i and involuntary severanc e. We We also filed for a flexible incentiw appiopriate for electric utilities to hace alm released more than im rm for new, incremental electric counter increased competition and cont ract ors, load and we modified esisting mounting business risk. As a result,

• A streamhnmg of our held organi-wononiic dewlopment incentn e SAP lowered the outlook for about eation that will cluninate walk in rates Retaining and expanding our one-third of the electric utility

[ customer service at 28 locations industrial base are critical to the industry, including NYSEG. Ilow ever, and dose up to 10 operations bicationt We will also place two health and prospenty of all of us in our creda ratings were noi J anged kw Duk 5 tate h nwd niore jobs % agree w ith S&Ph awewment our generatmg units on long-term Onancial impmwments must continue. cold standbv. Achievements A lugh degree of financial integrity

• Addnional efforts to reduce uniegulated Nt'G msts. Presious in kplauber PM we whed a is essential to our success in an j

NI Ti contract terminanons and threryu dwoic and natural gas increasingly competitiw emironment. rate seuleinent agreement with the I renegotiations will saw customers U"I U,"' I5"'i"'** U"I' hd * *Jd# New York State Public 5en ice more than 51 bilhon owr the tenus Commi3sion (P50. Key elements mutent progrm in pn paring for the l of the t ontrat is. a ngo er @c W l

• A mutinued emphasis on reducing of the a8reement intlude a rewnue 1

haw increased the diversity of our s apital msts Smt c 1,)ss w e h.n e da oupling mechamsm that allows os tehnans ed over 51. i bdli< m in to adjust electrit rates for variJnces nJtura NA% >ubN IlhI accc iUN betw eco foiecasted and actual sales, tanadian natural gas at two points on seconties. and annual interest cv a continuation of our natural Xas our systan, and wr are dewloping pense has dechned by W unihon. our ou o Non million cubic foot weather nonnalization dause: and the our eier nic sales dfort emphasizes potenti.d to enhance earnings bacd natural gas storage facilny to pnaide gie ter flexibility to sene our new. cost 4cifet tiw and em ironmen. on our perturmanc e in customer custorners. We have installed a state-tally compatible electrotec hnologies, sen ice, demand-side management as well as mcicasing w holesale pow er initiauves and the control of total 4the-art natural gas monitoring sales. One of NYMG's greatest production costs. Most importantly, system and hhed key personnel to strengths is its abundance of low 4 ost this agreernent pnnides us with an generaung cap.u iry. We need to take eu ellent opportunity to earn our nuumum aduntage of this important allowed return on conunon ecluity, a sset, particularly in siew of our mst reduction ciforts. t )ne listmbing aspect of this agreement is that our c ustomas lace price mcreases totahng 3

Letter to Shareholders i ensuie expernse in all areas of natural Earnings itefon I dose. Fd like to at knowledge gas nunagement. Ilow w ell is our I:arnings were a disappoinonent m the reinement from our 15oard of natural gas strategy wurking)( >ur 1993 The wcak New Yoik State 1hredors of Wells P. Allen, Jr., funner industrial ute3 are nusketalnven..md cuinomy continued to depress duirnun and (hief executhe othcer we currendy of fer the lowest elcunt sales. As a result, despec of the corporanon in September 1993 residential natural gas rates of any keeping our expenses below foretast, w e dedicated our new energy control combmanon unhty in New York Nate. 199.4 carnmgs fell shon of both 199.' t enter to Wells in honor of the At the same time our Gas liusmess carnings and our allowed return on significant contnbutions he oude I nit lus in< reased its (ontnbunon to conunon equay. And this estludes during his U-> car NY5FG career. the Company's camings significantly. the one-tune durge of.'5 cents per slure for early retirernent. employee Looking Ahead l >urmg 1993 w e took our firsi steps smunw and recrutmring vish in die h>llow mg pages, we focus on into diversification In addinon to our These weA camine pm addinonal f our pdnury ladors we beheve w di ou o nanual gas stora e f at day. we prewne on an already Ingh dividemi define the winners in the new will be deseloping a tuo bilhon cubic Jusout ratio at a time when growing t ompetitis e em ironntent: price, value. loot natural gas storage t,a ihty m nimpetition dmtes um we o >nsider quant) and speed. I strongly urge you coi speranon w nh ANR Storage. Inc. a mme modende dn alend p ihcy. We ni read on and dism er w hat NY51:G in addition. our w holly ou ned '""'t Wmta an@ unpu ne earning if is do ng to respond to the challenges a e.ur to continue es en modest of deregulation and u nnpetinon - to subsiduty, NGE Enterprises. Inc. lus annua n n( ieaws take c harge of d-future. lonned Ener50f t Lotporanon. a computer sohware company that Employees I or the lioard of Diredors. pnislot es and nurkets softw;ue With au da dunges o(curnnu in om appht anons for natual gas utihiies, ndusn I am ohen Med how I can nurketers afbl pipehnt$ in llle lM h!- g g ,gg.g gg g3}g g jg gg, umc order en em ironment.1" w e a The key n n a n e m is a uie m ed. Ouoher 1.ner$olt began a strategic (remne and dedmued uork force Mnes A Qr% alhant e with the New York Mercantile du can adet quis kly to dunge. Chainnan. President and Eu lunge to des clop an infornunon We kn e e h a work fon e. Chief Faccunve Officer supedoghw a) ilui will prmide the Fehrturv 1K 1994 natur.d gas mdustry with a single Nes er befoic in my years at NY5LG system for momtonng and trading lus e I seen our organuation rise to natural gas and pipchne capaity to the ou aston as it lus during the p ht the Nonh American tuarket. T hese year. Our employ ees bas e witnessed dn etsihi ation actn ines demonstrate eu nuimic distress in our conuunnities. our (ummument to ucate camings wan hed the Company rightsize, and opportumties < >ut of the c hallenges of an epted es er incicasmg responsi-utilay deregulanon bihties I am pr >ud of their resoun e-tulness and competitn e spisit. They are NYsi G s grea!c.st asset. 4

Introduction It:n 'p : atthet;ny Yoiit ?. fen antd l l En h.rego. (tw n cil;t's largest energy en %nge a tlh whom mv sut.n id!.nv h3:, un n!!!anw fu chn eh 'p.in infor ma! ion supcthighway 10 finrie l natural gas and pipelim> capacitv. A e l m V .\\ c A siningung economy. nuna.ned '9 zs? . A A

t ~

Y costs. I I RC ()t der Mo. the 1%' j 3 g yne,yy emh A< t. < m e m,ne,, in, coinpetitive < >pt u ins - these. ire the 1 3e V ~ i-oes o ui<onrn mi osiod.ns A f,kgy, .pg 77 Ais m omesecoppmmmmo-g m here ooiers see ont.as y. e We must help our custritnets and ciur y scruce terntor) renuin c< >mpeliln e. liv doing so. u e prm ide slurcholder ~ talue. Nv%lifs customers are no ) longer cornpeting solely eith other om e _ m x em v o, m me s,e compeomg e,o, nemne coo carmda. Cluna. Korea. l'urope, Mexim - the i morht And they lure increasing options f or their energy supply. l We need to help thern beat the l { I )l n( R't it b Irl )Y llIL )\\ ll iNM I \\c }lM lest p >wible t alue h,r their energy dollar. H i >ur customers thin e. NMG tlu n es. nmm dmme mmpe,e n,yune sonple. \\\\ e need to be snurter. better and quit ker tiun our competition We nectl to h w us (in price, s alue. quald) and speed. 1 a 4 i 5

. ~.. n Price-J ' ' ' ~ ~ ..a n 5 Competition in the utility industry? agreements retain approximately 520 Absolutely. inillion in annual revenues. We heat-I the competition: in one case, the Our large electric customers have customer was going to generate its ' competitive options. They can build own electricity: in the other, the their ono power plants or mose out customer was going to leave the state. of state. Technological advances and i -How are we meeting the the 1992 National Energy Policy Act In November 1993 we filed a new are intensifying these competitive electric rate and three rate revisions. cornpetitive challenges? ahernatives. With the November 1, The new rate provides for negotiating 1993 implementation of FERC Order the cost of large, new electric load, Both our Electric and Gas 630, our larger natural gu customers .fhe res isions increase incentives for business ureits have a can bypass us as the, supplier and, in smaller customersi as w ell as those some cases, the transporter of their ' located in designated economic sitnilar strategy: cut costs. ""'"'"'8"' d'"'I"P"*"' """ flow are we meeting these competi-Although electric sales have lagged jdGMe_0W0tJgycJ"ates t te challenges? lioth our Electric and due to the sluggish economy, our r M Q:@pw N d increase sales. - yy;7g strategy: cut costs, implement fleu.ble aggressive 199 6 sales goals that we'll Ta nas business units have a similar retail electric sales team has set "s an P yMates and increase sales. pursue with new electrotechnologies. - gg s NYSrG is serious about cutting costs. These electrically-based technologies. in'1993 and early 19m we reduced replace direct-burn fossil fuel systems,

1. p.+,

~ x w 2 sour work force by nearly 16 percent. ' reducing emissions. Our customers '. /c L 1.ry .i ' ' M'y..,W % 'cU R0ducir$ opi,l rating and maintenance can use them to improve product ,y budgets by.5 percent in each of the quality, streamline their operations { s [: nem two years will save approxi-and meet tighter environmental i m'alely $ NhniUion annually, beg' inning requirements. Examples of these lin IkIrii9kwe will cut capital technologies indude infrared drying s spendiny by kO10 million. We antici-systems for the printing process, pate furtikt nkuctions in future ultraviolet curing of paints and laser yearsge are taking the actions nec-cutting for metal fabricating processes. QM g

ecary to becomtprice competitive.

e:-MWe e tAing chNrge of the future. Our w hobale pow a saks team, g,~, huoyed by a generating system that s H in p, nuary 1993 the PSC approved lyoasts the lowest pnittuctityn costs in e

s. y m

7;g/*h+)QgY$EG service daysification 13. the y j g. / New York State, had several succenes n. s e '-.tG2@5d 4 firklectric rate idthe state that in 1991 Selling our excess capacity to ' r

• Y

}/ Yh allNs negotiatiorf on price with other utilities in and out of New York specific customerii. hince then, weie State brought in 530 million in [" negotiated conttdcts with two of our ~ revenue. larger Electric c5tomers. These two hC - Competiti.on is not new to the Gas / /j t','- [ / [/ .f Ilusiness Unit.. NYSEG's natur;d gas; f' - customers know what they 3vant and / / .-what they're willing to pay, We know 'p 3~ ' that if we don't provide what our t / j customers want, somebody else will. y ,.6 ff Q ,W ~' ' N:h' vmp., p g:g+?i 6

l Ti, day 's 1.irge ( usn iniers t ari liuy rutural gas fnim us - as they lu\\ c l tr.nlitniiulh r ): the) t an hu) thcu l rutural gas in un.my one they c lu>ose w inic w e tran,piirt tlut rutural gas on l our sysiern - fiir a transportatnin l rate. Or they can b);uss < >ur system y, enurely. < >m natural g ts busines, so.negv is simple l'irst w e seek h) 15calthe t e wpeut u,n. ( >n the < >ther lund, d our custoiners t an hnd ( heaper supphes of runnal gas. our pipchnes .ne open and w e u ill move the - w iutural gas i u them at our transpor-tatit in rate.\\s h ang as w e in,1ke the sJ!lle j)D ill! (!!) II.llisj F )llalH ill.ls M e tit ' i y t.I Nilt *, W e'\\ c Inct file flut kUt i lullcoge We are indilleient t< > the i >]it n in i tui ( nst< inner ( ht u ncs Pn>ht nurgm is < iur l u,us im hoc lt's a M hlC ('lWil gallu" tb 3% ll1 tlit' n unral gas unlustry. We are i on- \\ ll H 'ed ()tli l HisintSS sit.llegles % ill Ic.nl n i o >ntinucil pu isper n). Wit h the I)et emlier in n >k up of a 1.nge l pluinut cutical 4 ompany ni ni erthern New D. L N.nc. w e.n kled EnAno drL at herins (it sales and win j ussesi j i,ui F)"'i sales g< ul ( )ur Inu i sales gi ul is the inn nt augn 'sn e cwr. 'llus I,1llc [)I k C sh ily,11 '\\ Dlli, liul hi11Lin) t il < >lli t lish illlef s tile ()rh c 4 il i nir pis idth ! is t inly p.ilt t.rl llic st< >n. \\Lun preter \\ ahic-added sen u es - a!!(! ale M I!llllg til p.IV l( ?! t l M 'l l) ['/ cf f pf p(f!pg/gp/4tg f yrgyjgfg pgf f f cuMnmms bettur u n'ue for ttwir c'!)t'!jiy YU$I3l, fili >t!HIf t' i ClWinVT l ein i < nunent and ncid nety revenne to N vS(G Tn,s ciertuum s company recently un inilmi n 1.3-oc snya!! elecit oc turn un a wd in !?'*j)TUUUC Wn O!H!etD Cn[UbC% 1 1 l l 1 l 7

_m lJ Value L y%, o.v,. p ..m.,. -n.v...,., ,,...e L .l' l 1 ery often, our customers are inter-system efhciency, we have the ested in the value-added services we expertise to maintain their substations - provide. And it's easy to understand and distribution lines, We are also why. Many custoiners tell us they talking to customers to see what don't want to generate their own expertise we can lend in plant opera. electricity. Some value our reliable tion, plant nmintenance, fuel supply - Whether tbrough flexible energy and quanty services more than or ash disposal to improve their = the lowest competitive price. competitive position. ' rates that meet a custom-4 Our goal.is to be the pref. erred pro-W,e also provide value to customers vider of energy services by increasing who are expanding or relocating in or's price threshold or the efh,ciency, productivity and com-our service territory. We can help pentive position of our customers. So them find sites, profile the loc:d labor .i through value-add. ed ser-we're rethinking who we are. We no force, identify available business and vices, NYSEG is respond- !""x"' "'" i"" d""M'y and natund rinando incanim. and aruaure gas - we also sell value-added financing alternatives.- ing to the competitive services. In many c ses, customers become our business partners. If our other examples of value-added Ch0Nd-th C"""*C'S'" " l$""ill* services for electric key accounts: p we currently market three customers t jj Our electric key accounts program used equipment and office furniture .g t ,Me 1 provides special initiatives to help our on consignment through our Resource' ,. J.- ( nical problems with power quality or 50 of our customers now use NYSEG customers. Heyond sohing their tech-Recovery Center. and approximately [ training and development programs. 3 g"

• FERC Order 636 has created

.g numerous opportunities for us to : i provide additional services to our

.- 9;9-natural gas customers. They may not.

+ be as familiar with the natural gas '+'-k., n .b business as we are. J+ b y f. v ,.[ g.. ' g/ '} In early 1994 we expect the PSC to g approve our request to broker natural ,TM gas for our customers. In effect, we k.T[k. k f' y' v would buy.and then transport natural

a g gas as their agent. Our customers.

h.4' ' ..\\- would save the brokerage fee. These. -1 y 7, A g ",s y 'g] g y, 1 ~ . reduced costs help them stay in s,.9p47,8w<M, business stay in'our service territory s . s pr.. u ,,._M. fg s - v a, .. O x 2 K[ij\\ eV C. %g y. v ..( y.. ).s pQdC ~ m ~' ] and remain NYSEG customers. jaA N

v. y N r w. %,)j.

pN ' q s i 27 y-a+ y yv f nc c Qf]*V.Q' ymmf,, 3.,f),* ) 7.. ,f .y-gp 'y v e 3' ~~ q;gn.r .s, 'W 'y" a } _[ c,. - c Q, f 'ce' "y f .8 ,,( p% j' y a y ~ k , Q. 9 - V W'.. j s leu-. ..o. 4-e -~ er

wen e gnen our natural gas transpor-tation custoiners daily aaess to our electronic bulletin lxurd Tlus hulleon board allows thern to track their consumption so they can plan their l purchases inore a(curately. l With Fl:i(C < hder (i.%. Our t ostoiners ,f w ho tail to pl.ni ac curately for natural '~ 1 ' ? g-gas supply and pipchne up.icity '5 A l ..s. absorb adthininal costs. In early 199 i we also expect the l'sC to approve a ] new rate that will allow our custom-i ers to use our storage for their surplus j , t. natural gJs Or %e may hoy their exc"ss natural gas f or our other cosioniers. In either ( ase, the eusiom-g,- J ~ 4* ' f...,j 7 cr (an.n oki these additional costs. ~ M" 5. s l T+. ()ther natural gas suppliers don t g' j 1 ),S,[ pD IV:(le this dexlhihty. - e i Whether through flexible rates that ~ b 3- .C -.,m. c meet a custorner's price threshold or J.am. j s ~ illn iugl1 \\.llue.it h!cd.ser\\ Ices, NYhlfs /g w-t,- .U d s 'lAN$.. fi .W is ic.ponding to the congrutn e (, o < hallenge We know our product .~'. N k.,.,_ ~ .y c a lllust 11.1\\ e \\ alue.llld I)e ((JllipcIIIIVely [ [. i b D f t h.sG.&[Q l pn(ed. h aho must he dehsered with + - i n 9'"a... tlic highest ({uality ser\\ ite and 3, 'l reli.ibiliiv. g-4 p';ff.$ ' ! " ', [ ..w. .. m- ././.l, e r l hiYSEG is helping its custonwrs remain on the leading edge of tech-nolayy in their industnes, inSfJilation of four clectric dehumidification kilns in :rrased productivtty and aushry for this lurr;btr company that makes major league baseball bats --like this replica of one used by Babe Huth: I 9

i Quality Fnsunng high < jualits sen a e an I wastruction uen s under a muunon reluhihty af ter a lo pcrt ent redut tion regiiinal managei. This ticxibihty in woik ton e requin s moot.uie in allow s us to (lose up to In snu!! We knew we couhin t iusi shonk our opeiations locations We w di in.untani e\\lsting ()lgani/at h )ll. N) w e } )cg.In Int >Ie tilan t l h n ali: ins l1< Misillg i w ith J I)!ank slate. tjucstit ifitny es cl} clct tric.tth! Tultlial gas t. rew s ""

• P* '" " " d * "' * "M
• V O m ny d i, u y a n i c a t i o n i >pt h in. The resuh?

in this new organi/.ition, our local !.~f f i Li'lV iiIIi!(l0 !)I [l I t ? 6 lieginning in.\\lan h 1091 w e wdl cmploy ees w dl h a us <in our has e a fulk redesigned lickl oreani/.i-t ustomets' inunedutt electric and pi'ma!.ip;iri'ach and out lb,n 10 sen e our IcNdent ul. ( < numer-natural gas sen ice needs. _j.here w n.l (l.il.ind Irkllhtll 11 ( ilsti amt't's in4 ye lie J tegi(illal {t icus (in nujd ir new d a,i of t; < ;ttl Customer citiciently in additi< m. there hace c4 >nstructicin system relubilitatnin n $n ant (lunges m mon and suppon wnin raiH rioW r 10 provido (< brpc) rate departna nts a nd et t. ry ,1 ofn is. '. e r.s(

d. i

( < >rporate depanment w ill nghtsi/e I " ' "' ' "I '" " @ "" I ' " " *"I' I " ' C . i, to;the( lullenges dut lie ahead '"M "' d"-n Inghest sen it e prionnes Thes u ant ieluble sen ice and rt !, ti S t. ( hir lichl ici pigJiil/all(in takes .h curate, speedy resptinse f(I .uh.intage of a icgional appri us b inquiries Anti they preter to mniact and < iur state-of-the-art customer call us by ph(inc. Few er t.han ; pen ent ol ( enter h > pn n iae enlunted wn it e our costomen s isit our of fices and of at reduc ed c< >st. those Ilut do tuore dun on percent simply p.n their bills. Our i all t enter We w di mcrease our eths ient y and Alm s m hi n et d a @ m no m focus on the Inghest priority w oik h3 m4 >ninunng elecuk and iutural gas In tact, by the hrst quarter < >f 199 i n e w ill int rease customer accessibility to NBn i hv nearly I10 percent. Ilow w dl w e nunage this? Our customer call tenter is now open Irom ~' a.m to 9 p m \\londay through I nday and will be open Lturdays H a m. to tin p m. by the semnd quaner of 199 t Along with these extended hours and the enlunced tet hnology in the customer (all center. w e f use consolidated walk-in customer sen ice at our 1.5 poncipal of fires, allow ing the einnin.iti >n of. u,tomer walk-in CajMlH!it) at b>CalN)ns. i Customers nu) snu pay their l> ills at more than.500 cion enient pay agent locations. l 10 y._ o

i ( li g.t ol/,it!' il ul dt.'Nipil is IU r! Ilk' f aill) % J) ill Jt lHU\\ C Cl!It'leth its.tud Illi pu,\\ c pri h >n n.n u,. ()ur conunuous I inipr< is entent eth at s. 4 ir w < >rk siinph. I R.ilit in t'( inli!1t le li) I t 'J j ) l 4 lu' Ills l( >r our ( ustornci. li >r cvunple our \\ enJur u inu at is te.nn shonenca pa)inent i d in\\ < m es in :ni i i tla) 4 to ~ l Cid!tt t!I\\ s di.! nt'! Nil l'igs t.d ) *- _ [p .llll1; f r\\!!)Micl\\ %I 5 t illlll( )1) inillial!\\ 4 Juk s \\ cul oth. i u nik sunphhanon c t e.u n s h.n c n u<le plot ess unpone-m nients Ilut h.n c ils< i t or ( t ists. mm m_a,oam ..lma..m!m nt <a r m t!!sl in1CI se! \\ k U \\\\'lut a rt' ille it ilJl I l d s.n ings b o <.or ( uw oners' \\ ppn ',\\ i-lli.if t 'l \\ \\M In!!!b o' Is > (lif ts ( ;tt llh't s il t q u '!ill\\ c Uli}][\\' ('!l\\ It t ali!! h 'll! t d (!!(- 'hN N D}} } 111ttst cost u e Ilut t air i uste iniers ( < innnue h i ict en c the louh-<luaht). teluide M-1 \\ is ' t l R '\\ lla ( C gri 1% 11 I, i C\\liU( l -- J I t.a olll R'till\\ (- l tllt t '- \\\\ U lilits! alu ) l ie,i n ( tht ictif. Ik\\ilde i ag iin/atn in f l Mi.it l.llil s t hi k kl) lii.II! Illn ire lulhnee. i \\\\ c i a nn >t hn i une t < onpl h ent li i l. It'i k ( f( ll tIdli H. '[ ll l' i[ l. D (' II \\l.i 3k l } ]8 l\\ t ' l .u ih h h}: i' + m h'?' (illf) Cl)Stf>l1;t 'T :,' fit Til. !!) l ll f.' l r a?. u c;e, v.<r a; lm : 5.fato n! t + lt?r o, -!.r.o vi a.:o t c e

?m:nt m.

o s i A 1 $i i e l. j 11

..... ~, , ~ _ _ ~ . ~ -,

Speed

..w... -, s In a wmpetitive world, what really OD) goes on line in the Hrst quarter counts is being first.11 we want to of 1991. The ID will allow our sys-compete, we have to be first out of tem operators to maximize revenues the bhx ks. So we don't wait for and nunituire our operating costs problems - we anticipate themEe w hile nuintaining system reliabdity. sttne to be proaclive, visionary and for our customers.. At NYSEG we know we

• • 'Y " ' " P'"" " U "P P"""" k i" "'"
• .ilh I' ENC U. d"' I'30 NI,SE. U h ""*

constantly try to raise the lur, to look responsible for the amnunt of natural have to be innovative. We '"' imp" ""*"' ^"d "#* 4" k klY gas wr need and'w hen we need.u.. adapung to change. Tlut's a big sluft from the way it was have to work at opportuni-some unhties that rely on mal to m the past when the pipeline was generate electricity saw the 1990 responsible for obtaining and tnms--- ties and be wiHing to take Clean Air Ad Amendments as a tnreat porting natural gas to us. 50 we put Sonle risks. We also know '" ' h d ' '"'" P'"' " '"""' U" ' F""" ' "" ' 8" ' '""H Y " " "" *" '""' "Y ""' " tion depaitment saw opportunnies - (GEMS) on hne in 63 days and under b d h * d" '*i"i"ns and im-budget, atMs gives us better controi, WG have the pOOple, the. prove the rotopetitive posinon of better infonnation and lwiter data to technology and the strat_ . our gnenning facsim openne our natunit gas dicibunon system efficiently. 2 In August 1993 we laid the corner-ogies to stay ahead of the stone f.or the Milkken Clean Coal Our natural gas marketing tetun has I"' " 'd "'"d " ""i" * " " "l *"'" """ comperition, j {. t Not only will this innovathe flue gas program. Ihr the first ume - and l f desulfurization O Gin system meet we're the only tutural gas utihty in 9 j NYSEG's 197) Clean Air Act Amend-ihe (ountry that's doing this -- we're f l ment raluirements through the year putting the pay of our sales and { f 20t)5, but it wdl also lower pnxiuction marketing staf fs at risk. llegmning in -} costs at Milliken Station where we-Jantury 199i, neady all natural gas i will burn theaper roal with a higher marketing depanment employees will. l sulfur content. Innovative financing give up a portion of their luse pay. and $62 million in funding, prinianly Once they reach their goal, they will froin the United States Departmem of have earned that portion at risk and }' l 1:ncrgy, nuke this the least expensive Jwill then have the opportunity to earn { l' l IUD system built for xid rain com-conunissions beyond their salary ht- '[ pliance m the Umted States. To date, the post-IIRC Order 636 wothi,- we ~ ] we're ahead of schedule and on need to gke our sales'representftives s l budget. . the right incentiies to get the t_ight l ~ 1 N . resuhs. in the in(reasingly compelaise wodd y ~ D] resuking from the 1992 National Our Gas ilusiness Unliand ourJ 3 Energy Policy A(t, real-time infonnac (wholly-tiwned subsidiary, NGE; ; tion is necessary to compete in the Unterprise41pe.. luve plath to e(tab-l- wholesale electric nurketplace. Our lish the first' natural gas storage facili-l state-of the-art energy conuul system . ties in existing salt caverns in the 'j. Northeast - that' togetlyer will hold p$Z$lg@g$ 7 ahnmt duee lyillion cubic feet of M rutural gas. Our strategyp.to le able hM*M5U(M to move riatural gas out of the fields e mqx ignW Mg and into storage, and. respond quickly 3 4 Uy 2 Q? klpl & Q 4 m n nww w.w x % M W @ JQTQ, A,k. f,f -9 ts N Mid" ^ 12

1 w he ri < nit t. int < >iners ini d it. ( )r ss t-i r.in inns e it north, south cast < ir u cst II) (llIlcl tilllIlles ()! !.llge etisli >likTs. I w'e intend to be a inaior pkyer in our iegion'.s supply of natural gas w'e also scali/cd flut alter il IW. ()nler 046 natural gas w einld be sokl I as a i..nnn< it htv and n aded on an t'st lulige w litTe Ical tlnte llibirina-tion ss steins w ould be enta al w e det k leti N( il' l~ nit'll)Tlses' su! hK!!, LIT. l~nciN itt ( onld lend sonic expertise - and u ho bener in iurtner w uh tiun the New Yor k.\\len antdc la lunge i NY \\ll'N s. the l urest eneigv ex-( bange ui the w t old \\\\ c has e a ji nnt ientun' u ph M \\ll N to ( reate a t ash tuaiket tr.uhng ss stem b ir iutural gas and pipchne (.ilut its. W hilc w e loi >k l k nw and tii prohung in,in ilus loint I- %Ns"_ l(. s enture. w e'ic alu s exated hir the "'M Aa$

• % h' '

+m : $.'...' - 4 p* nani in's ( onsuiners. w ho w dl beneht -4 4 M"... +e In inI its ( < nnpelins e <. i!n ient les and ik ' .ne hkely to pas less for rutural gas. .,p /[ L ~..; p. 2, f e;.. 9 s,, ..s, x mc ,\\l b ).\\ l.( > w t ILis e t() !le lIlllt is atls e

1. g q

1' * . $,7+. g. ,,, pp . [%$php@gl-f ' J' ' y $ :v ' W.e !us e to u nik at oppi ertunines and he w dbog to take soine nsks w e also h kniin w e ),as e the people, the '{f V [ tet huoliigy and the strategies to sias 4( W .,4... ahe.nl c it t!te ( < unpeut k >n / 'A. _.. Y' d ~'N Ih h a u ang on poi c. s.due. qualuv '~., .ind.pced w e.uc taknig ( h.u ge ol 4 h the Ino ue s ~ jd.'N. Our gas energni manayament system g>vos us up-to the-moment informntion on natural gas pressures ana fiosvs throughout our system. 13

Board of Directors First year elected in parentheses Allen E. Kintigh (1987) Committees of the Board Former President and Chief Operating James A. Carrigg (1983) Officer of the Corporation Chairperson listed first Chairman, President and Chief Executive Binghamton, NY Audit: Officer of the Corporation Binghamton, NY Ben E. Lynch (1987) Plane, Gioia, Keeler, Lynch President Corporate Diversification: Alison P. Casarett (1979) Winchester Optical Company Gioia, Carrigg, Gilmour, Lynch Special Assistant to the President Elmira, NY Cornell University Executive: Ithaca, NY Alton G. Marshall (1971) Carrigg, Gilmour, Kintigh, Marshall, Senior Fellow Newcomb, Stuart Everett A. Gilmour (1980) Nelson A Rockefeller Institute of Former Chairman of the Board and Chief Government Executive Compensation and Succession: Executive Officer Albany, NY The National Bank and Trust Company Gilmour, Casarett, Lynch, Marshall, of Norwich David R Newcomb (1979) Newcomb Norwich, NY Former President and Chief Nominating: Executive Officer Marshall, Casarett, Gilmour, Lynch, Paul L, Gioia (1991) Buffalo Forge Company Newcomb Partner (Manufacturer of Heating, Ventilating LeBoeuf Lamb, Greene & MacRae and Air Conditioning Equipment) Pension: (Attorneys at Law) Buffalo. NY Keeler, Kintigh, Plane, Stuart Albany, NY Public Affairs: Robert A. Plane (1982) John M. Keeler (1989) President Casarett, Gioia, Keeler, Lynch Managing Partner Wells College Mr. Carrigg is an ex officio member Hinman, Howard & Kattell Aurora, NY of the Pension and Public Affairs (Attorneys at Law) committees. Binghamton, NY C. William Stuart (1971) Chairman and Chief Executive Officer C.W. Stuart & Co., Inc. (Interstate Trucking Concern) Newark, NY / James A Carrigg 1 ^ n. n Alinon P. Casarett F

• A. Gilmour Paul L Geoia John M Keeler Allen E. Kintigh 14

- ~ - ~ l Officers Ages and years of service as of Carl E. Johnson (51, 27) Management Changes December 31,1993, in parentheses Vsco President Consumer Services, Communications and Human Resources Charles E. Dickson, Vice President-James A. Carrigg (60,35) Regional Gas Operations, retired Chairman, President and Chief Executive William G. McCann (46,24) February 1,1994. Officer Vice President East Region John I. Fiala, Assistant Vice President-Patricia A. Orzell(51,32) Gerald E. Putman (43,23) Plant Operations, retired February 1, Assistant Secretary Vice Piesident-1994-Jeffrey K. Smith (45,23) Paul Komar, Senior Vice President. Executive Assistant to the Chairman, Sherwood J. Rafferty (46,13) Strategic Growth Business Unit, retired President and Chief Executive Officer Vice President and Treasurer February 1,1994 (Chief Financial Officer) Richard P. Fagan (52,22) John V. Kuti, Assistant Vice President-Senior Vice President Management Vincent W. Rider (62,35) Transmission and Distribution Services Business Unit Vice President Electric Generation Operations, retired February 1,1994. Russell Fleming, Jr. (55, 3) Everett A. Robinson (50,20) James M. Niefer, Assistant Secretary, Senior Vice President-Gas Business Unit Vice President and Controller retired February 1,1994. Jack H Roskoz (55,31) Richard W. Page, Vice President-Human Senior Vice President-Irene M. Stillings (54,17) Resources, retired February 1,1994. Electric Business Unit Vice President Electnc Marketing Robert A. Paglia, Vice President-Gas John J. Bodkin (48,25) Ralph R. Tedesco (40,15) Marketing and Sales, retired February 1, Vice President-Vice President-Strategic 1994-Electric Transmission and Distribution Growth Business Unit John D. Scott, Vice President-Economics, Daniel W. Farley (38,12) Dennis R. Urgento (46,22) retired September 1,1993. Vice President and Secretary Vice President-West Region Michael J. Turkovic, Vice President. Denis E. Wickham (44,21) Purchasing and Administration, retired Vice President Electric Resource Planning May 1,1993. Roy Hogben (54,3S) The Board of Directors elected Ralph R. Assistant Controller Tedesco, Vice President-Strategic Growth Business Unit. Jeffrey K. Smith, Assistant Robert T Pochily (44,22) to the Senior Vice President-Electric Assistant Treasurer Business Unit, will succeed Mr. Tedesco 1 as Executive Assistant to the Chairman, Gary J. Turton (46,21) President and Chief Executive Officer. Assistant Controller The Board of Directors elected Dennis R. Urgento, Vice President-West Region. Mr. Urgento was previously Division Manager-Binghamton. Y y y n ~r Den E Lynch Alton G Marshall David R. Newcomb Robert A. Plane C. Wimam Stuart 15

Year in Review February August November We priced $100 million ol hop io-The Clean Coal Demonstration projett To help make ont elet trie prices more year. tax-exempt pollunon mntrol at Thlhken Stanon offitially got under competilne, we bled uith the P5C for honds The pnweeds will be used for way. Installation of an advan(ed llue a rate ilut will allow us to negotiate the redemption at %o million of IN gas desulfuneation system at the plant w ah large industrul customers chgible and5in nullion of 12 SN ux-exempt is the mrnerstone of our ef fons to to icten e pow er inim the New Yoik honds in IW L Customer sasings will comply u nh the Clean Air Act Power Authority. We also filed new he R3 nullion anntully. Several Amendments of 1990. and revised rates in an effort to sell other hond issues and preferred stot k more of our excess generation and h laundad our MAXIMI 51 R clectric rehnancings later in the scar ako boo 4 hainm W emplopem in h>w cred our ows and abled to ntukehng saks ]migmut which wiH our service teiritory. inucaw pnJiuhuny and impnne our customer savmgs. mmpt1itneness The prograin focuses As part of our elfon to reduce April on emnomically benefit ial and opeiating costs, we announced a We began testing one of the firs of environmenully sound elettrotet h-unemployee reduttion in our work 50 Dodge Car.n an electnc vehides nologies for urgeted businewes. lorce through a one-time mluntary that the Chrysler Corporauon cady retirement opportunity program dehvered to unhoes nahonwide. " PPW" ""fd" M " '* and a subwquent imolunury willement agreement. u mnw program. Counting May pres ious attrition, the total work force September The Ibard of Directors authoriecd an reduction is WA or 10 percent. We annoonted plans to develop two im estment in a nonregulated mm-natural gas storage proje(ts m exisung December pam, EnerSoft - of w hith our suh. salt c.n ems near Watkins Glen, one sidiary, NGE I nteiprises. Inc., is the ikcause of the whole. sale power glut w nh our w holly-ow ned subsidury. in the Northeast. wt announced that maionty ow ner - to deselop and NGE Enterpnses, Inc. m.u ket an integrated sof tware pat k. one of two generaong unas at both age to help the energy indoso3 sharc We re(cised the New York Sure Goudey and Greemdge stations infornution on producoon, transpor-dovemor's Award for Energy Excel- "'""M hC P* ""I""M*""C" standby in the spring of 1991. tanon and supply of natural gas. lent e for our Tires-to-l:ncrgy program at Jennison Station. In 6 % nWe wh d 9 em NYSEG's amended Dividend I mployee Allen Peterson was The Psc approsed our petitions to Mnmownt and Mod Punhaw Man awarded the hrst l' S patent under evahhsh a specui natural gas mohng enmuni runw than Mot new our Po!it y on innovarion program. rate - about 50 percent less than the cmrent rate - and to deselop a P3"I'iPd"N U U"""I *h P"I ""I" P The patent is for the Sedmut'" a nude by partkipants inaeased by deva e ilut protects stre.uns from poolmg service for qualifying trans-mow than % inillion f rom the same danuge due to sediments stuted up ponation gas mstomers to help penod in Om poor p Es pbn, dw dunng mnaruction reduce their energy costs first of its kind for n combination July October utiht) in our sure, allows New York Employee Mn hael Easmun was %e New York Mercantile 1 xt hange Sute residents to purchase shares of awarded a U S patent for his irn en-and EnerSof t began a strategic common sowk dhettly from the lion that controls the flow of tutural alhance to develop an infonnation Company. gas from transmission company supertughway to provide the natural pipchnes to distnbution utility gas induary with a single system for pipchnes and that clunnutes monnoring and trading natural gas enuronmentally harmful methane and pipeline capacuy in the North etnisuons Amern an nurket. The Bo.ird < d I) net t< >ts raised the quarterly common stock dnidend one cent io 55 cents per share. 16

Financial Section 1 Management's Discussion & Analysis of Financial Condition I and Results of Operations 18 Consolidated Balance Sheets 28 l Consolidated Statements of income 30 Consolidated Statements of Cash Flows 31 l Consolidated Statements of Changes in Common Stock Equity 32 Notes to Consolidated Financial Statements 33 Report of Management 46 Report of independent Accountants 46 Selected Financial Data 47 Glossary 47 Financial and Operating Statistics 48 .'= Financial Statistics 49 Electric Sales Statistics 50 i Electric Generation Statistics 51 Natural Gas Sales Statistics 52 l L 17

Management's Discussion and Analysis of Financial Condition and Results of Operations P4.e-maw 4 se69 m Results of Operations hom 11.% clTectis e through July Pr>l to 11.2"6 ell (cthe Ihn > ugh July PF)3. and then to 19.H"o beginning in 1993 1992 August PM.t over over 1992 1991 in UF12. nunings per slure wcre 1993 1992 1991 Change Change Idu'rably atfected by the gnmth in electik and natural gas retail sales (Thousands, eucept Per Share Amounts) gg .d to inMM in red Operating revenues $1,800,149 $1,691,689 $1,555,815 6% 9% I mme cow m mhen ad dw Earnings available for I Apr i FN1 acquisition of CNY. The common stock $145.390 $162,973 $148,313 (11%) 10 % C,ompa ny.s ef forts to control costs l Average shares M coEnbmed m die incoe in outstanding 69,990 67,972 62,906 3% 8% j P)92 earnings per slure. Earnings per share $2.08 $2.40 $2.36 (13%) 2% Ascrage shares outstanding were Dividends per share $2.18 S2,14 S2.10 2% 2% ~0 nWhon in Un3. M milhon s 1991 and 63 million in 1991. Ascrage in 1993. operating res ennes were reduced by 2; cents per slure slures outstanding increased mt icased ' liH nulhon. or m as a result of a corporate testruuur-y,in P)93 coinpared to 1992 due t omiured n i UF11 lhis increase is ing that will reorgani/e the way the to the issuant e of 1.2 million slures prinunty beamse of incicases in Company deln ers sen it es to its elec-of (ommon suit k through the Divi-clet un and natural gas rates Out tric and natural gas customers begin. dend Heim estment and hk Pur-ho ame ettectne in August Pr>2 ning in Man h PF) L This restrut turing (base PLm iDRPL In 1992. as erage and s ptember IW3. w his h h daled resuhed in a w oik force reduction shares outMandmg increased SN e shi mloon. nd the.unnunts billed throughout the organi/ation of ap. because of a pubhe offenng of to t osh > ncis for h,br i osts of prosinutely onO. the clunination of 9 million sh.nes of common stot k in non unht) generahon I Nil a pow a t ustomer w alk-in sen ices at 28 saiel_ March 1992, and the issuante of and n. aural gas totahng al milhon hte hicahons, and the (losing of up to i million shares of common stock In 1942. oper. ding resenues rose 10 electne and n, tural gas operations through the DRP. s Ho unthon. or 9'.. t omp.ned to faohties Maten ide. This is one of ses-Interest Expense IW1 The unnunts billed to cus-eral actions the Compi ny lus taken Inn 4 m m Nowhmde romers for higher msts of NI G to reduce f uture msts, enlunce elk g

g. Mb hI o d pow er ol s 11 milhon, and mercases t icncies in sen he to its t ustomers.

Ne d duh mnedw in electnt and tutoral gas rates etfer, and be competitive in the rapidly dexd W W ndm or MA in tne in lehruai) P191 and Augu t clungmg utility industry Oce Com-1993 md W nWhom m W in 1991 lool w ha h totaled s tu nulhon. w cre petitise Londitionst A sivmonth InuM on lonenu de duad the prmury icasons for this increase cledric rate moratorium, w hk b in W md 1992 mh dw m h-In adthiion. higher cleuric and su% began in rebnur) 1992, linuted Hn nig d e m M mu m tal gas iet.ul sales due to an innease IW2 earnings per slure by 24 cents b cm debt at low er interest rates. m ictail coste.mers. colder w cathei. laciudmg the cifect of these non-d bm mn M rA s on ik Ww and the Apol 1901 acquisinon oi recurnng nems. earnings per share .s WW du M 1993 md . Columbia Gas of New York. In( decreased 31 cents in PN3 comiured N W A dead RNY) helped boost operating to 1991 and increased 28 cents in dm to a ndem in dw innN m-iesenues by MI nullism in PN2 Pf)2 t ompared to PM). g , g 1:ainmgs per slure decreased 32 lhe 31 cent 1993 decrease in earn-g,g,; g.ggy tents oi !? s in Flo3 (ompared to ings per sluie was prinunty due lo lool, winic c.nnings per slure in-lower electric retail sales prior to i reased 4 t ents, or &, in P192 t om. the ef fectne date of the Company's pared to UN1. Both IW3 and 1992 modified revenue decoupling mecha-had non recurnng items dut lowered nism bee Regulaton Matters) and earnings per share. I anungs in l943 lower tlun anticipated naturM gas sales, both resuhing from the sluggish economy in the Company's sen ice terntory. Also, earnings per share decreased due to (hanges in the Comtunys allowed return on eqmty 18

Operating Results by Business Unit pensions of 5-' million. In addition, electnc operating expenses increawd 1993 1992 521 million due to the corporate wstmduring. Thew in(me w enf over over 1992 1991 paniaHy offset by a decreaw of $17 Electric 1993 1992 1991 Change Change million in fuel used in electric gener-ation. the resuk of low er generanon (Thout andi) P "I< '"" b Retail sales kilowatt-

• "" I" I" hours (kwh) 13,088,175 13,294,466 13,107,115 (2%)

1% e nounw uxes tW euh of lowa Operating revenues $1,527,362 S1,451,525 S1,367,936 5% 6% P* ~ "

• I "k I"'"*"'

Operating expenses $1,250,000 $1,146,619 $1,056,969 9% 8% in IW2. eledricity puuhased inacased primanly because of the i ledric retad sales des reased 2% increase reflects the increases in elec-amounts billed to customers for in IW3 iompared to IW2 as a resuh tric rates that hwame'cifectne Febru-higher NI:G costs, which totaled 511 of the sluggish economy in the Com-arv IWI and August IW2 and that million. Other operating expenses in-panyi senite territon and in spite of increawd resenues by 535 nullion ocased primarily because of higher a 1% increase of customers. In IW2. The retenue innease reDects higher denund-side management (IND eledoc retail sales maeased 1% (one NI!G onts of 5 H million and an program costs of 56 million. lederal p.ned to IW1 nuinly due to cokler mucase in certain New York Sute income uses increased 5 i milhon te-7 but mi ne nonnal w eather and an in-gross ret eipts taxes of $12 million. sulting hom higher pre-tax book in-ucase in customers. both of u hit h were billed to cus-come. Other tues increased priourily L The prinurt cauw of the Ch tomers Also. inucased el tric ret.nl because of an increase in ceruin million, or Y,. inucase in elednc sales. due to mlder w eathei md an New Yoik state gross receipts uses operanng ret enues m IW3 u as the in rease in customers. boosted res e-and property taxes of 516 million. mucase in rates cifectn e August nues by 91 million. 't hese inacases were paniall) off3et IW2 and september PN3. w hit h I lettric operating expenses in. by a decreaw of 512 miUion in fuel accounted for M3 milhon of the acawd Sin 3 million. or %. in IW3 used in electnc generation, the resuh int rease Also contributing to this compared to IW2, and 590 nullion, of lower generation and a decrease in increaw w cre higher cosis of Nt:G or 8%,. in IW2 compared to IW1. the pnce of coal and a decrease in j power of $28 nullion, wlut h w em in P?>3, cleari( ny purt based Irom nuintenance expense of 5' million. bdied to cosiomers 11edric opeutinM NI~Gs inc reawd 507 milhon. Other revenues increased 5x 6 nulho. or operating expenws inewased prinur-W m N)2 compared to F)91. Ilus ily due to.m increase in postrenre-1 ment bencht msts other than 1993 '1992 colder but more nonnal weather. over over Natural gas operatmg revenues 1992 1991 rose s33 million. or 11%, in 1W3 Natural Gas 1993 1992 1991 Change Change compared to P)92. and $s2 million. (Thousamis) or 28%. in lW2 compared to lWl. In Dehveries - IW3. the increase was prinunty due dekatherrns (dth) 58,046 56,366 42,404 3% 33 % to higher costs of natural gas of 523 Retad sales - dth 39,345 39,357 29,874 32 % milhon. w hi(h were billed to cus-Operating revenues $272,787 S240,164 $187,879 14 % 28% tomers. and the increaws in rates in Operating expenses $249,493 S221,307 $177,751 13 % 25% August 1992 and september IW3 w hich totaksi 58 nullion. The IW2 Natural gas deln nies inucased inc, case in the nmnber of transpona-resenue increae are principally the 3% in IW3 6 ompared to IW2 w hile lion t ustomers The IW2 increases in resuh of the scquisition of CNY, natural gas ruad sdes wete ILt. In deliseries as w ell as wuil sales. are w hit h added 535 mdhon. and the P>nl. natural gas delivenes and reuil largely because of the April IW1 inacases in rates e0~ective February sales increased 33 % and 32 5. wspec-acquisrtion of CNY Excluding CNY. lW1 and August IW2 amounting to th cly, compared to IW1 The in-tutural gas retail sales inneased H". 51 million. Also, the recovery of an (tease in dehsaies in IW3 wtleds an in IW2. primarily because of the increaw in certain New York State 19

gioss receipts tnes w hich w ere all factors ilui c ontinue to place in-The P'sC currently has a generic billed io t usnimers. boosted 19W creased pressure on electric and natu-pniccethng to Mudy the bro.ul subject resenues by S2 milhon. ral gas prices. of flexible, competitive rates, and will Namral gas operanng expenses in-The Energy Policy Act. enacted in establish guidehnes for the Company creased SM nulhon, or 1%, m IW3 < >ctober 1991 is expected to resuh in and other New York State utilities compared to PN2. The increase in mar n clunges to the utihtv industry. dunng 199 t Also in late 1993, the rutural gas purchased was prinunty Certain pros iuons of the Energy Pol-PSC instituted a pniceeding to due to higher costs of natural gas icy Act amended the Pubiic Utihty address issues associated with the amounting to s12 nulhon. I ederal lloiding Company Act of 193; restructuring of the emerging compet-un ome ines int reased 53 nullvin t PI'llCM These amendments en-itis e natural gas nurket. The PSC in-1 due to higher pre tax book income courage greater competition in the tends to im estigate sen-ices prosided N.uural gas operating expenses supply nutket by estabhshing a new by New 5.uk State gas utilities after f int reced % nullion due to the category of w holesale electric genera-FERC Order 636 by the 199i-lW5 l mrporate restructonng. tors ilut are exempt fnno PUIICA heanng season. Natural gas operating expenses in-regulanon The 1:ncrg) PoluT Act in Nosember lW3, the Company I treased 514 nullion, or 2%, in Iw2 also enables the ITHC to order uhb filed w ith the P'sC an addnional llex-compared to IW1. Natural gas pur-ines lo proside open access lo trans-ible, negotiable rate tanf f to address [ (lused increased S31 million due to mission systems lor wiu >lesale opponunitie3 for new load The pro-w Mcrease in the s o,ume of futural transactions. expanding opportunities posed tariff is for large additions to gas puri based Tius mlume mcicase for utihties.nni NI Us to enter new load (at least 500 kilowatts) for new w e pnmanly due in the CNY.hqui-and existing w holesale market.s or existing industrial and some com-sitii.n. Federal mtome taxes increased These des elopments st ne to under-mercial customers. The tariff will $ a nulhon due to Inglier pre-tax book smre the mucasingly compentire assist the Company in attracting new mmme ( )ther ta xes m( re. bed pn-em ironment f or unhties. customers u hose location or expan-nurity due to an inctede of 53 mil-The Company % fiseScar strategic sion decisions are influenced by elec-hon in certain hw York state gross pLm is designed to atkiress the tricity costs. Snuller customers will receipts taxes and sI mdhon m prop-compentise, rajudly clunging unlity be assisted by a concurrent proposal eny taxes mdustn. Our objectis e is to remain to int rease our existmg economic compeutise in our core busmesses in des clopment incentives by one cent the f ace of increased compention. per kilowatt hour. The Company has Liquidity and Capital one of the key strategies to meet proposed and will continue to pns Resources '"*Pc"""" " t" "npros e cuvomer pose revisions or additional tariffs value by hemming a low-cost to respond to the opportunities or Corapetitive Conditions provider of energy senices in the risks that deselop in our (hanging The utihty mdastry is rapidly i hang. Nort hea st. mdustry. mg and f acing an moeasingly A major t hallenge to the Com-A major challenge to the Com-ct unpehtis e em ironment. la tors pany% 1letinc llusiness t' nit is to re-pany% Gas llusiness Unit is FERC Or-cont ibuting to this competirne emi. tain and grow is induqrial base. The der 636, w hk h became ef fectis e in runment are: the National incrgy Pol. mmirtitive energy supply options November 1W3, and requires inter-in & t of IW2 (Energy Pohey & t t currently available to our indusuul state natural gas pipeline companies w hk h pros kles open actew at the customers include self generation. to offer cuyomers unbundled or w holesale level to electric transmis. shifting pnxtuction to plants in other separate services equivalent to their sion sen a c. and the 1 ederal Energy hxations, or relocation I)oring PM3, fonner sales service. Wah the un-Regulatory Commission OTRC) ()nier the Company receised P5C approsal bundling of senices, prinury respon-h3n. w hk h sigmfi aml> allects the foi a flexible, negotiable rate taritt sibihty for rehable natural gas supply rutural gas indust ry in adhlion, the f or some of its high use industnal will shift from interstate pipeline C(impanyi res[X 5ibe u) the cumtimic clbh nHCb. I)h(1)unts neMt 'liaIed In companies to bk'ai disIri!)otkon com-pressures on us elet tric industrul and agreemens under this tanti are not panics, such as the Company. This other large use i ustomers, lugh pur-expected to hae a material ettect on should result in increased direct ac-duse tosts ol NI Os. rismg health the Company's PMi carnings l'w o cess to low cost natur.d gas supplies care costs mcreasing taxes, weak agreements hme been negotiated by local disoihulion companies and - et onomk 1.nihtions. consen ation w hic h chminated threats i f self-end users One goal of FERC Order progi.uns, a l t omplun(c w ab em i-generanon and relot anon. 636 is to proside equitable access to ronmental lo s and regulanons are interstate pipchne capacity. FERC Or-der 636 will subsuntially restructure the interstate natural gas market and intensify (onipetition within the autu-ral gas industry FERC Order 636 will 20

allow the Company subiccr to PSC . Reduce operating and nuinte-The Company lus also recently nego-approval, to restructure rates and nance e.xpenses by fn e pert ent tuted amenthnents with two Nt!Gs pros ide imilliple servic e options to in 199 e and ag.un in IM Hy w hereby the Company nuy direct the its costomers ' 1W;. Ihis will save alxiut $ in NtG to redute their output or shut In.luly 1993, tenain interstate milhon annually.1)unng 1903 down for limned periods each year. pipchnes sening the Company began the Company reduced us work During these periods. Iow er-cost gen-nopicmenung restructured sen it es in lorce by 2(M through attrition. cration will replace the Nt'G energy t omphance with iI RC ()rder Mn In adthlion. as part of the OMI and resuh in additional customer sav-The renoming pipchnes impicmenied reduction, the Company's work mgs. The Company is negotuting with restnictured sen ices by w ember force was lunher reduced by other NI Us for similar amendments. lW3. As a result of these restructur-about 600 through an early retire-The Company has on line and un-mg clunges. pipelines lus e mt uned ment opporiumty program and der contract 3M megawatts t mw) of and will tuntinue to incur transition involuntarv ses erance. NIU power. In adthiion, another 2 W costs 't hese tr.msdion tosts int lude . Nreamhne our field organi/ation mw of NtB power is under construc-those associated with sestructuring to ehminate walk-in customer tion. We are required to make pay-existing tutoral gas supply contract-sercice at 28 locations and to ments under these contracts only for the unrecm cred natural gas cost tlut close up to 10 elet tric and the p mer we receive. During 1W3. would otherw ne love been hillabic tutural gas operations facilities lW2. and IWL the Company pur-to pipeline t usiomets under prew statewide (lused approxinutely $138 million, onsly existing ndes costs of assets . Place tu o generating umts on El nullion. and $3h million, respec~ needed to unplement the order..md long-tenu cold standby. tively, of NIE power. We estimate stramled im estment costs ITRC Or- . Continue to redut e NI U t osts. that we will purchase appnwimately der M6.dlow s pipchnes to res os er ()ur prnious N1U t ontract 52% mdlion, $291 million, and $335 + all prudend) incuned costs hom their ternunations and icnegotianons mdlion of NIU power for the > cars customers The t ompm3 's liabihty w ill sm e customers more than IW i, lW;. and 1996, respectis ely. for transinon costs w ill be lused on 51 bilhon over the tenns of the In(reases in NIU power pur(hase the pipelines' hhngs with ITRC to cont ract s. costs are expected to be a significant recos er transition costs ()nly a few . Connnue to reduce capdal costs coninhutor to price increases os er of those filmgs hm e been made. ' sinc e 19SS w e hm e ichnanted the nest three years. The Comp.m> reconled an estun.ded os er sl A billion in securities, and Diversification liabihn for transition cosis of approv reduced annual interest expense inutelh 529 million. The Company by more tiun $% milhon. UiVCf'il'C"II"" " iII IP dF d" I*P"flJ"I also tecorded a defened asset for flui 'lhe ( ost of the wrporate restruc-nk in the Companyi future While amount since it is cunently ret over-turiou was $26 million and was a the strength of the Company's core N# "*d ing Iransliton ci nts In )m its cush amcIs one ime thalte against the Com-through its gas adjusunent t lause and pany's P)93 ebmings. t he restiuctor, nuins our focus, and wlule we will hebes es ilut such msts a di mntmue ing reduced 1993 cainings auilable ""I '"" ' P" '"" I C"'"P""FA i to be recm erable bom os t ustamen f or common stoc k by approsinutely hnam ul integrity, we are actively The Company lus descloped a $112 milhon or 25 cents per sluref maluating a number of corporate de-more aggrewn e and an elerated set lotluded m this amount are si.t2 Motunent opponumth for imest-ment to p augment future carnings of str.negies m response to the m-million for a voluntarv early retite-creased dullenges of competition ment program, s3.2 nullion' for an and dhi&nd gv wth. In April 1492, w hk h are necewan to achine imoluntari severance program, and the PSC issued n order allowing the the oh cciwcs outhned in the Com-S 8 nullion for the chminanon and C"'" luny to in est up to % of its i p.my s th eScar strateun plan 'l he dosing of operations facihties. The mnsohdued capitahnuion tappron following repmsent str.aegies being Company expects to reroup the one, imately 5175 million at December 31, 1993) in one or more subsidiaries flut nnplemented time durge f rom lower OMI costs l . Hedute forecasted p>9 capital in approxinutely one year. nuy engage or insest in energy-re-lated or environmental senices busi-expendoures hs one third, oi ap-h part of our ef fort to meet corn-proxinutels $ltio nuHion \\dih-petition and minimi/e future prit e in-nms and prodde related services. tiosul ieductions wdl be made in ocases associated with uneconomical IW; and p>9n power purchases Irom NL Us. the l Company negotiated the tenmnation sif Iw4i < ogeneralion projects This ef-l 1r!, ahillg Willt Ille tentlin itit)n t d NI U contracts due to developers latlures to meet conIratI obligati<)nN will sas e om customers nearly sl bil-hon os er the tenns of the mntracts 21

i -. ~.. In Rn NR NGE Enterptises, Inc trunage the Company's capital suuc-The CompanyN disidend payout WGD. a w holly-ow ned subsidury of f ore 6ce Ins estmg Activines-esti-ratio lus been giadiully rising oser the Company, formed a oimputer m.ucti soun es and uses of hmds f or the past ses er.d years. primarily as a j softw.nc comp.m) 1:nerSof t Corp ira-109 i-UN result of declinmg earnings. These lion (Ener%ft L to prodace and nut-1he ISC adopted a new. mnos a-weak carnings put ackhtional pres-ket sof tw are appheations for natural lite appnu( h m Du embei 1o93 sure on an already high dnidend i gas utihties in the post FERC Order w hen it issued an order to the Com~ pap >ut ratio at a time w hen go ming M6 ensironment. This scpresents jun) tlut pnn ides for adtmced (ompetition dictates tlut we consider NGEs initul dn ersified im estment. approval for financings during the a more moderate uhvidend polhy. We in October N93. I:ner%ft began a O >mp.inCs three-year raic settlement. must signilicantly improve earnings if strattwc alhante u nh the New Yoik t h:I order includes authori/auon for w e are to mntinue es en modest an-Mere.mtile Eulunge to des eb ip an ri.muhngs ol first mortgage innds. nual dit idend increases. infomution superhighwa> ttut uill preferred stot k. and tavexempt pob 't he Company sold $25 million of po n ide the n.nural gas mdustry w nh lunon control notes. issuante of unn-o.30% piciened stoc k, MO nullion of a smgle system for miinironng and mon stot k through the 1)n idetal Ad stable Rate Series 11 preferred trading natural gas and pipeline Reinsestment and Not k Purcluse stm k. and S25 milhon of lio% pre-capa ny in the North Ame ican Plan (l >RP L and issuant es of other ferred stoc k in 1)etember 199.t The market. NGE irn ested appnninutely securities e required. With thn order. net pniceeds w ere used to redeem W millnin m Em Woft timmgh the Company lus the deuluht) 10 525 milhon of H.smo preferred stock I'ebru.ny 1991 achies e its Imancial g< uls of furthei and 5 6 nullion of Adjustable lute liie Comp.my and M;I: plan to redm in hnant ing cosh and impn a - Series A prefened stock in }muarv dewtop tw o natural g n storage prof ing its financul health as nurket 190 n.. uni 525 million of M iHN pre-ech one of the pri sin b. w hn b will condnions allow. tened stock in Fehnury 199 L Those be segulatal in the 1%. is espetted iclundmgs will s.ne approximately to t i nst approxinutely 4 i milhon and Capital Structure 51 X mdhon annually. Af ter those w di be used to supplement the u>nd ref undmgs, the capital structure UQ ]d ' "% hM%9 will be i%HN long-term debt,11% i pany s n.nural ga supply G m-( souction of this projet t is scheduled pref erred stoc k. and 6 in, mmmon to begin m 190 i and n is espet ted to Y M stock equity. Jh in Fehnury UNA we redeemed. at h %g be opeutmg f or the Pr& loon he.u-a dh par. through a sinking f urni pros nion p f j. ina season 1 he other project. w hit h [sy b: M p41 in our moitgage. the renuming 5215 w dl be regulated by the i1:RC, n an l(1, a ; nulhon of 10 i HN 5 cries hrst mort-equal partnership betw een NGL and j* j j g,, p gage bonds due 2018. ANR storage. Int., and n espet ted to < inst appa mmuich 5 ii nulhon in to-M8 ido fi ;40 0. 42 s l 3 42.e, In lehnury D>oi the Company z tal t he entue t apa ny of this projec t .J I j.l[ priced 4100 million of 0 05"o tav w di be m.u keted to Im al drinbunon Sy.g( Ng '.;3 exempt pollution t ontrol bonds due 79 g c ompanies md NL Gs, as w ell as 2nj i. Proceeds f rom the sale, which n u rketers, prodot ers, and end users Q tong term Debt will be deln cred in April 199 4, will of natmai gas t r instructo >n iil thi'

• # # F"O"

,~ ! Pretened stock pn qcci is st heduled to begm m PM %n million of 12"s pollution control and it is expected to be ciperatmg foi Common Stock EquitV bonds duc 2011, and 510 million of the 1990- PC heating season. 11.W polluuon control bonds due fhe a immon stock equn) r.nio rc~ 20R The rebodmg of dm bonds Financing Activities mamed stable donng 1993. lwoance in Um H sme hpnninutely R3 1 he Company behes es tlut numtain-of slures under the I)RP w as of fset nuHion annadly in interest costs. ing a ingh degree of financul integ. by the iwtunce of sino nulhon of In Apnl 1993, the Company sold riiv and lleubtht) n cntical to sut cess preferred slot k and Cu million of vio million of 155% 5eries first mort-in an mt reasingly mmpeutn e em F tavexempt pollution mntrol notes m gage bonds duc 2023. Niet pniceca rooment. We mtend in build iin the 1)ccember 1993. We receis ed 538 i rn yn gg. sale w ere used in conner-hoant i d irapa n ements reabeed os er million f rom the nsu.un e t il 1.2 nub non nidi the redemption of 5;0 mib the just,escral years uith a goal of hon sh.ucs of conunon stot k through lion of the 91 o senes due 2016. .h hics n g a ;"% ionunon equny ra-the I)RP The reNndmg of dose bona wiH no, Net m< me> needs.nc expected Conunon stock dis alena paid in me prosutely Mmono annadly l to be m.nmul and cuew cash gener-1903 mc reased W oser 1992 reHect~ in interes mb. l ated hom reduced mostrucuon ev iny the m< rene in conunon stock In hdy F)91 the Cogny mld pent ha n es w dl be used to f urther oubtandmg md an nu rcee m the W hdhon of '. M 5enes liN l dn alend pakl from sll i to s11H nugaye boe due 2023 M t pn-persluic 22

-_=. _ i i i eceds from the sale were used in lo i chnur) 199 L V1; nulluin of industry, int hahng the Cennpany. omnection with the redemption of tavesempt pollutnin oinhol notes llowes er, the Comp. mis ratings (100 million of the (N Senes due were issued by a governmental an. w ere not dunged. 20l' The refundmg of tlnsse twinds llu >rity on helulf of the Comp.my. will s.ne.ippiounutely W9p>n The notes w ill h.n c sn eral interest Investing Activities ) annually in interest cosis. rate options and h.n c an initial raic lhe Company 1s Pr0 capual expemh. i tows for its core de(tric and natural in Nos ember Um. the Company ol 2#, through Apnl li 199 L Pro. redeemed MO nulhon of the H 5 HMr (ceds from the sale will be used to M3' I*'i"C""' I'Liled. a ppr osinutely Nenes hrst mortgage hoods due iedeem 531; mtlhon of anmul ad 52 6 nulhon. Alost of the espendi. '" "CIC I"r t he estension of 19 o. at a premunn. Proc eeds for the justable rate pollution contnil notes. redemption w cre po n ided by a hor. duc 2011 in March tw1. wipe and for improsements at - n ew mg under the Comiun)N revok - The Company uses interim finano emung hnilnin ing urtht agreement 1he ref utuhng ing in the funn of sluin term un-cil those luind, w ill sace appiou secured niste.s. usu. illy connneraal Capital Expenditures murely $2 millon annually in interest paper. to fmance cenain refundmgs Milions of Dollars) cost s. and consinaction espendnures and N m 2n in De(ember 1991 ro nullion of hir other airporate purposes. thereby nues, due 20M w ere issued in a amounts of long term fm.m< ings. ((h m SW t wesempi pollunon o introl piosidmg 11csihihty in the timing aml i a y pfS{[l r .[MN@d gosemmenul authontv on behalf ot There was MO.2 nullion of commer-h 4%} the Comp.mv. Pnx cals f rom the sale (ial paper outstantling at licccmber ? 3 g gh(qgg w ill he used to fin.am e a ponion of 31.1991 at a weighted as er. ige I D. m@g: p $ ihe costs mcuned in the mostrm tion inteiest rate of 3 0 'I he weighted q? ayp y i 8M l of ceruin solul waste dnposal and .n crage interest rate during P>93 &J h;Is ;;; a other rel.ned lauhues.H Ihc ( om-w as 3 i' Q 1 panyi \\hlhken (icner;uing statu en The Comjunv alu s has a in ohing 89 90 '91 '92 '93 '94 '95 '96 { The Compam rnlured us embol-credit agreement u nh ienam banks gg 3 p,,,,, J ~ th d cost of long term debt to Y at flut pu nides for borrowing up to ] the end of 1994 f rom 9 2". m losR sluo milhou to luh 31. PF The L.apiul expendoures for 199 blu06 .t he Ci >mp.my has refin nu ed moie Comium had an outsundmg Mn liase lWen sightlicantly reduced f.r( un dun 51. 3 Inllion m long term debt nulhon loan under this agreement at previously. f.orecasted les els..This rep-stru e 19m. and ieduced annual inter. I )c( ember 31.1991.o.m mtesest rate resents one of nuny actions the Com-est expense by more t han s,,_ nul-of -i om pam is taking to address competition lion. I nless iniewst rates lall f unher, in, lone 1991 the Company's hrst 4 (see Compeink e L,ondiHons) (,.apdal lu tu n er, it w ill he dillk uit a s signih.- moituage luinds and unsecured poh expenddures for 199 b1996 will be Gintly unprose from the 2 % In el luhon (ontn,l notes w ere upgraded primarils, for extension of sen ice' All opponunihes conhnue to be pur-by Sundard & 15ior s t MP L.l.he in-net essar) impros ements at cu. ting s sued aggressivel). s eshnent rating agency stated that the higher f atings refl'ect expet ted contin-laahties, and u)mpliJIRc With the l lcan Air.kl Ainendments (if 1990 Embedded Cost of Long-term Debt iyed unpnnenynts ni the (funpanp (See Fm in>nmenul.Mauerst We bruncul condihon as a result of the forecast that our ( urrent reserve nur. m-m C.ompany s threen e.ir rate seulement. m m gin, coupled uith more etht lent use m. 0y m u hit h was pendmg at the time of the p w td enngy We Gmwrnwm pnu i,t Q 5 p3 53,,n, upgrade. aggressne mst motnils. 9 n aq. W e,: grams) and generation f. rom NI '(,s. 3 7: $- .md hmiled new monev needs MP J will climuule the need for addin.onal W d .L a m..e W $e v# also noted that icguhuon.idiosanent s s generahng capatily until aber the

v p

- 3 mecluntsnis MK ll as elechic rn enue pW 3 year 2001 M y ,' s ?? > deu puphng Jnd n.itur.il gas weatltel %EN rd 1 Mz' As p.ut of our ellon to reduce ) W nonnalization. should add suhih.n c p j F wsts. one of tw o gener.ning units at i Y a 4 to caminns. ~ na r k }j =

• J.

Oe cat h lif (Hit (.H audey aild (,electudge & J h ? e M wj,a C... in ()ctober 1991 MP c ompleied r y (,senelating htatu ms uill lC plat.ed tin its wsiew of the ll N im estor-ow ned w m9 90 91 92 93 long.tenn cold standby..These actions unbly industry and com inded that. are being uken because the abun-more strinnent hn.unial heia hnuiks In l. hrtury 109 L w e redeemed, dante of power in the N. nheast lus e o w cie.ipproprote f or electric utilities al par, through a sinking f und pu n i-dm en down w holesale prices. Thesc to -counter inacased mmpennon.md uon in i.or mortgage. 52 5 milhon of units will continue to be utih./cd to inount'ng Ilusiness risk. As a wsuh. it i 8-m Mm, Series brst imiitgage lxntds pnn ide elettrical system sul)pa wl. rnisett the rating ouilook dow nward due Ni, f or about one ilard of the utility 23

.~, _ -..

.~..

The followmg table pmvides infornution on the Comiumis estimated soon es I and uses of funds for 199+1% This forecast is subjc(t to periothe review and resision, and attual construction costs may vary because of reused load i estinutes, imposition of addition d regulatory requirements, and the availabihty and cost of capital. l 1994 1995 19 % Total i IMilhons) Sources of funds Internal funds $254 S265 $269 $788 Long term financing Debt and stock proceeds 413 141 80 634 Debt proceeds held in trust 34 8 42 Net financing proceeds 447 149 80 676 increase (decrease) in short-term debt (50) (50) Decrease (increase) in temporary cash investments 89 (69)' (52) (32) Total $740 $345 $297 $1,382 Uses of funds Construction Cash expenditures $2'.,2 S193 $193 S588 AFDC 8 7 7 22 Total construction 210 200 200 610 Retirement of secunties and sinking fund obhgations 501 108 63 672 Working capital and deferrals 29 37 34 100 Total S740 $345 $297 $1,382 As show n in the preceding table, intenul sources of f unds represent 12% of construction expenduures for 199' 1996. i Conservation Programs through our I)91 programs. The ine The Company lus implemented a piementation of these programs cost number of demand-side management s m million.in 1993 and w ill cost ap-(IN\\l) programs As a result of our proximately iln million in 199 4 with litree-year rate sellicillent agreement estiinated cusliniter savings (if l }3 bec Itegulatory.\\latters), incentives milhon kwh on an annualited basis. carned for conducting efht ient th\\l The Company lus approxinutely 5'3 programs were reduced from 1% million and $ 11 million of deferred to % of the net resource savings. 1)MI program costs on the Consoli-J(hics ed I'} these lh\\l pn)prJins. dated lldJOCe $heet% at l}et.cather i l'or 199i.the Compan) expects to 31,1993. and 1992, respectis ely, cant approxinutely s3 nullion in The two year (1993-199 i) l >91 plan. ini entnes as a result of these 1)91 w hit h lus receis ed P5C approval has progr.uns been modified to imprm e mst-cifer-In 1993. our customers sas ed ap-tiseness and reduce rate nniucts prounutely 2H2 on!! ion kilowatt-hours tkw h) on an annu.di/ed basis 24

~ ~ ~ Environmental Matters lulance 5heets related to four of a number of the Company's inac-The Company t ontinually.bsewes these ses en wasic sites of $18 mil-inc g.n nunnfactunng sites bas e actions that may need to be uken to hon. The Company lus n..nfied the been inled in the New York state ensure uimph;mcc w nh (lunging en-NY51EC tlut it bt lies es it lus no re-Registry. We base filed pentions to uronmenul Lnts and regulanons, sponsibiht) at tw o sites and has al-dehst the nuionty of the sites Our Compham e progr.uns w ill increase re:al) incuned expendames related program to intestigate and imtiate re-the cost of electnc amt nanual gas to the remedution at the remaining medution at our.48 know n in.ative sersic e h> requning (lunges to our site. A deferred as,et lus also been gas irunufacturing sites lus leen en operations and lac!hnes. Ihstorically. rnorded in the amount of $2n mil-tended through the year loin ISpen-sate recosery las been authori/cd for hon. of w hit h s 8 nulli in relates to diture.s us er this time period are the cost int uned for iomphance w ith (osh tlut luse already been incurred estnnated to be 52; million. This esti-enuronmenul km s and tegulations. The Com;un) IWheses it will rec oser nute was determined by using the 1)oe to cusung and proposed leg-t hese t osts. sint e the P5C los al-Company s experience and know-islanon and irgulanons. and legal low ed other utilities to reon er these ledge related to these snes as a result pnacedmgs commenced b3 gosern-t) pes of remedution costs arul h.n of the im estigation and remediation mental bodies and o!hers. the Com-alkmed the Company to renn er flut the Company has performed to luny nu, also mcur costs from the sumlu costs in rates, sut h as im este date. h is based upon ( urrently avail-past disposal of ha/ard* >us subsunt es

g. mon ami deanup tosts relating to able facts. esi. sting in hnology, and pniduced Judng our operations or nudit e gas nunuf acturing utes. l his presently ciucted law s and regula-those of our predecessors, We lute 51.8 million estinuie w as deris ed by nons. This liability, to im estigate and been nontied by the l' 5 I'miron-moluplying the toul estimated cost to initute remedunon. as necessarv, at menul Protection \\ gent 3 (I-PM and clean up a p.utit ular site by the re-the know n iructne gas nunuf actor-the New York 5ute Dep.utment of lated Company conuibunon factor.

ing snes is renected in the Company's I m is onmental Consen ato in 1:stinutes of the toul s leanup msts Consohdated lutance Sheets at t NYN )l A:n dut we.ne am< mg the w ue detennined hs using infornu-Detember.31,1993 and 1992. The pi stentially ic ponshic parnes i PRPsi non reLued to a parucular sue. sus h Company also has remrded a corre-w ho nu) be liabic to pay f or costs as im estiganons pertoimed to date at sponding defened asset, sin (e it ed incuned to remediatr iertain ha/- a sue or from the dau released by a pects to recoser sut h expendaures in .ndous subsuntes at ses en waste regulatory agem y. In addition, ihn rates as the Company has presiously snes. not im inding our mactn e gas estinute u as based upon t uirentiv been allowed by the P5C to iccoser manulattunng sacs wluch.ne dn-acailable facts, exisung tei hnology, sus b (osts in rates. The Company lus cussed below. Wdh respect to the and presently cructed law s and rego-notified its f ormer and ( unent insur-ses en sites. Ik e snes.ne mtluded m lations The connibution factor is cal-ance carriers that it seeks to recover the New York sute Registry of Inat - t utaied using either the CompanVs from them < cruin of these cleanup ove llamdous \\\\ aste snes i \\cw pertenoge share of the foul PHPs costs llowes er. the Company is Yoik suic Regntr> ) named. w hk h assumes all PRPs will muble to predict the amonnt of 1 Any habihts nuy be jomt and sco mntnhute equall. or the Company's msmance reun eries, if any. Ilut 3 eral for certun of these snes Theulu-esanuted pen enuge share of the to-a nuy obtam. mme cost n i remedule thesc snes w lH tal lucudous wastes dnposed of at a The Clean Air Act Amendments of be dependent 4 n suth faciois as the pank olar sue. or by usmg a 1% t on 1900 t 1990 Amendments) will result remedul attion plan selet ted the ce tuhanon factor for those snes at in significant expendnures of approd tent of sue o numination. and the w int h it beheves that u has cunnib-mutely W8 milhon. on a present ju >runn annhuicd to the t ;ompan3 At uted a mininul amount of lu/ardous I)et t'tillWT 3]. ]991 dW (h40[utI) le-wa stes Tlie Cimipany lus n< dified its corded a lubihts m the Conuihd.ded lonner and cunent insur.mcc carriers tlut it seeks to recuser hom them cerum of these t leanup t osts l low-es ci. the Company n unahic to pre-dit t the amount of insurant e ici os enes. if any. tlut it nuy obtain. 25

.- - ~ - - - -.. --.-~~ J I s aloe lusis. tu er a 3 y ear period, f or The tost ol controlhng toxic emis-As a resuh of existing and new all upital aint operating and nuinte-sions under the P>on \\mendments. it sohd w aste disposal legislation and nance expenses icl acd to the inha - i ci iirni, t anniit be esun,ated at this iegulations in Pennsylvania. the Com-l tion of suuur dioxide and nitrogen tune. l<cgulath ins nu) he.nlopted at p.my will meur approxinutely M: onles at scwral of our (oahfired the sute lesel w hkh would hnut milhon. on a present s alue lusis, of ] gener.n mg stanon.s. of w lut h M1 nul-toxic cinissions es en f unher, at an .uhhtional costs us er the next 30 lion lus been inumed as of l)ccem-additional i ost to the Com;un). We y ears, beginning in lW L at the her 31. lWi lhe Compants curreni anocqute th.n the oists unurred to llomer City Generating Station. These estinute is a signilicant redus tirin O)niply with the 1990 Annerklments co.sts will be incurred to install new hom its prior estimaic. prun.nity due will be rennerabic through rates equipment, modif y or replace exist-to the postponement of the i onstruc-lused on pres ions rate reon erv of ing equipment, and improve the de-hon of a flue ga desubminni<in reqmred cndronmenul costs sign of a proposed expansion of (I Gl H ss stem at its liomer Cay (;co-The 1990 Amendments require the (hsposal f acihties. The Comluny ev craimg N.uion The (:onquos plans 1:PA to allocate am,ual enussions al-pects to recos er these expenditure.s so tv-es aluate the need to (unstrut t hm ances to each of our nuhbred in rates, since the Company has been an IGI) system at the t himer Cay generating stations lused on statutory aHowed by the PSC to recover similar Generating station m 19% smte its emiwions lunas An enussions al-costs in rates. suth as groundwater presem strategy to lunk Phase I lowan(c represent.s an authon/alion protection costs to meet permit con-couwinns aHowances b t use donng to enni. dunng or aher a specihed ditions and regulatory requirements. Phase ll as thst uwed b&w. will al. alendar s car. one ton of sulfur dios-low the Compam to meet Phase ll ide 1)onng Phase I, w e estim.uc that Regulatory Matters [ allow ani c requirements through the the Company will h.nc allowantes in In &ptember 1991 the Company n a duw$m dwtne and nat-3 ear 35 t he cost to comply with cu ess of ihe afleded ioal-lired gen-the sulf ur thoside.md introgen oude cratmg sutions' aunal emiwinns mal gas rate seulement agreement lunitatii.ns mt ludes the o a instrue lu m The Gimpans 's present st rategy is t<, ( Vwment > w % h N & nm d"' fi' ""d "'"" "l ' f^ ' h"" " ' til an innin Jln e Ilill ss stem and a bJnk lbesC a! low Jnt es ! ^ use in later Cdh"*H

• Pk'"

I L I991 mtrogen oside iedot tion sysicm es - ) ears.11) usmg a lunking strategy. it Hica ow mturn on equity is pected to be completed m 1% at is esiinuied that Phase 11 allowance our Nhlbken (icorranng sution. We requirements will be met through the I"#" in par one I U in year tw o. estimate ihai appn ninutch a le vea; 2005 hv uhli/ing the aHowantes ""d I I I ' ""N"' I" "" I" "E e!ct inc r.ne un iease nill be required iunked during Phase 1. w hi( h in- '"" b " h*

• I " } " d "* * ""

I for the cost of mdunny sulfur dionle ciudes the extension resen e allow - holders will he allowed to keep lon l and narogen owle enussions in both ances dm uwed below. together with "I ""Y "" """M' '" N" "I d # Phase I (begins.lannan 1.19% and the Com;unyi Pluse 11.mnual emis- "U"""I*""'"I"5 " ""C *""~ h" * ""d"""* * "'N E"" Pluse ll < begins lanu.ny 1. 200 0 As sions allow.uw es ~l his strategy touhl I"# ""Y ""i"P " I a resoh of the Don Amendments, we be modified shonhl nurket or busi plan ni M1luic our anipul sulIilf di-ness Minditit ins (lunge. In addilit m } two an dum oxide emimons by an.unount that to the anmul emissions allowances w ill allow the ('ompant to meet the albrated to the Company hv the sulfur dn nide les els esubbshed bir i PA. u e will rn eite a porunn of the the Comp.m), w hit h is approunutely extenuun resen e allowances iwued a a9% redmiion from approsinutcit by the i PA to utihties cieuing to 13Ro00 tons in two in ~l mutons build scrubbers. as a result of the bythe $c.n Juno poohng agreement that we entered mto with oiber utihties who were also clighle to rn en e some e il these extension resen e allowant es. s 26

-~ The Agreement also indudes a large commercial and industrial sales mcxhfied revenue decoupling mecha-revenues on a 70V3tN (customer / J . nism (IUnli for electric sales. Rates stockholder) hasis. 1 are based on sales forecasts. Since ac-Customer savings for production tual sales may differ significantly from and transmission operating costs of forecasted sales because of conserva- $21 million will be imputed over tion efforts, unusual weather, or three years, $7 milhon each year, (hanging economic conditions, the w hether or not they are realized, resenue collected may be more or Incentives for customer service, less than forecast. Subject to the caps production cost, and ibm could in-described below, the mmhfied RI)M crease the allowed return to 12.3% will let the Company adjust for most or decrease it to 9.95% m year one, of the differences between forecasted increase it to 1105% or decrease it and actual sales. For example, if reve. to 10A% in year two, and increase it nues exceed the forecast for a given to 1125% or decrease it to 10.2% in i year, the excess would be passed year three. back to customers in a future year. The electric and natural gas rate It revenues are below the forecast, increases discussed below represent customers would receive a surcharge eles en months for year one and in a future year. The Company will twelve months for years two and share excesses or shonfalls from most three. 1 The estimated total electric price increases below include base rate increases allowed by the Agreement plus estimates of fuel and purchased power in-creases which will be collected through the fuel Adjustment Clause (FACL Actual fuel and purchased power costs could vary from estimates causing the estimated FAC and total electric price increases below to change. Estimated - Total Base Rate FAC Electric tDollar Amounts m Mdlions) Year 1 $60.5 4.4% $391 3.0% $99.6 7.4% Year 2 $70.3 48% $39.2 2.8% $109.5 7.6% Year 3 $57 4 3.6% $30.4 2.0% $87.8 5.6% The natural gas base rate increases adjustments will depend on several allowed by the Agreement are $7.5 factors, such as electric sales and in-milhon, or 2.W, SK2 million, or centive mechanisms. The Agreement 1(M and $7 2 million, or 2% in provides that no cap would apply to years one, two, and three, respec. any downward revision to base rates titely. They do not include changes .for electric and natural gas sersice. in natural gas costs, w hich will be 'the electric base rate increases could collected through the Gas Adiusunent be increased by up to 1.5% in years Clause. Natural gas costs can be ex-two and three and 1.6% in year four . pected to rise and fall with oserall (the caps). The natural gas base rate natural gas m.uket conduions. Such increases could also be increa. ed by fluctuations will affect the total natu-up to 1% in year two and 1.2% in tal gas price increases. 3 ear three, The Agreement does not The Agreement also provides for specify a cap for natural gas base the stated electric and natural gas rates for year four. base rate increases to be adjusted up or down in the second and third years, as wcll as the year after the Agreement period (S car fourt These 27-

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.c

Consolidated Balance Sheets D:cember 31 1993 1992 i IThousands) Assets Utility Piant, at Original Cost (Note 1) 'i Electric (Note 8) $4,777,368 $4,573,444 Natural gas 381,389 352,059 Common 158,986 157,979 5,317.743 5,083,482 Less accumulated depreciation 1,541,456 1,427,793 Net Utility Plant in Service 3,776,287 3,655,689 Construction work in progress 143,859 177,566 Total Utility Plant 3,920.146 3,833,255 Other Property and investments, net 73,537 59,157 Current Assets Cash and cash equivalents (Notes 1 and 10) 4,264 3,968 Special deposits (Note 10) 145,335 96,432 Accounts receivable, net (Note 1) 181,586 171,683 Fuel, at average cost 54,791 69,077 Materials and supplies, at average cost 48,910 50,637 Prepayments 30,092 37,897 Accumulated deferred federal income tax benefits (Notes 1 and 2) 1,182 Total Current Assets 464,978 430,876 Deferred Charges (Note 1) Unfunded future federalincome taxes (Notes 1 and 2) 380,056 393,720 Unamortiieri debt expense 112,059 96,378 Demand-side management program costs 73,113 44,049 Other 252.127 220,481 Total Deferred Charges 817,355 754,628 Total Assets $5,276,016 $5,077,916 The notes on pages 33 through 45 are an integral part of the financial staternents. i 1 1 28

Consolidated Bahmco Sheets December 31 1993 1992 (Thousands) Capitalization and Liabilities Capitalization Common stock equity Common stock ($6.66 2/3 par value, 90,000,000 shares authorized and 70,595,985 and 69,439,397 shares issued and outstanding at December 31,1993 and 1992, respectively) $470,640 $462,929 Capitalin excess of par value 824,943 796,505 Retained earnings 320,114 327,040 Total common stock equity 1,615,697 1,586,474 Preferred stock redeemable solely at the option of the Company (Note 4) 140,500 160,500 Preferred stock subject to mandatory redemption requirements (Notes 4 and 10) 125,000 106,900 Long term debt (Notes 3 and 10) 1,630,629 1,777,027 Total Capitalization 3,511,826 3,630,901 ' urrent Liabilities C Current portion of long-term debt and preferred stock (Notes 3 and 4) 332,709 115,659 Commercial paper (Notes 5 and 10) 50,200 64,100 Accounts payable and accrued liabilities 111,481 95,996 Interest accrued (Note 10) 31,348 37,690 Accumulated deferred federalincome taxes (Notes 1 and 2) 1,132 Other 89,443 65,073 Total Current Liabilities 616,313 378,518 Deferred Credits Accumulated deferred investment tax credit (Notes 1 and 2) 138,478 141,729 Excess deferred federal income taxes (Notes 1 and 2) 36,378 58,188 Other 149,620 107,160 Total Deferred Credits 324,476 307,077 Accumulated Deferred Federal Income Taxes (Notes 1 and 2) Unfunded future federalincome taxes 380,056 393,720 Other 416.545 342,700 Total Accumulated Deferred Federal income Taxes 796,601 736,420 Commitments and Contingencies (Note 9) 26,800 25,000 Total Capitalization and Liabilities $5,276,016 $5,077,916 The notes on pages 33 through 45 are an integral part of the financial statements. 29

l Consolidated Statements of income I Year Ended December 31 1993 1992 1991 i (Thousands, except Per Share Amounts) Operating Revenues Electnc $1,527,362 $1,451,525 $1,367,936 Natural gas 272,787 240,164 187,879 Total Operating Revenues 1,800,149 1,691,689 1,555,815 Operating Expenses Fuel used in electric generation 245.283 262,531 274,877 Electricity purchased (Note 9) 161,967 95,026 45,808 Natural gas purchased 141,635 126,815 99,528 Other operating expenses 349,177 318,680 279,364 Restructuring expenses (Notes 6 and 7) 26,000 Maintenance 111,757 102,500 110,131 Depreciation and amortization (Note 1) 164,568 158,977 152,380 - Federal income taxes (Notes 1 and 2) 94,144 102,456 94,447 Other taxes (Note 12) 204,962 200,941 178,185 Total Operating Expenses 1,499,493 1,367,926 1,234,720 Operating income 300,656 323,763 321,095 Other income and Deductions 6,471 12,036 6,076 Income Before Interest Charges 307,127 335,799 327,171 Interest Charges interest on long-term debt 134,330 145,822 151,649 Other interest 11,120 9,566 11,877 AFDC - borrowed (4,351) (3,557) (4,998) Interest Charges-Net 141,099 151,831 158,528 Net income 166,028 183,968 168,643 Preferred Stock Dividends 20,638 20,995 20,330 Earnings Available for Common Stock $145,390 $162,973 $148,313 - Earnings per Share $2.08 $2.40 $2.36 Average Shares Outstanding 69,990 67,972 62,906 The notes on pages 33 through 45 are an integral part of the financial statements. 30

Consolidated Statements of Cash Flows Year Ended December 31 1993 1992 1991 (Thousands) Operating Activities Net income $166,028 $183,968 $168,643 Adjustments to reconcile net income to net cash providea by operating activities: Depreciation and amortization 164,568 158,977 152,380 Deferred fuel and purchased gas (10,671) (14,645) 2,507 Federal income taxes and investment tax credits deferred - net 50,761 52,039 59,626 Unbilled revenue recognition (Note 1) (11,557) (22,228) (40,147) Demand-side management program costs (29,064) (22,863) (15,118) Restructuring expenses 26,000 Changes in current operating assets and liabilities, net of effects from the purchase of Columbia Gas of New York, Inc. in 1991: Special deposits 2,438 (1,873) (4,108) Accounts receivable excluding accounts receivable sold (17.483) (11,936) (15,541) Accounts receivable sold (Note 1) 13,800 Prepayments 7,805 (878) (7,882) Inventory 16,013 (1,417) 4,590 Accounts payable and accrued liabilities 7,384 (8,287) 5,656 Interest accrued (6,342) (5,750) (3,610) Other - net 32,510 (18,840) (1,110) Net Cash Provided by Operating Activities 412.190 286,267 305,886 investing Activities Utihty plant construction expenditures, net of AFDC - other (265,109) (243,373) (244,037) Proceeds received from governmental and other sources 22,808 322 Expenditures for other property and investments (16,975) Funds set aside for construction expenditures (42,437) Payment for purchase of Columbia Gas of New York, Inc., net of cash acquired (57,096) Net Cash Used in investing Activities (301,713) (243,051) (301,133) Financing Activities issuance of first mortgage bonds and pollution enntrol notes 217,362 247,668 147,243 Proceeds from revolving credit agreemnt 50,000 Sale of common stock 38,334 162,965 25,380 Sale of preferred stock 97,762 98,975 First mortgage bonds and preferred stock repayments,includ:ng premiums .(326,091) (178,289) (142,715) Increase in funds set aside for first mortgage bond and preferred stock repayments (8,904) (83,096) Long term notes - net 8,393 (1,593) (2,322) Commercial paper - net (13,900) (39,800) 30,675 Dividends on common and preferred stock (173,137) (165,704) (150,106) Net Cash Provided by (Used in) Financing Activities (110,181) (57,849) 7,130 Net increase (Decrease)in Cash and Cash Equivalents 2% (14,633) 11,883 Cash and Cash Equivalents Beginning of Year 3,968 18,601 6,718 Cash and Cash Equivalents, End of Year (Notes 1 and 10) $4,264 $3,968 $18,601 The notes on pages 33 through 45 are an mtegral part of the financial statements. 31

Consolidated Statements of Changes in Common Stock Equity (Thousands. sucept Shares and Per share Amounts) Common Stock Capital $6.66 2/3 Par Value in Excess Retained Shares Amount of Par Value Earnings Total Balance, January 1,1991 62,430,297 $416,202 $655,892 $292.250 $1,364,344 Net income 168,643 168,643 Cash dividends declared: Preferred stock (at serial rates) Redeemable - optional (11,395) (11,395) - mandatory (8,935) (8,935) Common stock ($2.10 per share) (131,875) (131,875) Issuance of stock: Dividend reinvestment and stock purchase plan 969,941 6,466 17,899 24,365 Balance, December 31,1991 63,400,238 422,668 673,791 308,688 1,405,147 Net income 183,968 183,968 Cash dividends declared. Preferred stock (at serial rates) Redeemable optional (11,164) (11,164) - mandatory (9,831) (9,831). Common stock ($2.14 per share) (144,621) (144,621) issuance of stock: Pubhc Offering 5,000,000 33,333 99,367 132,700 Dividend reinvestment and stock purchase plan - 1,039,159 6,928 23,347 30,275 Balance, December 31,1992 69,439.397 462,929 796,505 327,040 1,586,474 Net income 166,028 166,028 Cash dividends declared; Preferred stock (at serial rates) Redeemable - optional (11,085) . (11,085) - mandatory (9,553) (9,553) Common stock ($2.18 per share) (152,316) (152,316) Issuance of stock: Dividend reinvestment and stock purchase plan 1,156,588 7,711 28,438 36,149 Balance, December 31,1993 70,595,985 $470,640 $824,943 $320,114 $1,615,697 The notes on pages ~t3 through 45 are an integr61 part of the financial statements e 32 u.

Notes to Consolidated Financial Statements 'l Significant Accounting Policies Principles of consolidation tnes in ra'es wohin appn mnutch-The Compan) files a consohdated The consolidated fnun(ul sutemenh one year aber thes ate recognved. federal income us return with $RC indode the Comp.my~s w hoHy-owned thinng it?R PN2, and 1991, incen-and NGF. Deferred inuune taxes aic subsidunes. Somerset ILulnud Cor-tis es earned w ere 516 i nuthon, provided on all temporary differences potation (sk 3 and NGE Fmerprises. s15 6 milhon. and s12 i nuhion. re-hetween huantial statement beh and Im. (NGFL All sigmhcant intenom-spectneht At Decemhet 31.1993 and taxahle income. Investment tas juny lulant es and Iransactions are UN1 approximately M L3 minion t redds w htch reduce federal income clinunated in consolidatii >n. and MH milhon. respet tisely of IMI taxes currentiv Ju)able. are deferred intenth es were au rued and induded and amonized user the eshnuted Utility plant in w>uno m Ndde ,lhe u nst of repairs and minor re~ is d h yphdde pp w Th-effm of k denuM mininmm m placements is ( h.uged to the appro-Accounts receivable Mkh inmen kdaal income t.ncs priate operating expense accounts. Ihe Cumpany has an agreement tlut currently payable and generates a tax The cost of renew als and bcuer-expues in Nos ember.1990 to sell cwda x;Wahk br km W h do menn induding indirect tost is with hmited reuiurse. undnided per-kned and anorheed m e h hmes e capiuh<cd The ongkul cost of centage intereso in t enain of us ac-da m aedd k Wd on dw Gnd unhi> pLmt retned or otherwise dw munts receindde f rom customers. p kderal ince m um posed of and the ont of remosal l css The agreement aHows the Com;uny sah age are t harged to acuumined to recche up to M;2 mdhon Inim Deferred charges depn cution the s.de of sut h interests. At Dec em-The Company defers certain incurred ber 31. UN3 and UN2, auuunts re-expenses when ;mdiori/cd by the Depreciation and amortization cch Me on dw Conwhdmed Mm-PC Aw gene MH IEcom Deprnianon expense is determined %ech H Mmq od of % f C mdhon cred from etstomen in the future. tamp ar.oghFhne r.ncs. lused on the ad W8 dhm np 04 M im average sen ice ines of groups of de. Consolidated Statements of h n sh in. ume m iuW v dd. AH predable propeny m sen a c, Depic-Cash Flows Ws esoa&d un dw pogr.un are ( blion A croah wcre equn alent I' n b& d in other inmme and dedor

• W "Y *" #

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.md 3 3N of in crage h m dw unwhdAd unwnb hquid imestments u uh a maturity deprn uble propeny for UN3. UN1 and UNI. respn m eh. Deprecianon d Mmme ad mmuned m gm or put date of three months or less immir M ' pHm M Whm ud w hen acquired to be cash equh a-expense irp ludes lhe amortvation of W3 EHmn in PNi FN ' ed UM !""h' fhese m estments. ire induded (crt do detened (harges.mthori/cd "4"

u. spa tnely. kcouno rn ch able on hs the Pubhc Servu e O.uunnsion of h CoMded Mm e Aco h Consohdated Ildan(e sheets.

the sute i d New Yoik ( UsC) Ioul income uses paid w ere aho hn t d m daa br doubd. l aaouns d..s i nuuton and 5TM milhon. W5 miHion, and Revenue u Dunng uni FN2. and UNb the H.9 mdhon au Dnember 31. PN3 Hl.N md. hon for the years ended h Jm Compam recognved on the mcome and UML respecthel. llad debt en 3 g statement approxinutely M2 milhon. PC"* " " M3 "U U'"" S l l ' ""I' 522 mdhon, and s in mdhon. respeo hon. and Mu? nidhon in PN1 PN1 g g g mmm 9 thely. of tiectric and n.nuul gas and RNL respectaci). iuhied. wm M3K2 ndu>a M 69.3 g gg unbuted retenues that had been av Federal income taxes seah ended December 31,1991 crunt on io h. dance sheet tiir energy The Compnv adopted Sutement of 1992. and 1991, respettn ehu pun ided but not y et bdkd to nun" Finandd Adunung sund.nds Na The Compny punben1 A d dw ~ un/c the tale int remes for these pg g pg y g,unhng h >r in-conunon stock of Columbia Gas of y ears in anordance w uh t anous P5C mme lees. in Januarv PNi 5mce New York, loc tn 1991. In t onjunc-rate do isions. The July 1992 rate the Company had been accounnng tion with the acquisition. habihties as-deti-ion aHow ed the Company I" Wi inmme um undd Nmemem d ened were s2 W dhon Wir vabe remgni/c on as int ome sutemem, Fmandal Acmunung Mand.n(h h d um muned d %2 dhon kw beginning m August 1991 electuc 9n. Acmunnog f or income laxes, coh paid of %7.l mdhont and natural ge unhdled rnenues on Mde w e no dkd on dw C.ond a fuH an ru.d lu* dated Statemenn of Income as a Reclassification The Limpany reo ngni/es as res e~ gytig gog y syy :.7jgg. Ceruin umotinh has e been re-noe int eniites carned as the wsult of c u.t 5F M P N did n q Wre d w u n 'U"itied on the consohdated fnun-condotting clhcient denund-stdc pnp ddem d m b. dam c3 ui he t bl sutemenb to. >nform w Hh the nurugement tImh progums 1 he vnbssiDed on in Consohdated U"3 P'"'C"'"li" Company n u dlechng those nu co-u nu.sheeb 33

2 Fcderal Income Taxes Year ended December 31 1993 1992 1991 The Revenue Recontiliation Act (MA) of 1993 wm enacted on Augu',1 (Thousands) Charged to operations 10, 1993. Among other things RRA Current $34,989 $37,237 $22,991 1993 provided for an increase of m Deferred - net in the statutory corporate income tax Accelerated depreciation 49,580 41,492 37,409 rate and an extension of the R&D Unbilled revenues 5,073 160 13,644 cretht until June 30,1995. Alternative minimum tax (AMT) credit (3,194) 2,123 5,557 in September 1993, the Company Demand side management 13,479 9,324 8,589 reached a three-year rate settlement NUG termination agreement 4,760 6,800 agreement with the PSC ( Agreemen0, N ne Mile No. 2 litigation proceeds 4,756 (2,047) which included a prosision for the Restructuring expenses (6,965) Company to petition to defer the Transmission f acility agreement (7,778) (1,172) (1,162) effect of RRA 1993 until it is reflected Miscellaneous (6,198) (3,491) (9,365) in rates. The Company has deferred for collection from customers 5.6 mil-Investment tax credit (lTC) d. P.rred 5,642 12,030 16,784 hon wpwsenting additional 1993 94,144 102,456 94,447 federal income taxes resulting from Included in other income RRA 1993-Amortization of deferred ITC (8,892) (16,927) (11,297) The Company has moorded un-Miscellaneous 498 3,747 (533) funded future federal income taxes Total $85,750 $89,276 $82,617 and a corresponding receivable from customers of approximately $3H1 mil-The Companfs ellective tax rate dilfewd from the statutory rate of 3%. m 1993 hon and $393 million as of December and 3 &,in 1992 and l991 due to the following: 31,1993 and 1992, respectively, pri, mariiv representing the cumulative Year ended December 31 1993 1992 1991 amount of federal income taxes on (Thousands) temporary depreciation differences, Tax expense at statutory rate $88.684 $92,903 $85,428 which were previously flowed Depreciation not normalized 16,984 16,697 16,051 through to customers. Those ITC amortization (8.892) (16,927) (11,297) amounts, including the tax effect of Research & Development (R&D) credit (5,139) the future revenue requirements, are Cost of removal (4,921) (4,079) (6,120) being amortized over the life of the Other - net (966) 682 (1,445) related depreciable assets concurrent Total $85.750 $89,276 $82,617

• h

"'""i"'" rhe Company has approximately $20 million of AMT credits w hich The Company's current and noncurrent deferred taxes, w hich net to a tax do not expire. and Sil million of liability of approximately $936 2 milhon as of December 31,1993, consisted R&D credits whith expire beginning of the following deferred tax assets and liabilities; in 2001 Deferred Tax Deferred Tax Assets Liabilities (Thousands) Depreciation $698,939 loss on reacquired debt 28,440 Regulatory Asset (SFAS 109) 149,636 Accumulated deferred ITC 91,006 Demand side management 35,381 NUG contract settlement costs 15,163 Alternative minimum tax credit $19,953 Excess tax reserve 12,603 Nine Mile No. 2 disallowed plant 19,347 Contributions in aid of construction 20,913 Capitalized interest 8,690 Other 35,369 34,521 L Total deferred taxes $116,875 $1,053,086 34 u

3 Long-Term Debt At Oncmler.41, IW3 arni 1W1 long-tena debt w as (Thousandst First mortgage bonds Amount Amount Series Due 1993 1992 Series Due 1993 1992 83/8% Aug lo,1994 $100,000 $100,000 91/4% Apr. 1, 2016 $50,000 85/8% June 1,1996 50,000 9% M ar. 1,2017 100,000 55/8% Jan. 1,1997 25/10 25,000 10 5/8 % Jan. 1,2018 100,000 61/4% Sept. 1,1997 25,u00 25,000 97/8% Feb. 1,2020 100,000 100,000 61/2% S ept. 1,1998 30,000 30,000 97/8% May 1,2020 100,000 100,000 75/8% Nov. 1, 2001 50,000 50,000 9 7/B% Nov. 1, 2020 100,000 100,000 63/4% Det 15,2002 150,000 150,000 87/8% N ov. 1,2021 150,000 150,000 93/8% Jan. 1,2006 3.000 8.30 % Dec.15,2022 100.000 100,000 71/4% June 1,2006 12,000 12,000 7.55 % Apr. 1, 2023 50,000 67/8% Dec. 1, 2006 25,250 25,500 7.45 % July 15, 2023 100,000 85/8% Nov. 1,2007 60,000 60,000 Total first mortgage bonds 1,177,250 1,330,500 Pollution control notes Interest Maturity Interest Rate Letter of Credit Amount Rate Date Adjustment Date Expiration Date 1993 1992 12 % May 1,2014' 60,000 60,000 12.30 % July 1,2014* 40,000 40,000 2.80 % Dec. 1, 2014 Dec. 1,1994 Dec.15,1995 74,000 74,000 2.75 % Mar. 1, 2015 M a r. 1,1994 Mar.15,1995 37,500 37,500 2.50 % Mar.15, 2015 Mar.15,1994 Mar. 31,1995 60,000 60,000 2.60 % July 15,2015 July 15,1994 July 31,1995 63,500 63,500 285% 0et.15, 2015 0 ct. 15,1994 0ct. 31,1995 30,000 30,000 2.75 % Dec 1,2015 Dec. 1,1994 Dec.15,1995 42,000 42,000 4.10 % July 1,2026 July 1,1996 July 15,1996 65,000 65,000 5 95 % Dec. 1,2027 34,000 34,000 5.70 % Dec. 1, 2028 70,000 Total pollution control notes 576,000 506,000 Revolving Credit Agreement Note due July 31,1997 50,000 Long-term notes due December 31,1996 36,100 27,707 CNG Transmission Corp. Note due November 10,1995 8,862 Obligations under capitalleases 30,902 38,804 Unamortized premium and discount on debt - net (10,776) (11,975) 1,868.338 1,891,036 Less: debt due within one year - included in current liabilities 237,709 114,009 Total $1,630,629 $1,777,027 'Will be refunded in 1994 with proceeds from the issuance of $100 milhon of 6 05% pollution control notes, due 2034 i t t

3 Long-Term Debt (continued) At Desember 31,1993. long term through lhe date preteding the inter-debt and capital lease payments est rate adjustment date. The pollu-which will become due during the tion wntnil notes hear interest at the next hve years are: same rate as lhe Resenue llonds. On the interest rate adjustment date and 1994 1995 1996 1997 1998 annually thereafter (every three years (Tliousands) thereaf ter in the case of the Revenue $237.709 $12.552 $45.651 $102,196 $31,411 lionds due July 1, 2026). The interest rate wdl be adjusted, not to exceed a The Company's mortgage provides rate of 15%, or at the option of the for a sinking and improvement fund-Company,, subject to certain condi-This provision requires the Company tions, a fixed rate of interest, not to to make annual cash deposits with exceed lH% may become effectise. the Trustee equivalent to 1% of the in the case of the Revenue lionds princip.d amount of all bonds dehv-due July 1. 2026, at the option of the cred and authenticated by the Trustee Company, subject to certain condi-prior to January I of that year (cN-tions, a fixed rate of interest may he-(ludmg any bonds issued on the come effectise prior to the interest basis of the retirement of bondst The rate ad ustment date or each third i Company +.atisfied this requirement year thereafter, liond owners may in 1993 by depositing 522.5 million elect subject to certain conditions, to in cash whic h was used to redeem have their Revenue 13onds purt hased in l'chruary 1993.$22.5 million of by the Trustee. 10 9 8"n Series first mongage honds, The Company has irrevocable duc 2018. The Company satisfied this leuers of credit whic h expire on the requnement m 1994 by depositinM leuer of credit expiration daies and $23 million in cash w hich was used w hich the Company anticipates being to redeem in February 199-i. 523 mil-able to extend if the interest tate on lion of 8 5 Km 5cnes first mortgage the related Revenue lionds is not bonds, duc 200' converted to a fixed interest rate. Mandatory annual cash sinkinM 'Ihose teners of credit support certain fund requirements are $WLOOO payments required to be made on the beginning June 1. 2001, for the Revenue lionds. If the Company is

• 14% Series and $250.000 on De-unable to extcnd the leuer of credit ccmher 1 in each year 199 to 19%

that is related to a particular series of f or the 6 M'u Series. The amount in-Resenue llonds, that series will have creases to 550W00 and $N0,000 on to be redeemed unless a fixed rate of December 1.1997 and December 1. interest becomes effective. Payments 2002, respectis ely, for the 6 7 RN made under the lctters of credit in Seriev connection with purchases of Rese-The Company s first mongage nue lionds by the Trustee are repaid bond indenture constitutes a diiert uith the pniteeds from the remarket-first mortgage lien on substanti.dly ing of the Revenue 15onds. To the ex-all utility plani. tent the proceeds are not suflicient. Adjustable rate pollution control the Company is required to reim-notes were issued to secure like burse the bank that issued the letter amounts of tax-exempt adjustable of credit. rate pollution control revenue bonds ( Resenue lionds) issued by a govern-mental authority. The Res enue Ilonds hear interest at the rate indicated 36

4 Preferred Stock At Detember 31.1993 and 1992, seiul emnulatise preferred stock n as: Shares Par Value Authorized Per Redeemable A'""""I and Series Share Prior to Per Share Outstanding (1) 1993 1992 { Thousands) Redeemable solely at the option of the Company, 3.75 % $100 $104.00 150,000 $15,000 $15,000 4 1/2 % (1949) 100 103.75 40,000 4,000 4,000 4.15% 100 101.00 40,000 4,000 4,000 4A0% 100 102.00 75,000 7,500 7,500 4.15 % (1954) 100 102.00 50,000 5,000 5,000 6.48 % 100 102.00 300,000 30,000 30,000 8.00% (2) 100 102.00 250,000 25.000 25,000 8.48% (3) 25 25.70 1,000,000 25,000 25,000 7.40% (4) 25 12/1l39 26.85 1,000,000 25,000 ? Thereafter 25.00 Adjustable Rate (5) 25 25.00 1,800,000 45,000 45,000 Adjustable Rate (6) 25 12/1/98 27.50 2,000,000 50,000 Thereaber 25.00 235.500 160,500 less: preferred stock redemptions within one year - included in current liabihties 95,000 Total $140,500 $160.500 Subject to mandatory redemption requirements: (1.00% (7) 100 . $8,550 6.30% (8) 100 1/1/95 105 67 250,000 25,000 8.95% (9) 25 1/1/95 26.79 4,000,000 100,000 100,000 125,000 108,550 Less: sinking fund requirements at par value -included in current liabihties 1,650 Total $125,000 $106,900 At Det ember 31,1993, preferred toi lhe payment on the Adpistable Company at 5105.67 per share stot k redemptions and annual re-RJte serial Preferred Slot k Series prior to Janu.ny 1,1995. The deenuble p:cfened stock sinking

11. for April 1,199 L is at an an-

$105 6' price will be reduced fund reqmremenh for the neu hse nual rate of i1M and sbsc-annually by 63 cenh for the years are: quent paymenh can sary from an > cars ending 1995 through 2002: annual rate of @, to 10% based thereaf ter. the redemption 1994 1995 1996 1997 1998 on a fonnula induded in de price is M(CM The Compny (Thousands) (,iimpJn)'s Certificate of Incor-is restricted in its ability to $95,000 S5,000 55,000 poration. The Company is re-redeem this Series prior to stricted in is abthty to redeem Januan-1,20% < 1i At Det enyber 31, P193. and aber this series prior to December 1, (W On January 1 in cas h year 1997 gh mg ellect to the redemptions 19 % dM Mn dw hwm m lefroed to in ( 2 ). (3). and ( 5) be-g g h y. d,cre s em i.m n u m sha,es of 51io par value preferred slo (L. m. m c,,,g m.,,a,, p 3,,,,.m. cu ms., %e ni 3,Hoo.tui shares d 32, par value - dw$g Wo Am m m W da Gowm at M'9 u d A W ;0 p>r pram-@rmbnum L prefeired stos k, and 1.t00900 n Woh r M PM M 1991 TN G 'O h M N e slures of 5100 par value prefer-die years 1991 and 1992.16,5n0 duced annually hv 15 cents for ence stos k authon/cd but un-Ab wew redeemed and can-the scars ending IV95 through ~ I"""l celled annu.dlv. 1999. by 1 i (ents for the scar Uf Redeemed lanuaiv IK 199 L mW usy bn a-h p #1 tnding 20% and h M de fm (3) Redeemed l'ebruary 1,199 L d M h> M n A-ndM loni dm@ t o lhe Comp.nn is restncted m n' dtm Woo em m m ad M 'N (- ~ is restricted abdity to redeem this series poor n Domi> L M9. da Conp~ in is abh n this 5m s. to December 1. I?M mW ndmn dw Mma M A-phWEm mn (5) %c Ad ustable R.uc Serul Pre-i M % k &- k n-terred stot k. Series A. w as deemable at the option of the redeemed Januar) i n, P>9-1. 37

5 Bank Loans and Other Borrowings The Company has a revoking credit The Company had an outstanding agreement with (enain banks whkh loan of $50 million under the revolv-provides for lorrowmg up to $200 ing credit agreement at December 31, million to July 31,1997. At the option 1W3, at an interest rate of mig % un-of the Company, the luterest rate on - der the LlHOR option, and did not 1 I horrowings is related to the prime have any outstanding loans under this rate, the London Interbank of fered agreement at December 31, IW $ Hate (LIHolo or the interest rate up-The resolving uedit agreement does plicable to certain teniticates of de-not require compensating balances. 3 posit. The agreement also provides in order to pros ide llexibility in for the payment of a commitment fee the timing and amounts of long-tenn w hith can fluctuate f rom.15% to finandngs, the Company uses interim 3 % depending upon the ratmgs of financing in the fonu of short-tenn the Company's first mortgage honds. unsecured notes, usually commercial The t ommitment fee at Decemlvr 31, paper, to finante certain refundings 1993 is.1H % and (onstruction expenditures, anil f or other corporate purposes. l Information relatis e to short-tenn horrowings is as follows: Commercial Paper 1993 1992 1991 (Thousands) Ending balance $50,200 $64,100 $103,900 Maximum amount outstandmg $95,400 $140,000 $111,000 Average amount outstanding (1) $56,300 $31,400 $66,700 Weighted average interest rate On ending balance 3.5% 4.0% 53% During the period (2) 3.4% 4.3% 6.2% 4 (1) Calculated as the average of the sum of daily outstanding borrowings.

12) Calculated by dividing total interest expense by the average of the surn of daily outstanding borrowings 6 Restructuring in the fourth quaner of 1903, the operations facilities statewide. During Company recorded a $26 nullion re-IWi, the restructunng resulted in a structming charge. The corporate re-work force reduction throughout the simcturing will scorganize the way organization of approximately 600, the Company dehvers senices to its the climination of customer walk in c

electric and natural gas customers be-services at 28 satelhte locations, and ginning in March 199 L The restrue-the closing of up to 10 electric and turing reduced lW3 carnings natural gas operations facilities state-atadable for common stock by ap-wide, The work force reduction was proximately $17.2 million or 25 cents accomphshed through a voluntary per share. Included in this amount early retiremem program (See Note are $13.2 milhon for a voluntary early "? - Retirement lienehts) and an in-retirement program, $3.2 million for voluntary severance program. 381 an imoluntary sescrance program. employees accepted the early retire-and $ H milhon for the elimination ment program. and closing of electrie and natural gas 38 4

7 R:tirement Benefits P nsions The net pension benefit for The Company has a noncontributory 1993.1992, and 1991 totaled $U mil-retirement annuity plan that cosers hon. 51.5 million, and $2.9 million, substantially all employees. Benefits respectively. are based pnnvipally on the em-Effective January 1,1993, the re-ployee;s length of service and com-tirement benefit plans for hourly and pensation for the hve highest paid salaned emplo>ces were combined years out of the last 10 years of ser-into one plan. Combining the two vice. It is the Company % pohty to plans did not affect bencht levels. fund pension costs accrued eat h > ear to the extent deductible for federal income tax purposes. Net pension benefit for 1993.1992. and 1991 included the following components: 1993 1992 1991 (Thousands) Service cost: Benehts earned during the year $17,688 S15,387 $13,252 Interest cost on projected beneht obligation 40,710 35,253 32,096 Actual return on plan assets (77,129) (60,020) (111,749) Net arnortization and deferral 12,989 7,844 63,487 Net pension (benefit) $ (5,742) $(1,536) S(2,914) The funded status of the plans at 1)ecember 31,1993 and 1992 were: 1993 1992 December 1,1993, through January 'IOUNP Y" " bU WCIC (Thousands) Actuarial present value of accurnulated beneht obligation: years and older and w ho had at least Vested $390,716 $287,504 10 years of senice wnh the Com-Nonvested 55,476 42,286 pany. The program included two prosisions an unreduced pension Total 446,192 329,790 benefit for those eligible employees who were under 60 years old, and a Fair value of plan assets $753,292 $701,893 monthly supplemental payment to Actuarial present value of projected beneht obligation (608,216) (480,429) -bridge" employees to age 62 w hen Plan assets in excess of projected beneht obligation 145,076 221,464 they can begin collecting Social secu-Unrecognized net transition asset (73,612) (80,850) rity benefits. 384 employees accepted Unrecognized not (gain) loss (83,709) (139,729) the early retirement opportunity. In Unrecognized prior service cost 4,182 5,209 1991 the Company recorded a $19.9 " "" " P'" * # '"" """ Y #* Net pension (liability) asset $ (8,063) S6,094 ment program. plan assets primarily consist of 1992 and 1991. The net pension ben. Postretirement Benefits equity securities, corporate, U S efit was tucasured using an expected Other Than Pensions agency, and Treasury bonds, and long term rate of return on plan as. The Company has postretirement cash equisalents sets of 8"b in 1993 and ".5% in 1992 benefit plans, such as a comprehen-The projected benefit obligation and 1991, sive heahh insurance plan and a pre-was measured using an assumed dis. scription drug plan, that provide (ount rate of ~% for 1993 and ' 7% Early Hetirement certain benefits for retired employees for 1992 and 1991, and a long-term M p;nt of the corporate mstmcturing and their dependents. Substantially all rate of increase in future compensa. that was announced in the fourth of the Company's employees who re-tion lesels of % for 1993 and W for quam of W e Nog 6 - kstme-tire under the Company's pension turing), the Company offered a vol-untary early retirement program from 39

m 7 Retiremont Benefits (continuedl plan tnJ) liecome chgible list thine beneht ohhgation ( APHO) w as 52nn 6 31,1992 and 1991, represent the benetits at retiteinent. \\t December nulhiin. The Company elected to ier-postrctircinent benefits cost as deter-31,1993, P/42.and PF)l,1,996, ogni/e the APlM) o\\er 2n ) cars mined prior to the adoption of $FAS 1,905, and 1,866 relirees and their de-ht 5cptember 1991 the P5C iwued 100, w ben the vist was not secog-pef alents, respectiscl) were co\\ cred a Statement of Pohey concerning the nt/ed as an expense until tlie benefits under these plint The pa ntretirement ait'ounhng and riteinakmg ticatment were paid, The Company has de-bencht plans uc unf unded as of for pensions and postretirement ben-ferred 5101 million of SFAS 100 costs December 31. Um i hm eser. the efits other than pensions i PSC Pol-as of December 31,1993 The Com-Comjunv is examining the cost. ic) ) The PsC Pohc) was ettectice pany expects to recuser any deferred effn tnenew of certain f unding Janu;u) UN3. adopted hfAS lon for SFA5106 amounts in accordance with aher nain es. accounting and ratemaking purposes, the P5C Pohey. In January 1991 the Company and comphes with generally accepted The P5C Pohcy allows carious rate adopted Statement of Finantial Ac-accounting principles methamsms, including the use of ex-o tilnhng Standards No lun15 FAN Postretirement benefits o nt other tew pension fund awets, such as in-100L Emplo) cts' Accounting for Post-than pensions that w as recogni/ed on lernal Revenue Senice Code of 19% letirement Henchh ()ther Than Pen-the int < >me statement f or the tweh e 5et ti< >n 120 transfers, to temper the sions, winch requires th.a the months ended December 31.199A effect of SFAN 10h on rates, in 1991 Comp in) at crue a habihty f or esh-1991 and 1991, was 511.1 milhon, 6 the Company transferred approx-maletl f uture postretilement benefits millis in and 5 i i inilhon, tespct titelv. imately 55 niillitin of its excew pen-during an emph n ee s winking (areer 'lhe anhiunt hir UN3 represenh the sion plan Jwets to cocer most of the rJther flun let ogni/c an expense porlifin (>I 5I AN Inn cosis thJt the tosl ol retireci health C3re for that u hen benchh are paid ;\\t the tinic CoinpJn) has been allowed to sollect > car As a resuh of this transfer. the of aih >plion, the actu.ifially deter-from its cusu bmers The amounh for (:ompany recogni/ed a decrease in nuned accumulated posnetirement the tuche montits ended December its deferred 5FA5 inn asset. The estunated net postletirement henchh (ost other th.in pensions for the 12 months ended Dnember 31. PNi includes the f ollowing components (Thousandsl Service cost: Benefits accumulated during the year S6,888 Interest cost on accumulated postretirement beneht obligation 16,304 Amortaation of transition obligation over 20 years 10,330 Deferral for future recovery (22,095) Net periodic postretirement benefits cost S11,427 The status of the plans for postrctirement benchts other than pensions. as reflected m the Company's Consohdated Halance sheets at December 31, P)O3. is as follon (Thousands) Accumulated postretirement beneht obligation (APBO). Retired employees S69,947 Fully eligible active plan participants 36,454 Other active plan employees 107,708 Total APB0 214,109 Less unrecognited transition obligation 196,268 Less unrecognized net (gain) (10,233) Accrued postretirement liability $28.074 1 A 12 % annual rate of increase in as of January 1.199i by

• 113 nullion the per capita unts of cocered health and increase the aggregate of the care benchu u as.awumed f or 100i, sen a e ( ost and intcrest u nt compo-gradually decreasing to is by the nents of the net postretirement bene-scar 2001 tot reasmg the assumed fih tost for 1991 by 5 Lo milhon health tare cost trend rates by 1" r in A discount rate of T. was used to eat h Seat u ould mt rease the APHO dc:ennine the APHO 40

-r m

8 Jointly-Owned Generating Stations Nine Mile Point Unit 2 Nuclear Insurance energy, and burial cost factors for de-The Company has an undnided in Niagara Alohan k maintains public termining the minimum funding re-interest in the output and costs of the liability and property insurance for quirement for nuclear decommis-Nine Ahle Point nudear generating N\\lP2. The Company reunhtnses sioning. As a result, the Company's unit No. 2 t NMP2h w hkh is being Niagara \\lobawk for its in share 18% share of the cost to decommis-operated by Niagara Mohawk Pcmcr of those costs. sion NMP2 is currently estimated to Corporation (Niagara Mohaw k t The public liabihty linut for a nu-he $23 6 mdlion in 2027, when de-Ow nership of N\\fP2 is slured with dear incident is approximately 58 8 commissioning is expected to com-Niagara Mohaw k -ilh Long IsLmd hillion. Should losses stemming fnnn mence W4 million in 1904 dollars). . Lighting Company 18% Rochesu r a nudear incident eweed the com-The Company's annual decommis-Gas and Flectric Corporation in, mercially avadable public liabihty in-sioning allowance currently included and Central lhalson Gas & Electnc surance, ex h licensee of a nuclear in electric rates is approximately $1.6 Corporation h The Compan>N facihty wook! he luble for up to a million and is sufficient to recover the share of the rated capability is maximum of 5%; milhon pt r inci-minimum funding ret iirement. The 189200 kilowatts 'Ibe Company's net dent, payable at a rate not to exceed Company beheves that any increase utihty plant imestment, enluding 510 million per year. 't he Company) in decommissioning costs will ulti-nudear fuel, wa3 apprmimately %52 nuximum lialulity for its 1% interest nutely be recusered in rates. nullion and %60 milhon, al Decem-in NNIP2 woukt he appnnumatel) The Company has established a her 31. lW3 and in92, respectisely. 51% nulhon per intident. The 5%; Qtulilled Fund under applicable pne The accumulated prousion for depre-milhon awessment is subject to usions of the federa! tax law. The ciation was appnnimately $103 periodic innation indexing and a Ya f und ako complies with the NRC reg-mdlion and WO nulhon. at December surdurge should funds pnne insulti-ulations u hich require the use of an 31,1993 and IW1 respet tnelv. The tient to pay chiims associated uith external trust fund to provide funds CompanyN slure of operahng ex-a nu(l ear incident. The Pric e-to decommission the contaminated pt nses is mduded m the Consoh. Anderson Act also requires itklemni-portion of NNIP2. The balance in this dated statements of inmme, heation for prn aunonan esacuations fund was approximately $47 milhon A low les el radio.u tive w aste man-w helher or not a nudear incident and 53.9 million at December 31, agement and mnungency plan flut actually occurs. 1993 and 1992, respecth ely, and lus been developed for N\\lP2 pio-Niagara Moluwk maintains nu-is induded m other property and vides assuunce slut NMP2 is prop-t lear property insurance for NMP2 imestments on the Consolidated erly prepared to handle interim and is reimbursed by the Company lulance sheets. storaue of low les el radioactise waste for its IH"o interest. Niagara Moluw k - unni1908. has procured propertv insurance ag_ Homer City Niagara Mohan k has contrat ted gregating approxinutely $27 billion The Coinpany has an undivided 50% with the l' S. Depanment of Energs through the Nudcar Insurante Pools interest in the output and cost.s of (DOE) for disposal of high level rI-and the Nu(lear Elettric losurance i llomer City Generating Station, dioactite waste ispent fuch Inun Limited (NEILL in adthnon, the Com-which is mmprised of three generat. NMP2. The Company is reimbursing pany has portbased NE!L insurante ir:g units. The station is owned with Nugara Moluw k for its 18% share d un erage lor the extra expense in-Pennsylvania Electric Company, the cost under the mntuct tcurrentiv coned in pordusing repluement which olmes the facility. The Com-approdnutely $1 per megawatt hour power during prolonged accidental panp m of the rated capabihty is of nel generationt The DOE's v hed-outages. l'nder NEll. programs. M Wp kilowatts and its net utihty ole for start of operations of their should lowes resulting from an inci-plant mvestment was appnnimatelv high les el radioattive waste reposi-dent at a member facihty exceed the 558 mdlion and $251 million at De-tory has slipped from 2nn3 to no mmnulated resenes of NEIL cach C'*h 3 3 ' I993 ""d I"91 fC'P"C-sooner than 2010. The Company has member. including the Company. tively. The accumulated pna hion for been advised by Niapu Mohaw k would be liJhle [of its share of ihe depTU iation Was approNimately $l59 that the NMP2 Spent I uct storage deficiency. The Company's nuximum indhon and $1is million, at Decem-Pool los a c,yucity for spent fuel that habihty under the property danuge her 31,1993 and 1992. respectisely. is adequate untd 2hlt if further DOE and n placement power cinerages is The Company's share of operating. 3chedule shppage should occur, the approxinutely $13 nulhon, expenses is included in the Consoli-retent des clopment of pre lit ensed dawd Nauenwnts of locome. Nuclear Plant dry stouge facihties for use at any nudear power plant extends the on-Decommissioning Costs in M udear RguMon sue storaue cap hihtv for spent fuel j at NMP[heyond 201 i onun w on up md Wor, 41

i 9 Commitments and Contingencios Capital Expenditures he dependent on suth factors as the A number of the Company's inac-The Company has subsuntial uim-remedul action plan selected, the ex-tive gas manufactming sites lute minnens in omnet tion with its con-tent of site contamination and the been listed in the New York 5ute f strut tion pn> gram and estimates ttui poroon audhuted to the Company. At Registry. The Company has hied peti-capital expenditures for 199 L 1995 December 31,199A the Company re-tions to delist the nujority of dm and 1990 w di appnninute $210 md-corded a lubihty in the Consolid.ned sites. The G >mpany's prog _ .n-I j lion. $200 milhon. and $200 million, Ildance Sheets related to tour of testigate and initiate remed: i at respectively. these forecasted lesels these ses en waste sites of $1.8 mil-its 38 known iiucthe gas manuurtur-h ne been sigmficantly reduced as hon. The Company tus nonfied the ing sites h is been extended through I the Company is taking action to ad-NY51)l:C tlut it belies es it lus no re-the year 20m Expenditures over this dress competituin The pn > gram is sponsibihty at two sites and has ah time period are estimated to be $25 subject to periothe review and res i-ready incurrt d expenditures reLued million. Tliis estimate was determined sion. and.n tual construction costs to the remedunon at the remaining by using the Company's experience 4 nuy sarv because of resised load site. A deferred asset has also been and knowledge related to these sites estimates, imposition of addit onal recorded in the amount of 516 nul-as a result of the investigation and re-regulatory requiremenn.. uni the hon. of w hit b $.8 milhon relates to mediation that the Company has per-ava Libihty and cost of (apital. costs tlut has e alremly been incurred. fonned to date. It is lused upon The Company belieses it w di recover currently availal le facts, exiving Environmental Matters these costs. s noe the 1"sc lus al-technology, and presently enacted The Lompany contmu.dly assesses knved other utihties to recover these laws and regulations. This lubility, to I actions tlut nuy need to be taken to t) pes of remediation costs and lus investigate and initiate remediation, ensure c omplum e u ah (lungmg en-aggy,d dw Coquoy m remva as necessary, at the known inactive vironmenul Lm s and regulations ~ smda cow 3 in nues, sut h as imesti-gas manufacturing sites, is reflected ] Lomplunce programs w di increase pion and clonup tosts relatmg to in the Company's Consolidated llal-the cost of elettic and natural gas nachw p mmutacturing sites. T his ance 5heets at December 31,1993 seniw h) requinng clunges to the H A mdhon estinute was derised hv and 1992. The Company also has re-Company's operations and facihtics' muhiWig die mul evinuhd coq 'm cmded a corresponding deferred as-I hstoucally. rate recovery tus been (lean up a particular site by the re-set, since it expects to recover such authou/cd for the mu inwrred for led Company contribution factor. expenditures in rates, as the Com, mmpliance with emironmenul Lm s Bunuto d die total (leanup costs pany has previously been allowed and icgulation' were detennined by using infonna-by the P5C to reuner such costs in Due to esisung and pioposed leg. non related to a particular site, sut h rates The Company has notified ib islation and regulations, and legal e invesiphom gdowd m date at fonner and current insurance carriers pnweedings < onunenced by gos em-3 4 g. hom the data released by a that it seeks to recos er from them menut hmhes and others. ihe Com n gWatory agency. In addinon. this certain of these cleanup costs. Ilow-pany may also mcur costs trom the evinue e Md upon arrently ever, the Company is unable to pre-past disposal of hazadous subsumes avadaW fxh exiqig talmobgy, dict the amount of insurance produced during the Company's op' and pmndy enxied im and regu-n coveric3, if any, that it may obtain. eranons or those of us predecessor' Imo The conthhution factor is cal-The Clean Air Act Amendments of The Company lus been notified by culated using either the Companv's 19M (1990 Amendments) will resuh the it.5. I:m ironmenul Protect on enta e share of the total PRi s in significant expenditures of approx-Agency OTA) and the New York nmd whia mum (s au PRb udl inmly 51.8 million, on a present state Department of 1:mironrnenul mntribute equally, or the Company's value iusis, over a 2tyear period, for Consen ation ( NYsDEC) dut the estinuted percentage slure of the to-all capital and operating and mainte-Company is among the potentiall) te-tal lu/ardous wastes disposed of at a nance expenses related to the reduc-sponsible panies IPRPM who nuy be Am a site or hv ming a 1% con-tion of sulfur dioxide and nitrogen liable to pay f or costs incuned t" mhmion fxmr for ilme e at oxides at several of the Company's remediate ceruin luzardous sub-wlM it believo dm it b mmdh-coMired gnerating stations, of stances at ses en waste sites. not in' ed a mismal amoum M imadous w hid M1 mdhon ha been incurred ciudmg the Company's inacti e gas nq The Company has notifictl ib e of December 31, U)93. The Com-nunuf acturing sites, w hit h ate dis-former and current insurance carriers pany's current estimate is a significant cussed behnv. Wah respect to the that it seeks to recoser from them reduction from its prior estimate, pri-ses en sites. hve sites are include (l cenMn of these ileanup msts. nunly due to the postponement of in the New York 5 tate Registry of Iloweser, the Compam is unable to the construction of a flue gas de-Inxtise liuardous Waste Sites dM h moum M bumnw m sdfurization il GD) system at the (New Yoik State Registry) msenes, if any, that n nu) ohuin. Ilomer City Generating 5tation. The Any liahdity may be iomt and ses-Company plans to roevaluate the cral for tertain of these sacs. the uhi-need to mnstruct an TGD system mate cost to remedure these snes w dl 42

9 Commitments and Contingencies (continuem at the llomer City Generanng sutnin banking strategy, it is esanuted flut respet th cly. Im icases in Nt U pow er m tw;. smte is present strategy to I'luse il Glow.un e requirements w ill pun luse costs are espet ted to be a lunk Phase I coussions allowam es he inct tiuough the year Jon; by un-signihcant coninhutui to price in-for use donna Pluse ll as discussed hang the allowantes banked dming ( reases us er the next three years. behm, w iU allow the Conipan) to Phase 1. w hit h mchides the extension As gurt of the Company's contino-meet Phase 11 allim ance require-resen e alk m ances disc ussed below. ing ef fort to muiimi/c luture piice in-1- menh tinough the > car Jini. lhe Ingether with the Company's Pluse 11 t reases associated with uneconomical os to e omply u nh the sulf ur diov anmul emissions alk m anics. This power purtluses Irom NI Gs, the ide and ninogen oxide honutia ins strateg) muld be modihed shouki Company negotured lermin.ition of includes the i onstruction of an inno-m.uket or business (onditions agreements for the South Coming s atis e I1il) system and a nitrogen ov (lunge. In atkhtion to the mmul and Indeck-Kiikwood cogeneration ide redm non system especttal to be emissions alk m ant es alkrated to the pn>jech The ISC approved f ull re-conipleted ni PP); at the compansi Compmy by the I:PA. the Company cin ery of the 411,5 million ni enni-i %Ihken Gener.uing Nation. lhe w ill rn eive a pornon of the esten-n.inon msh f or the Indeck-Kiikw. ~l Company esonures flui appnm sion resene allow ances issued by the project in lates lhe Comjuny en inutch a l. clectric rate innease I.PA to uninics elecung to buiki petts to reu ner the D i million in l will be respiiicd f or the (ost of inlue scrubben. as a result of the imoling termination msts for the South Con ing sulf ur dioside and noingen i mde agreenient llut it entered mio with ning proicit in rates because the P5C emhsi< ins in both Pluse I t begms other utiinics w ho were also chgih!c issued an onler in 1993.dh ming the I.mu.ity 1, Iwb and I'luse 11 lbegnis to in ene some of these esiension Company to deler these cosh. nut the fantury 1. Bon As a tesult of the resen e aHow.nxts Coinpin) lus been albmed by the Iwo Amendments. the tiimpmv As a resuk of cusung.ual new PsC to rn n er cosh for the Indeck-pluis to inhn e ih annual sullui (hov solnl w aste dnin isal legislinon and Kirk w oo. Troicet in rares ide emissions hv an ann iont tlut u iH segulain ins in Penns> h ania. the Com- .dlow the t 'omiuny to meet the sulf ur p.my will nn or approunutch sli Coal Purchasing Contracts thoside in cis estabhshed f or the milhon. on a present s alue lusn; of The Conipany lun long term con-tom ins, u lui h is appiosinutch a .ukhtiorul i osis us er the nest in '"* "i' h """"IIIII"I'd *'" *M in rnlus tiiin hum apprminutriv S ean. begmnmg m IW i, at the '"nipanies f or the pun luse of coal IMoonions in 1989 to ~ 1 onn toin llumer Citt Generating Nation. These I' U # I"'"' b '"" IW " """I C") by t he 3 c.u 3 m t osh w ill be int mrni n. insuu new heocraung Nanon. i he contrach, t he t osi of u introlhng losk ems-equipment, moth!v or ieplace cust-wlnt h npke Ix1w'ren 1991 and the skins Imtlet tile l'/Mi AnlendnWol% 11 ing egltil)ilWnt, anti jmlmn e llie de-reqinrnt t annot he esiinuted at ibis sign of a proposed esp msion of F " ""I"M * """ '"I"IIh" ruiW }{cgidain iin m.h lie ade q)te(I at dnpi nal lat ilities 'l he (3)nipans es-the staic in el wint h wiiuld inmt pech to temser these expenditures

unounh of the station's coal icquite-tosn ennsso ins m en Imther, at an m rates. sinte the Compant has been inenh. The pnce of the (oal under I

""' "I ' '""I'"* hI" .ukhnonal i o4 to t he (:ompan). 'I he allow ed by the ISC to rn us er snmlar Company antit ipales ilut the msts (osh m rates sin h as groundwater cowry of prodm1 ion cosh plus in-IC" " '"i"M '""' fd * ;"" int uned to t omply w nh the lwn protecuon msts to meet permit con-I" on hd prW plus matadon \\menihnenh w dl be in osciabic thtions and iegularon requurmenh P '"*.'"'

• C"inpinyN share of through rates lused on prn iiius I

rate in m ery of icquired em non_ Long-term Power Purchase the cost of mal pun based under Contracts these agicements is c. spec ted to ag-mental msk. i 'Ihe I?in \\mendments iequire the e Compmy s on hoe and under gregate W) million 5 i; million, and monM megan ans unu i of non-M1 milhon for the years IW L pyx, FP A to alloi ate annual emissions.d. low am es to c.n h of the Q empam s aulay gn non( a pow n in and D m nnpecuvely, mahlued generating stations lused "MU"n. anothe 2 en inw of f U In addnion, the Compmy lus a on statutore emissu ms huuh An pow n un T moshutnon the longnn tonuwt for the pun base a emnsions [dlow am e icpmscots an "*P""Y* "4"" Pt "I wal for the Mndgh Genaanog .unhori/ anon to ennt dunny os alter menh undes ihne mntram onh b y Nation The contract, w hit h espires a specihed calendar S car, one ton i >I pown H amn During P)% in Um supphes the anniul coal re-I sultur dioude Ihning Pluse I, the PM and M IN Coinpany pur-quiremenh of the stanon One-third Gimpany esumates that it wiH luse i hased appiosunately $138 nulhon. of the tonnage price is renegoruled nu on, and Mo m on. wspn - annuaHyto n n1 in,n mnditions i allow am es m eu ess of the atin ted tis ely, of M 'G pow ei The ('ompan) The dehvered mst of coal pun hased mahtued gencunng Manons-act ual emissions. l he ( nmpuw s present huuto that a w di pun luse ap-under this Jgreement is expected to su.negs n to lunk thne allow ant es prounutely 52;; milhon. M91 mil-he ;% nulhon. H; mdhon, and M6 lion. and W5 milhon iil WG pimer nulhon for the years 199 L 1999, and h4 Lise in latcl scais Os using a h a flic ) cars 1000 1995.and PMh 1994 respn tively. 4 J 43 --..- ~

f ... ~. l J 10 Fair Value of Financial Instruments The esanuted Lur Ulnes of the Comlunps huant ul mstronients at Decenihet 31. lW and IW1 w ere as folk m s: Carrying Amount Fair Value o the congruction of cenain sohd 1993 1992 1993 1992 w asw dispo.at and other wlawd fanb ihes The cai ung amount approsi-(Thousands) n Mr dm M'm' h P dd first mortgage bonds $1,166,779 $1,318.845 $1,274,883 $1,388,990 depoWi. ha e h en im eqed in eem Pollution t,ontrol notes $575,695 $505.680 $581,928 $523,251 g;n g ig,, gony gy g. Preferred stock subject t Th cmr@E mem m gp m a ainuum of da moto mandatory redemption edd g requirements $125,000 $108,550 $134,000 $119,031 on s bir uhie bmm b picim is lased on short-tenn interest rates ~lhe urri ng amount for the 101 Special deposits mdude restucted The fair ulue of the Company's i lowing nems approsinutes esanuted funds tlut are set aside for preferred first mortgage bonds, pollution con-Lur ulue het ause of the shon rnatu-stot k and long-teun debt redemp-trol notes, and preferred stock is esti-nty of those instru:nents. ush and lions Specul deposits also mt lude nuted based on the quoted market cash eqnis. dents. t omnicrd.d paper, testncted f unds ilut are used to li. pnces for the same or sunil,ir issues and mterest an rued nante a poition of the t osis int mred of the s,une renuining matunties. 11 Industry Segment Information certain intornution pertannng to ihe elet nit and n aural gas operanons of the ('ompany is. 1993 1992 1991 Natural Natural Natural Electric Gas Electric Gas Electric Gas (thousands) Operating Revenues $1,527,362 $272,787 $1,451,525 $240,164 $1,367,936 $187,879 Expenses $1,250,000 $249,493 $1,146,619 $221,307 $1,056,969 $177,751 income $277,362 $23,294 $3pt906 $18,857 $310,967 $10,128 Depreciation and amcrtization' $155,231 $9,337 $150,549 $8,428 $145,700 $6,680 Construction expenditures $208,576 $36,453 $210,185 $35,433 $210,127 $35,756 Identifiable assets ** $4,615,963 $458,596 $4.540,724 $377,424 $4,515,237 $340,090

• Included in operating e;tpenses

" Assets used in both electnc and natural gas operations not included above were $201.457, $159.768, and $69,509 at December 31.1933.1992. and 1991, respectively They consist pomanly of cash and cash equivalents, special deposits, and prepayments l l 12 Supplementary income Statement Information tharges for nuinierunte, rep.nts. and depret ution and.unortvation, are set fonh in the Consohdated St.nements of income. Tases. other ilun federal inconic uses. :ne- -1993 1992 1991 (Thousands) Property $84,616 $81.640 $76,589 Franchise and gross receipts 92.810 92,153 76,721 Payroll 17,985 17,096 15,467 Miscellaneous 9.551 10,052 9,408 Total Other Taxes $204,962 $200,941 $178,185 44

L 13 Quarterly Financial Information (Unaudited) -) i Quaiter ended March 31 June 30 Sept.30 Dec.31 (Thousands. except Per Share Amounts) -1993 Operating revenues $522,383 $388,601 $396,410 $492.755 Operating income $109,893 $56,649 $66,108 $68,006 Net income $74,039 $21,500 $32.541 $37,948(1) I~ - Earnings for common stock $68,838 $16.299 $27,340 $32,913 h Earnings per share $.99 $23 S.39 $.47(1) Dividends per share $.54 S.54 $.55 $.55 Average shares outstanding 69,561 69,836 70.119 70,431 Common stock price

• Rgh

$35.13 $36.50 $36.25 $35.50 l Low $31.63 $32.13 $34.63 $28.75 1992 Operating revenues $489,847 S401,934 S367,833 S432,075 l Operating income $111,373 $82,755 $60,109 $69,526 } Net income 576,416 $46,772 $26,581 $34,199 l Earnings for common stock 571,167 $41,488 $21,320 $28,998 Earnings per share $1.10(2) S 60(2) S.31(2) . S.42(2) Dividends per share $ 53 S.53 S.54 S.54 Average shares outstanding 64,682 68,800 69,063 69,318 Common stock price

• High

$29.63 $29.38 $32.00 $32.75 Low $26.13 S26 75 $29.25 S30.38

0) Fourth quarter 1993 results teflect the effects of restructunng expenses, which decreased net mcome and earnings for common stock by $17.2 million and decreased earnings per share by 24 cents.

(2) late in 1992, the Company began reflecting on its income statement the value of energy consumed but not yet billed. If the Company had been allowed h l the PSC to include this unbilled revenue fattor dunng all of 1992, quarterly earnings per share in 1992 would have been 94 cents,39 cents,38 cents, and [ cents for the first second, third, and fourth quarters, respectively.

• The Company's common stock is listed on the New York Stock Exchange. The number of stockholders of record at December 31.1993, was 58.990.

Dn idend 1inntations: Aller div-dehned in the Compmy's Certificate idends on all outstanding pielerred of Incorporanon. Dividends on slo k h.we been paid. or declared, conunon sm.a cannot he paid unless I s and f und, sci apart for their pa3 ment. sinkmg fund requuements of the the conunon stock is entitled to (ash preferred stu k are met. The Company disidends as may be declared by the has not been resincted in the payment l 130.ud of Direttors out of retained of dis idends on wnnuon stock by earnings accumulated smce Deretuler these prosisions lietained earnmgs

31. Ind. f.onunon Not k dn idends accumulated since December 31.

are bmited if Common Nm-k Dpnty 19 u>. u em appiuximately 5320 milhon a 6% at De< emler 31, lW3) falls and 5327 milhon as of December 31 helow 2% of total capiubzanon. as IW3.md UN2. icspectisely. L l l l 45

i t L ' Report of Management Report of Independen't Accountants L The Company's nunagement is responsible for the piepa-fs ration, integrity and objectivity of the consolidated finan-LOO 3ers h[y}{ggd cial statements. notes. and other infornution in this Annual Report. The consohdated financial statements have been prepared in armrdance with generally accepted ac-counting principles and include esumates whkb are based To the Stockholders and Hoard of Directors, upon management's judgment and the le.t asailable New York State Electric N Gas Corporation and information Other financial infonnation contained in Subsidiaries this report was prepared on a basis consistent with that Ithaca, New York of the consohdated financial statements. In recognition of its responsibility for the consolidated We base audited the accompanying consolidated balance financial st.nements. management maintiins a system of sheets of New York State Electric & Gas Corporation and internal accounting controls w hich is designed to proside subsidiaries as of December 31,1993 and 1991 and the reasonable assurance as to the integnty and ichabihty of related consolidated statements of income, changes in e the financial sutements. the protection of assets from un-common stock equity. and cash flows for each of the authorized use or disposition, and the pres ention and de-three years in the period ended December 31,1993 tettion of traudulent financial reportmg. Management These financial statements are the responsibility of the continually monitors its system of intemal controls for Company's management. Our responsibility is to express an. [ compliance The Company maintains an internal audit de-opinion on these Gnancial sutements based on our audits. partment whkh independently assesses the effectiseness We conducted our audits in accordance with generally of the intemal controls. In addition, the Company's inde-accepted audning standards. Those standards require that. pendent accoununts, Coopers & l.ybrand, base consid-we plan and pedonn the audit to obtain reasonable assur. ered the Company's intemal control structure to the ance about uhether the finandal statements are free of extent they considered necessary in expressing an opin-material misstatement. An audit includes examining, on ion on the consolid.ned financial statements. Management a test basis, esidence supporting the amounts and dis-is responsive to the rewmmendations of its internal audit closures in the financial sutements. An audit also includes department and Coopers & Lybrand concerning internal assessing the accounting principles 'used and significant : controls and corrective measures are taken w hen consid-estimates made by management, as well as es aluating the cred appropriate. Management believes that as of Decem-oserall financial statement presentation. We beliese that her 31, pm, the Company's system of intemal controls our audits proside a reasonable basis for our opinion. provides reasonable assurance as to the integrity and in our opinion, the financial statements referred to rehabihty of the consoliciated financial statements, above present fairly, in all nuterial respects, the consoli-The Hoard of Directors mersees the Company's Gnan-dated financial position of New York State Electric & Gas cial reporting through its Audit Committee. This Conumt-Corporation and Subsidiaries at December 31. P)93 and tee, w hkh is comprised entirely of outside directors. 1992, and the consolidated resuhs of their' operations and meets regularly with nunagement ihe internal auditor, their cash hows for each of the three years in the period and Coopers & l.ybrand to discuss auduing internal con-ended December 31.1993, in conformity with generally trol and financial reporting nutters. To ensure their inde-accepted accountmg principles, pendence, both the intemal auduur and independent As discussed in Note 7 to the consolidated financial. accountants have free access to the Audit Comminee statements, the Company and Subsidiaries changed its uithout nunagement's presence. method of accounting for postretirement benefits other. ilun pensions in 1993 an d C . James A. Carrigg y Chairnun. President and Chief Executive Officer O New York. New York January 28,199i Sherw ood J. Halferty Vice President and Tremurer tChief Financial Offkeri ~n j ,Q VfM5f n n eren A noninson t Vice President and Controller (Chief Accouming Offis er) + f 46 - ~

Selected Financial Data (Thousands - except Per Share Amounts) 1993 1992 1991 1990 1989 Operating revenues $1,800,149 $1,691,689 $1,555,815 $1,496,780 $1,427,745 Net income $166,028* $183.968 $168,643 $158,013 $157,779'* Earnings per share $2.08t $2.40 $2.36 $2.48 $2.53** Dividends paid per share $2.18 $2.14 $2.10 $2.06 $2.02 Average shares outstanding 69,990 67,972 62,906 58,678 57,138 Book value per share of common stock (year end) $22.89 $22.85 $22.16 $21.85 $21.29 Interest charges $145.450 $155,388 $163,526 $173,390 $180,068 AFDC and non-cash return $8,003 $6,482 $7,541 $5,776 $6,387 Depreciation and amortization $164,568 $158.977 S152.380 $147,659 $148.375 Other taxes $204,962 $200,941 $17M85 $158,770 $146,605 Construction expenditures $245,029 $245,618 $245,883 $210,725 $192,022 Total assets $5,276,016 $5.077,916 $4,924,836 $4,737,431 $4,670.283 Long-term obligations, capital leases, and ledeemable preferred stock $1,755,629 $1.883,927 $1,897,465 $1,766,457 $1,799,800

• Net income and earnings per share for 1993 mclude the effects of restructunng expenses, which decreased net income by $17.2 million and decreased i

earnings per share by 25 cents " Net income and earnmgs per share for 1989 include the effects of the adjustment recorded in December 1989 to the 1987 Nme Mde Point nuclear generstmg unit No. 2 write off. Excludmg that adjustment, net income and earnmgs per share for 1989 were $151,998 and $2A3 Glossary Allowance for funds used during Earnings per share: carmngs tor tom. Price / earnings (P/E) ratio: a measure-construction ( AFDC): the mst of money mon sim L lor a gn en period dnided hv ment of the marketis perteption of a mm. used to hnant e a pioica w lut h h adled t< i the as trage number of shares outst.mdmg pany's gn mih peitenti.d uhe higher the Pl construi n..o i ost3 and won ewd os er the for the peniid ratio. the more potennal the market beheves hic of the assei Embedded cost of long-term debt: thtte n for powM Allowed return on common equity: the.ncrage interest rare on long-term (L;hi Retained earnings: the pornon of carn the i ost of mmmon eqturv as detenmned outstanthng at the end of the year ings that has been icinvested in the husmess Heat rate: a measme of generanng stanon ""' F" Book value per share:iommon su a L cun ient y ohen npressed as the number Return on common equity: the rate of eiputy d,uled b5 the numiu of i ommon of luu needed to generate one kilowan Aour n1um c.uned on common equity cak ulaicd shan, ouNandmg at the end of the peiiod of elecintin by dn nlmg canungs for mmmon shn k by Stu (British thermal unit): ihe quantay Load factor: ihe as erage load of an " * " F '"""""" "3""F of hear requaed to raisc the temperature of elecinc iir imnal gn dnmhunon st sicm Total shareholder return: the mercase one pa iond of u.uci h3 < >ne di gn e tahwn-compared 1o its maximum load t apabiluy m the value of a sharehokler s im esunent hea.n sea incl h >r a t en.un pmod i st inne. expressed mduthug dn idends ret en ed and t hanges Common equity: the s ahie of comnu in e a peu enuge in the market prke per mmmon share slot kholders n.csoncnt m a compan) Market to-book ratio: an manahon of Transportation gas: natural gas pur-along u nh reumed earninM' die med s grgnon of a + n b uk and duQ bm a wppha by.m cod Competitive bidding: a mandated por f a r.eio of oser im mda arcs that the mark et user and transported. foi a fee. by a local 5 ess by a hit h unknes must seek hais for behoes the sim k n w orth rnore than as thstnhunon compan), sus h as the 0,mpany addmonal gencunon or dernand+ide man-book saluu Unbilled revenues: the esumated sese-agement pn yet ts Net income: (armngs aher all expenses nues attribouble to energy w hit h has been Dekatherm: a meeure of heanng ulue are in ognved. but before preferred da F dehscred to ihe Gimpanis customers but eipul to one nullion Bru r lun cubic feet of dends are p.ud for whwh the metered amount has not yet natum! gn f onc mef) eqtuls approumately Non-utility generator (NUG): a non-h" l " M '" ' h" ' """

• one dekathrnni oded m r p-mor N n Msi>

Watt: one ampere of electric current under Dsmand-side management (DSM): know n as an independent pow er pn adut er one wh of pressure tone kdow att n imo the plannmg and unplemmunon of pn-or energy sen n e mmpany watts; one kdowatt hour h one kilowatt gums desu:ned to help resideanak uimmen used for one hour, and one megawatt is g t i d. and industrial cloInt i mb imers leni) kdow ans or one nulhim wattsi mnsen e energy w u ner caking unhty in ro ord peak n Yield: the return whia dnidends proude Earnings for common stock: t arnmgs W megau ano a sh.neholder talmLued by dniding the cur-atter all cyicnses an weognved and preter-rent annuhed thviJend per share by the red ditidend3 h.n c been paid current m.uket pnte per shan 47

- Financial and Operating Statistics 1993 1992 1991 1990 1989 1988 1983 (Thousands, except Per Share Amounts) Operating Revenues Electric $1,527,362 $1,451,525 $1,367,936 $1,334,509 $1,266,668 $ 1,191,806 $785,723 Natural gas 272,787 240,164 187,879 162,271 161,077 148,363 207,866 Total 1,800,149 1,691,689 1,555,815 1,496,780 1,427,745 1,340,109 993,589 Operating Expenses Fuel used in electric generation 245,283 262,531 274,877 274,245 279,075 253,326 187,148 Electric;ty purchased 161,967 95,026 45,808 34,613 26.019 19.432 66,575 Natural gas purchased 141,635 126,815 99,528 88.589 101,598 82,822 160,415 Other operating expenses 349,177 318.680 279.364 268,829 238,804 213,959 128,986 Restructuring expenses 26,000 Maintenance 111,757 102,500 110,131 106,665 97,420 90,097 61,234 Depreciation and amortization 164,568 158,977 152,380 147,659 148,375 134,037 56,799 - Federal income taxes 94,144 102,456 94.447 89,577 64,489 81.689 67,891 Other taxes 204,962 200,941 178,185 158,770 146,605 136,706 90,604 Total 1,499.493 1,367,926 1.234,720 1,168,947 1,102,385 1,012,068 819,652 Operating income 300.656 323,763 321,095 327,833 325,360 328,101 173,937 - Other income and deductions 6,471 12,036 6.076 (1,508) 7,474 28,350 . 95,296 Income Before Interest Charges 307.127 335,799 327,171 326.325 332,834 356,451 269,233 Interest Charges interest on long-term debt 134,330 145,822 151,649 158,209 164,573 187,304 130,488 Other interest 11,120 9,566 11,877 15,181 15,495 12,426 6,884 Allowance for borrowed funds _ used during construction (4,351) (3,557) (4.998) (5,078) (5,013) (14,746) (24,819) interest charges - nel 141,099 151,831 158,528 168,312 175,055 184,984 112,553 Net income 166,028 183,968 168,643 158,013 157,779 171,467 156,680 Preferred Stock Dividends 20,638 20.995 20,330 12,662 12.975 13,492 23,466 Earnings available for Common Stock 145,390 162,973 148,313 145,351 144.804 157,975 133,214 Common Stock Dividends 152,316 144,621 131,875 121,302 115,224 112,252 98,155 Retained Earnmgs increase (Decrease) ($6,926) $18,352 $16.438 $24,049 $29,580 $45,723 $35,059 Average number of shares of common stock outstanding 69,990 67,972 62,906 58,678 57,138 56,239 43,530 Earnings per share $2.08 $2 40 S2.36 $2.48 $253 $2.81 $3.06 Dividends paid per share $2.18 $2.14 $2.10 $2.06 $2.02 $2.00 $2.26 ) 1 I l i 48 l

i Financial Statistics E 1993-1992 1991 1990 1989 1988 1983 financial Statistics Return on average common . stock equity - percent 10.1 (1) 10.6 10.7 11.4 11.5 (4) 13.2 (4) 13.5 Percentage of AFDC and non-cash return to total earnings 5.5 40 5.1 40 4.6 15.5 68.8 Mortgage bond interest - times earned 3.0 3.1 30 2.9 2.9 2.6 2,7 Interest charges and preferred dmdends - times earned 1.9 1.9 1.8 1.8 1.8 1.7 1,8 Book value per share of . $22.75 common stock tyear end) $22.89 $22 85 - $22.16 $21.85 $21.29 $20.71 Market value per share of common stock (year end) $30.75 $32.50 $29 00 $26.00 $28 88 $22.75 $20.13 - Dividend payout ratio Ipercent) 104 8 89 2 89.0 83.1 79.8 71.2 73.9 Price earnings ratio (year end) 14.8 13.5 12.3 10 5 11.4 8.1 66 Property, Plant and Equipment (inc!udeS Construction Work in progress) (Thousands) 1 Electric $4,387,125 $4,694,073 $4,537,356 $4,367,913 $4,217,920 $4,089,485 $3.109,469 Natural gas 393,945 361,630 336,199 222.125 201,942 189,580 142,072 Common 180,532 205,345 189,135 175,703 155,340 129,860 49,115 Total $5,461,602 $5,261,048 $5,062,690 $4,765,741 $4,575,202 $4,408,925 $3,300,656 Accumulated Depreciation $1,541,456 $1,427,793 $1,309,829 $1,174,651 $1,063,630 $956,415 $563.118 Capitalization (includes current rnaturities) (Thousands) long term debt $1,868,338 $1,891,036 $1,825,918 $1,815,686 $1.801,762 $1,985,276 $1,331,981 Preferred stock 360,500 269.050 270,700 172,350 174,000 178,650 278,950 Common stock equity 1,615,697 1,586,474 1,405,147 1,364,344 1,225,184 1,174,028 1,103,655 Total Capitalization $3 844,535 $3,746,560 $3,501,765 $3,352,380 $3,200,946 $3,337,954 $2,714.586 Capitalization Ratios (percent) i Long term debt 48.6 (2) 50.5 52.2 54.2 56.3 59.5 49.1 Preferred stock 9.4 (2) 7.2 7.7 5.1 5.4 53 10.3 Common stock equit, 42.0 (2) 42.3 40.1 40.7 38.3 35.2 40.6 Number of Stockholders Common stock 58,990 61,183 59,593 60,585 62,552 66,689 82,982 Preferred stock 3,632 3,829 3,943 4,068 4,238 4,444 6,607 Payroll (including pensions, etc.) (Thousands) Charged to operations $197,023 (3) $181,245 $163,421 $148,007 $140,415 $132,617 $101,235 CharDed to construction and other accounts 85,929 89,463 82,455 72,761 64.890 61,808 53,422 Total $282,952 $270,708 $245,876 $220,768 $205,305 $194,425 $154,657 Number of employees (year end) 4,746 4.888 4,842 4,599 4,558 4,494 4,378 (t) The retuin on equity for 1993 excludes restructuring expenses. (2) After $95 mdhon of fedemptrons of preferred stock in early 1994, the capital structure will be 49 8% long-term debt,7.1% preferred stock, and 43.1% common stock eau ty. (3) Payroll charged to operations for 1993 excludes restructuring expenses. (4) The return on equity for 1988 and 1989 excludes the Nine M:le Point nuclear generatmg unit No 2 write.off adjustments. 1 49 i

Electric Sales Statistics 1993 1992 1991 1990 1989 1988 1983 Kilowatt Hour (KWH) Sales (Millions) Residential 5,423 5,472 5,297 5,319 5,233 5,148 4,398 Commercial 3,298 3.283 3,285 3,235 3,181 3,069 2,536 Industrial 2,950 3,082 3,068 3,175 3,210 3,159 2,691 Other 1,417 1,457 1,457 1,468 1,431 1,400 1,231 Total Retail 13,088 13,294 13,107 13,197 13,055 12,776 10,856 Other electric utilities 6,233 6,003 5,066 4,750 4,461 3,896 1,429 Total 19,321 19,297 18,173 17,947 17,516 16,672 12,285 Operating Revenues (Thousands) Residential $635,155 $601,042 $553,056 $521,688 $510,941 $507,428 $335,284 Cornmercial 333,674 3i4,272 293,197 267,598 261,606 257,707 169,537 Industnal 228,215 225,832 207,933 196.016 196,701 198.344 133,007 Other 138,320 133,819 124,575 116,352 114,364 113,576 75,490 Total Retail 1,335,364 1,274,965 1,178,761 1,101,654 1,083,612 1,077,055 713,318 Other electric utilities 147,175 143,414 131,412 145,104 134,108 89,784 58,239 Unbilled revenue recognition - net 2,257 (427) 35,333 42,995 Other operating revenues 42,566 33,573 22,430 44,756 48,948 24,967 14,166 Total Operating Revenues $1,527,362 $1,451,525 $1,367,936 $1,334,509 $1,266,668 $1,191,806 $785,723 Operating Revenues Per KWH (Cents) Residential 11.71 10.98 10.44 9 81 9.76 9.86 7.62 Commercial 10.12 9.57 8.93 8.27 8.22 8.40 6.69 Industnal 7,74 7.33 6.78 6 17 6.13 6.28 4.94 Other 9.76 9.18 8.56 7.93 7.99 8.11 6.13 Total Retail 10.20 9 59 8.99 8.35 8.30 8.43 6.57 Other electnc utikties 2.36 2.39 2.59 3.05 3.01 2.30 4.08 Number of Customers (Year End) Residential 703,503 699,387 692,922 685.898 676,590 665,296 611,298 Commercial 73,727 72,463 71,463 70,802 69,230 ' 67,488 60,873 Industrial 1,542 1,508 1,506 1,498 1,465 1,437 1,338 Other 11,091 11,073 10,907 10,825 10,694 10,556 10,039 TOTAL 789.863 784,431 776,798 769,023 757,979 744,777 683,548 Annual Average Use (KWH)(1) Residential 7,708 7,843 7,672 7,796 7,786 7,791 7,223 Commercial 44.781 45.258 45,864 45,826 46,095 45,600 41,772 Industrial (thousands) 1,935 2.047 2,047 2,142 2,200 2,226 2,019 Annual Average Bill (1) Residential $903 $861 $801 $765 $760 $768 $551 Commercial 4.531 4,333 4,093 3,791 3,791 3,829 2,793 industrial 149,747 149.955 138,714 132,265 134,819 139,777 99,780 10 Computed usmg the weignred average number of customers for the year. 50

Electric Generation Statistics ~~ -t 1993 1992 1991 1990 1989 1988 1983' i System Capability (Megawatts) Coal 2,394 2,415 2,412 2,414 2,414 2,405 1,733 Nuclear 189 188 196 194 193 194 Hydro 67 70 70 68 66 67 56 Internal Combustion 7 8 8 7 7 7 10 Total Generating Capability 2.657 2,681 2.686 2,683 2,680 2,673 1,799 Purchased - Power Authority 486 489 488 487 487 510 680 - NUG 362 347 110 - Other 53 9 300 Less: Firm Sales (311) (8) (115) (125) -Total System Capability 3,194 3,509 3,284 3,223 3,061 3,058 2,779 System Capability (Percent) Coal 75 69 74 75 80 79 63 ' Nuclear 6 5 6 6 6 6

Hydro, 2

2 2 2 2 _2 2 Total Generating Capability 83 76 82 83 88 87 65 Purchased - Power Authonty 15 14 15 15 16 17 24 - NUG 12 10 3 - Other 2 11 Less: Firm Sales (10) (4) (4) Total System Capabihty 100 100 100 100 100 100 100 } Production Statistics AnnualInad factor (percent) 66.7 67.0 68 9 69.4 64.7 63.5 64.4 Coal burned (thousands of net tons) 5,918 6,478 6,310 6,395 6,472 6,106 4,666 Coal heat value (Btu per Ib.) 12,674 12,668 12,610 12,510 12,477 12,572-12,033 Bru per kwh generated (net) 9,997 9,902 9,898 9,936 9.931 Kilowatt-Hour (KWH) Production-9,881 10,552 Wet (Millions) Generated: Coal 15.131 16,709 16,157 16,211 16,345 15,589 10,641 Nuclear 1,295 922 1,180 743 773 639 Hydro 309 301 258 356 292 245 213 Total Generated 16,735 17,932 17,595 17,310 17,410 16,473 10,854 - Purchased - Power Authonty 1,617 1,035 1,667 1,607 1,667 1,743 2,023 - Other 2,550 1 250 343 347 102 45 714 Total 20,902 21 817 19,605 19,264 19,179 18,261 13.591 i'roduction Expenses (Thousands) Generated $371,891 $375,209 S391,393 $391,977 $381,371 $351,963 $237,309 Purchased - Power Authonty 16,713 15,661 14.668 13,534 12,012 11,360 25,849 NUG 137,791 71,260 30,028 7,700 1,905 1,393 829- - Other 7,463 8,105 1,112 13,379 12,102 6,679 39,897 Total $533,858 $470,235 5437,201 $426,590 $401,390 $371,395 $303,884 i Cost Per KWH (slills) 1 Generated 22.22 20 92 22.24 22.64 21.91 21.37 21 86 Purchased - Power Authonty 10.34 9 58 8 80 8.42 7.21 6,52 12.78. - NUG 55.74 56 56 63.48 62.10 56.03 55 72 52.68 - Other 20.62 21.39 21.67 30.41 40.47 26.01 48.91 Operating expense (excluding production) 14.20 12.15 11.34 11.70 10.57 9 62 8.60 Total 39.74 34 74 33.64 33.84 31.81 . 29.96 30.95 Electric Operation and Maintenance Expenses (Thousands) Production $533,858 S470,235 S437,201 $426,590 S407,390 $371,395 $303.884 Transmission 32,734 31,623 30,462 30.118 29,239 22,196 13,382 l Distnbution 69,322 64,428 62,763 58,876 54,420 49,737 39,111 l. Customer accounting 35,559 31,180 28,861 26,861 23,242 21,031 16,603 Customer service 34,749 31,390 24.345 27,625 23,426 20,527 5,221 Admmistrative and general 124,462 (1) 94.349 75.812 81,815 72,405 62,258 42,508 Total $830,684 5723 205 $659,444 S651,885 $610,122 $547,144 $420,709 (1)locludes restructanng expenses et $71 mdhon I 51

1 Natural Gas Sales Statistics 1993 1992 1991 1990 1989 1988 1983 Dekatherm (DTH) Sales (Thousands) (1) i Residential 25,080 24,913 18,115 14,809 15,331 14,818 13,857 Commercial 10,640 10,796 8.054 6,532 6,926 7,055 7,514 ) Industnal 1,820 1,689 1,7' 8 2,023 2,167 3,121 9,296 Other 1,805 1,959 1,9P 2,151 2.071 2,242 3,718 Total Retail 39,345 39,357 29,874 25,515 26,495 27,236 34,385 Transportation of customer owned natural gas 18,701 17,001 12,530 8,157 8,853 7,825 Total 58,046 56.366 42,40d 33,672 35,348 35,061 34,385 Operating Revenues (Thousands) (1) ~S92,974 i Hosidential $170,734 $152.325 $111,106 $94.531 $93,873 $83,115 Commercial 66,648 59,939 43,969 37,852 38.726 35.680 44,980 industrial 9,602 8.092 8.640 10,267 10,437 12,821 49,217 Other 10,943 10,762 10.243 11,574 10,776 10,738 20,695 l Total Retail 257,927 231,118 173,958 154,224 153.812 142,354 207,866 7tansportation of customer-owned natural gas 12.091 11,639 9,571 7,169 6,721 5,523 =l Unbdled revenue recognition - net 2.686 (3.626) 3,770 853 Other natural gas revenue 83 1,033 580 25 544 486 Subtotal 14,860 9.046 13,921 8,047 7,265 6,009 f Total Operating Revenues $272,787 $240.164 $187,879 S162,271 $161,077 $148,363 $207,866 Operating Revenues per DTH Residential $6.81 $611 $6.13 $6.38 S612 $5.61 56 71 Commercial 6.26 5 55 5 46 5.79 5 59 5.06 5 99. l Industnal 5.28 4 79 4.83 5.08 4.82 4.11 5.29 Other 6.06 5.49 5.34 5.38 5 20 4.79 5.57 Total Retail 6.56 5.87 5.82 6 04 5.83 5.24 6.05 Transportation 0 65 0 68 0.76 0 88 0.76 0.71 Number of Customers (Year End)(1) Residential with house heating 185,117 182,795 178,625 117,429 114.497 111.543 '103,040 Residential without house heating 12,943 13,181 12,906 8,360 8.079 8,340 8,740 Commercial with space heating 23,327 23.165 23,023 16,843 16,626 16,419 15,602 Commercial without space heating 2,281 2,282 2,241 1,548 1,476 1,444 1,455 Industrial 394 390 386 334 343 343 387 Transportation of customer-owned natural gas 444 389 342 277 228 214 Other 1,693 1,657 1,557 1,246 1,154 1,133 1,130 Total 226,199 223,859 219,080 146,037 142,403 139,436 130,354 ' nnual Average Use (DTH)(2) A Residential 127 129 105 119 126 125 124 Commercial 416 428 345 358 386 398 449 ) Industrial 4,515 4.387 4,781 6,003 6,246 8,694 24,272 Annual Average Dill (2) Residential 5864 5786 S641 3763 5774 S703 5833 Commercial 2,605 2,377 1,882 2,076 2,158 2,012 2,689 Industrial 23,827 21,018 23,102 30,466 30,079 35,713 128,504 Cost of Natural Gas Purchased Amount (thousands) $141,635 $126,815 $99,528 $88,589 S101,598 $82,822 $160,415 Per dth $3.56 S3 22 S3.30 $3.64 S3.57 $3.02 S4.52 Natural Gas Operation and Maintenance Expenses (Thousands) Production $142,229 S126,984 S101,458 $88,901 $102,014 $83,155 $160,928 Transmission and distnbution 20,712 19,938 18,491 13,982 13,247 11,712 8,908 Customer accounting 10,959 9,233 8,046 5,765 4,990 4,516 3,783 Customer service 6.972 8,152 6,533 5,942 3,972 3,352 1,328 Admmistrative and general 24.263 (3) 18,040 15,735 6,464 8.571 9,758 8,703 Total $205,135 $182,347 $150,263 $121,054 5132,794 S112,493 $183,650 III The mcfense in tW1 !s pnmardy due to the acquistion of Columbia Gas of New York, loc. (2) Computed using the weghted average number of customers for the year. i (3) includes restruttoong expenses of $5 mdhon a 52 ~ ~

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