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New York State Electric & Gas Corp,1986 Annual Rept. Central Hudson 1986 Financial & Statistical Rept Encl
	ML18038A257
Person / Time
Site:	Nine Mile Point
Issue date:	12/31/1986
From:	ALLEN W P, CARRIGG J A; NEW YORK STATE ELECTRIC & GAS CORP.
To:	;
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ML17054C162	List: ML17054C161; ML18038A257;
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NEWYORKSTATEELECTRIC8GASCORPORATION

'f986ANNUALREPORTP-~~(f'gy,,()fj-NOTICE-THEATTACHEDFILESAREOFFICIALRECORDSOFTHEDIVISIONOFDOCUMENTCONTROL.THEYHAVEBEENCHARGEDTOYOUFORALIMITEDTIMEPERIODANDMUSTBERETURNEDTOTHERECORDSFACILITYBRANCH016.PLEASEDONOTSENDDOCUMENTS CHARGEDOUTTHROUGHTHEMAIL.REMOVALOFANYPAGE(S)FROMDOCUMENTFORREPRODUCTION MUSTBEREFERREDTOFILEPERSONNEL.

DEADLINERETURNDATEg7oC/uo~~~~~p~Qc~jlRECORDSFACILITYBRANCH ContentsHighlights oftheYearLettertoStockholders Condensed Statement ofIncomeGeneralReviewoftheYearEarningsandDividends NineMilePointIIRatesConstruction Expenditures PowerSupplyFinancing ResearchandDevelopment DividendReinvestment PlanEnergyMarketing CustomerAssistance ElectricOperations GasOperations BoardofDirectors 5668881010101212141414..Balance SheetStatement ofIncomeStatement ofRetainedEarningsStatement ofChangesinFinancial PositionNotestoFinancial Statements Management's Discussion andAnalysisofFinancial Condition andResultsofOperations 161717181931PLATSBURGH~~Financial andOperating Statistics Directors andOfficers3540BUFFALOLAKEONTARIOLOCKPORT0RESTERSYRACUSE0LANCASTER GNVA~AURNMECHANICVILL ITHACA~0HORNELLELMIRA~PENA5YLVAMA ONEONTA~BINGHAMTON LIBERTServiceAreaBRETERNYSEG'sserviceterritory ismainlycomposedofsuburbanandruralareasoutsidelargecities.Over40%ofrevenueisderivedfromresidential customers.

Theeconomyissupported byadiversemixoflightindustry, agriculture, recreational facilities andinstitutions ofhigherlearning.

Collegeandindustryresearchfacilities provideagoodbaseforgrowthof'igh-technology firms.~ELECTRICC3GAS~ELECTRIC&GAS~DISTRICTOFFICES Highlights 19861985IncreasePercentGrossoperating revenues(thousands)

Incomebeforeinterestcharges(thousands)

Earningsavailable forcommonstock(thousands)

Earningspershareofcommonstock$1,277,284

$1,241,780

$35,5043$394,822$374,092$20,7306$208,390$183,207$25,18314$3.86$3.46$.4012Returnonaveragecommonstockequity-percentDividends paidpershareofcommonstockTaxespershareofcommonstock.........

15.3$2.60$4.4614.31.07$2.50$.104$3.92$.5414Electricity salestoultimatecustomers (millionkwh).11,80711,4054024Electricity salestootherutilities (millionkwh)Gasdelivered (thousand dekatherms)

Costoffuelforelectricgeneration (thousands)

.Totalutilityplantinvestment (thousands)

.....Expenditures forconstruction (thousands)

Bookvaluepershareofcommonstock(average)

.Marketvaluepershareofcommonstock(yearend)3,54533,2685,02134,307$238,371$280,397$4,373,045

$4,055,389 (1,476)(29)(1,039)(3)$(42,026)(15)$317,6568$230,892$256,149$(25,257)(10)$25.24$24.17$1.074$31.38$28.63$2.7510Thisreportisdedicated totheemployees ofNewYorkStateElectric&GasCorporation whosehardworkandconscientious effortsmakepossibfeourcorporate theme,"GoodPeopfe.GoodService.

,TotheStockholders:

romanearningsstandpoint, 1986wasagoodyear.Earningsof$3.86asharewereup12/0fromlastyear,settingarecordfortheCompany.Earningsqualityalsoimprovedastheproportion ofnon-cashearningsdeclinedfrom670/oto54%.Higherearningsallowedanincreaseinthedividendratefortheninthconsecutive year.Our18/oparticipation intheNineMilePointIInuclearprojectcontinues tobeofconcern.Asindicated elsewhere inthisreport,theplant'scompletion wasdelayedearlierthisyearbecauseadditional testingwasrequiredforkeysafetyvalves.Webelievethisdelaywillresultincommercial operation inthefourthquarterof1987.Aswithmostnuclearplantsbuiltinthiscountrysincethe1979incidentatThreeMileIsland,NineMileIIhasexperienced costincreases farbeyondthoseoriginally contemplated.

Asaresult,rate-setting commissions inmanystateshavetakenthepositionthataportionofplantcostswas"imprudently" incurred.

Inourcase,theNewYorkStatePublicServiceCommission hasseta$4.16billionlimitonthecoststhatcanbereflected inelectricratesofthefiveutilities owningthe$6billionproject.Thismeansthatroughly$2billion,beforetaxoffsets,willhavetobeabsorbedbyutilitystockholders.

Theutilities agreedtothedisallowance toavoidaprudenceproceeding whichwouldbelong,costlyandprolonguncertainty overtheproject.Inaddition, itwouldoccupytheservicesoftechnical personnel neededtocompletetheplant.TheCompanyexpectstorecorditsshareofthedisallowed costswithachargetoexpenselaterthisyear.Wepresently estimatethis'charge tobe$326million,or$234millionafterincometaxeffect.Thisequatestoabout$4.25ashareandwouldincreaseiftheplantisfurtherdelayed.Becausethewrite-off reducescommonstockequity,itwillhaveacontinuing effectofreducingearningsbyabout55centsashare,basedona130%%dreturnonequity.Thiswillmeananendtoourhard-earned nine-year recordofdividendincreases.

However,webelievethatsalesgrowthandreasonable regulatory treatment willenableustoresumemodestdividendincreases inafewyears.WithNineMile'sadverseeffectontheCompany,wehaveintensified ourprogramtoreducecosts.Amongotherthings,weimprovedtheoperating efficiency ofourpowerplants,effectedcapital-cost reductions thataddedtencentsasharetoearningsin1986andcutthecostofcoalusedingenerating electricity.

Attheendof1986wehadfeweremployees thanin1982,.despite theneedtoaddmorethan200workersforSomersetGenerating Station,whichbeganoperation in1984,andhireemployees toconductstate-mandated energyconservation andenvironmental activities.

In1987,weanticipate furthercostsavings,including areduction incoalcostofnearly$10million.Inadditiontocuttingcosts,wehaveestablished anaggressive plantoselectively increaseelectricandgassales,whichhelpskeeprateincreases toaminimum.Thereisparticularly goodpotential forprofitinsellingelectricity duringoff-peakhours.Withthedeclineinpricesofpurchased naturalgasandincreased gasavailability, wehaveundertaken anambitious programtoaddnewcommunities toourgasfranchise areas.Despiteoureffortstoreducecostsandraisesales,westillmustseekmodestrateincreases, primarily torecovertheallowedcostsofNineMileII.WehaveappliedtothePSCforhigherelectricratestobemadeeffective overathree-year periodbeginning January1,1988.Weestimatetheincreases willbeabout3to4%ayear.Ourelectricandgasratesforindustrial customers willcontinuetobeamongthelowestinNewYork.Thisfact,togetherwiththeservicearea'sproximity tourbanmarketsandavailability ofskilledlabor,augurswellforindustrial expansion.

Toassistcommunities inattracting newindustry, weareplanningtheestablishment ofasubsidiary toacquire,developandsellplantsitestoindustry.

Application hasbeenmadeforPSCapprovalofthesubsidiary.

InDecember1986,theCompanyandCorningNaturalGasCorporation announced astudyofthefeasibility ofNYSEGacquiring Corning,whichserves12,000gascustomers intheCorning,N.Y.area.Thestudiesarecontinuing.

Asthecoverindicates, thisreportisdedicated tothe4,423employees whoseworkcontributes importantly tothesuccessoftheCompany.Weareproudofthemandwishtopubliclyexpressoursincereappreciation fortheirloyalty,.

diligence andhardwork.Theyare,indeed,goodpeople,providing goodservice!FortheBoardofDirectors, ChairmanandChiefExecutive OfficerPresident andChiefOperating OfficerMarch2,1987JamesA.Corrigg(leftJWellsP.Allen,Jr.

Consolidated Condensed Statement ofIncome19861985IncreaseREVENUESSalesofelectricity SalesofgasTotal(Thousands ofDollars)$1,098,089

$1,051,579

$46,510179,195190,201(11,006)1,277,284 1,241,780 35,504EXPENSESWagesandsalariesofemployees andcontributions toretirement andinsurance plans(exclusive of$55,936,000 in1986and$57,075,000 in1985chargedtoconstruction, etc.)Fuelusedtoproduceelectricity Electricity purchased

.Gaspurchased Othermaterials, servicesandresearch.FederaltaxesStateandlocaltaxesDepreciation TotalIncomeavailable toinvestors 126,307238,37129,302111,147114,742126,315114,424100,796118,711280,39735,984129,80994,138101,408106,28698,0857,596(42,026)(6,682)(18,662)20,60424,9078,1382,711961,404964,818(3,414)315,880276,96238,918AFDCANDOTHERNON-CASHRETURN..111,872122,719(10,847)INVESTORS'HARE Interestonbonds.InterestonnotespayableandotherDividends onpreferred stockDividends oncommonstockTotalRETAINEDINTHEBUSINESSAFDCisallowance forfundsusedduringconstruction 146,02153,23720,104140,432138,66552,58325,226132,0187,356654(5,122)8,414359,794348,49211,302$67,958$51,189$16,769ElectricPeakLoads(Winter)Megawatts 2u82IN2le7879Sl815283Sl8$8681 Empfoyees workinsnowandallkindsofweathertorestoreserviceafterstorms.

NYS.E'G~~~~>~~~~,~~~~~~~~~~~~~~~I~I'III'Il~'I'II~I~II~I'I~III~t~IloIII~~I~I~~~~IIIII~I'~>I~~III~II'IIIII~II~I~~~~~~~~IIII~~~III'>~~IIIII~IIII'I'III~~I~IIIII'~IIII'II~>I~~~~~II~Ir'IrII~I'Ir'IIII'II'>'~I>~II'~'~II~I~II>'I'II'~IIII'I>III'I'r>'I~>II'IIII U4$jf'.*Y'I~!:>'IAsubstation nearLibertyisbeingexpandedtopermitgreatertransmission ofelectricity todownstate NewYork.SectionsofpipearejoinedtosupplynaturalgastohomesnearElmira.LastyeartheCompanygained1,600newgascustomers arecordforrecentyears.j',7 IVANJENSEN,controlroomoperatoratGreenidge Station,seeksmaximumefficiency fromthepiant'sgenerators.

NYSEGismodernizing andextending theusefullifeofGreenidge andotherpowerplantsthatare30to40yearsoldConstruction Expenditures Total$333MillionConstruction expenditures in1986were$333million,including

$102millionofAFDCandsimilarnon-cashcharges.Thelargestsingleoutlaywas$181millionfortheCompany's shareoftheNineMileIInuclearproject.About$35millionwasspentaspartofaprogramforextending usefullivesandimproving operating efficiency ofexistingcoal-fired generating facilities.

Another$35millionwasforupgrading substation andtransmission lines.There-maining$82millionwasspentonadditions andimprovements toelectricandgasdistribution sys-tems,including facilities toservenewcustomers.

Thisamountin-cludes$57millionforminorprojects, each$50,000orless.Inthethreeyears1987-1989, construction expenditures arepro-jectedtototal$648million,ofwhich$104millionisforcompletion ofNineMileII.About$140millionisallocated forimprovement ofexistinggenerating facilities.

Theremainder isforgeneralsystemreinforcement.

RatesRecoveryofNineMileCostsProposedTheCompanyisproposing tothePSCthatallowedNineMileIIcostsbephasedintoelectricratesoverathree-year periodbeginning onJanuary1,1988.Theincreases wouldraiseelectricratesabout3to4%ayearandannualrevenuesabout$30to$45millionannu-ally.Thefirstsegment,anapplication forwhichwasfiledwiththeCom-missiononFebruary23,1987,wouldraiseannualrevenues$42millionor4%,basedona13%returnonequity.TheCompany's previousincreaseinelectricrateswasinApril1986whena$65million,or7%,risewasapproved.

Thisincreaseprimarily reflected thefinalsegmentofathree-year phase-inofcapitalcostsrelatedtoSomersetGenerating Station,whichbeganoperation in1984.Construction ProgramMillionsofDollarsPowerSupplyPlantEfficiency RisesAkeymeasureofefficiency ofsteam-electricproduction systemsistheamountofheatusedtoproduceakilowatt-hour (kwh),knownas"heatrate".NYSEG'sheatratein1986wasalow9,959Btu/kwhandarecordfortheCompany.TheCompany's averagepowerplantheatrateisamongthelowestofmajorelectricutilities inthenation.TheCompany's presentpowersupplycapability of3,004,000 kilowatts islargelycomposedofcoal-firedgenerating facilities andlong-term purchases.

Mostofthepurchased powerislow-costhydroelectricity fromtheNewYorkPowerAuthority's NiagaraRiverproject.Therehavebeenproposals toredistribute thispowermorebroadlyacrossthestatebut,atpresent,theGovernorandseverallegislative leadersopposetheaction.TheCompany's peakloadof2,290,000 kilowatts occurredinDecember1985andwasnotex-ceededinthe1986-87winter,largelybecauseofweatherconditions.

I8418$l32rr737980BI8283N8556878$89

,Pr'EE,4Underground electricservicesareinstalled toservealargehousingdevelopment northofAlbany.Stateregu.lationsrequirenew.homebuilderstocontribute tocostsofunderground facilities.

TheCompanyencourages off-peakuseofelectricity.

Anelectricheating"mat"ischeckedherebeforetheconcretefoundation ispouredforanewofficebuilding.

Heatstoredbythematduringoff-peakhourscanbere-leasedduringthedaywhentheofficeisinuse.

gMPtSRBRENDAPATTON,consumerrepre-sentative atMonticello, counselscustomers havingdifficulty payingutilitybills.NYSEG'stwelveconsumerrepresentatives arespecially trainedandfamiliarwithassistance programs.

"ij~aersfKW+FinanceRefundings ReduceCapitalCostsCapitalrequirements in1986were$394million,whichincludes$231millionofcashconstruction expenditures,

$140millionforrefinancing ofhigh-rate securities and$23millionforsinkingfundsandreduction ofunsecured debt.Theseneedsweremetwith$277millioninsalesofsecurities andinternally-generated funds.Refundings included$110millionprincipal amountofhigh-rate firstmortgagebondsand$30millionprincipal amountof15'/s%preferred stock.Inaddition,

$50millionof15.83%notesdue1989werereplacedwithadjustable-rate noteshavinganinterestrateof6.4%.Theserefinancings reducedcapitalcostsand,asaresult,contributed abouttencentsashareto1986earnings.

OnJanuary1,1987,a$30millionissueof15%preferred stockwasredeemedthroughsinkingfundandearly-redemption provisions.

Thisrefunding willsavetheCompanyabout$2millionayear.Electricity Sources1986Kilowatt-hours Coot7lSSItSdrO2SSNuckar2ss-trrdroASS~Generated 76%~Purchased 24tltResearchExpenditures Total$12MillionResearchanddevelopment ex-penditures in1986amountedto$12millionwithabouthalfgoingtoprojectsofnationalandstateresearchorganizations.

There-mainderwasspentontheCompany's ownresearchefforts.Amajornationalresearchgroup,theElectricPowerResearchInstitute (EPRI),istheresearcharmoftheelectricutilityindustry.

Amongitsvariousprojects, EPRIisbuildinga$20millionHighSulfurTestCenteratSomersetGenerating Station,whichwillhouseastaffof35to40persons.Thecenter,scheduled foroperation in1987,willseekbetterandlessexpensive waystocontrolsulfurdioxideemissions fromthenation'scoal-burning powerplants.NYSEGwillbecontributing about$5millionincashandservicestotheprojectoverafive-year period.Successful researchcanpaydividends byholdingdowncostsandimproving environmental protec-tion.Anewcomputer-assisted trainingprogramdeveloped jointlywithGeneralPhysicsCorporation savedanestimated

$150,000atonegenerating stationthroughim-provedplantefficiency andisbeingappliedtoothers.TheprogramwasalsosoldbyGeneralPhysicstootherutilities, yieldingtheCompany$41,000inroyalties.

Anotherresearchprojectshowedthatflyash,aby-product ofburningcoalatpowerplants,wasusefulinmakingconcrete.

Salesofflyashnotonlyaddtoincome,butre-ducecostsbyeliminating theneedtodisposeofashinenvironmentally-certified landfills.

DiuidendReinljesfmenf PlanAllowsSaleofSharesTheDividendReinvestment andStockPurchasePlanwasamendedeffective January1,1987topermitparticipants tosellfullsharescreditedtotheirplanaccounts.

Thisallowsaholderwithasmallnumberofplansharestosellthemthroughtheplanontheopenmarket.Banksandbrokersareoftenunwilling tohandlesmalltrans-actions.Afeeischargedundertheplan,butitislowerthananormalbrokerage commission.

AboutathirdoftheCompany's stockholders reinvesttheirdividends.

In1986,over900,000shareswerepurchased ontheopenmarketwithdividends andoptionalcashpayments.

Cashpurchases arelimitedto$5,000perquarter.Anystockholder ofrecordiseligibletojointheplan.Ifyouwouldlikefurtherinformation, callthetoll-free numberlistedinthebackofthisreport.NYSEGdevotesconsiderable efforttopromoting industrial expansion.

Bottomlelt:Serviceareaadvantages forbusinessarepublicized acrossthenationandover-seas.New,expanding ormergingcompanies include(clockwise frommiddleleft):FingerLakesPress,Auburn;Toshiba-Westinghouse Electronics nearElmira;Taylor-Pohlman nearBuffalo;Huntington Analytical

Services, eastofLockport, andIBM,northofNewYorkCity.10 i/I'IIVp//IIIIIi,4r=1I'v<~~"ks>II40g}g$tJPJ'pg0[I,'i~ized'-="==-I+'iJ':.fi'I)L,qlIIIpII/,r,/(g//~ed<State

~~I/iI~'g~Ig')IIAIIV'IfIyy~e4i'-7<I+=ifiops[r)I~lIJJ<,tl0C$

gM~BURTONTESSITORE, chieflinemanatBinghamton, workstomaintainthedistribution systemandtheflowofelectricity tocustomers.

NYSEG'srecordforreliableelectricserviceisamongthebestinthestate.CoalUsedforGeneration CostperblillionBtuSISS55/7SlhlSizeSeroSlierSl855l&Sl.0777787980818783858588LnergyMarketing NewProgramEstablished TheCompanyrecentlyadoptedastrategic marketing plantoselec-tivelyboostelectricandgassales.Itcombinesspecialratesforin-dustrialandcommercial customers withrebatesforresidential customers whoinstallappliances thatuseenergyefficiently orinoff-peakhours.Appliance rebatesarebeingofferedtoresidential electriccustomers invariouslocations whobuyenergy-efficient airconditioners, waterheatersorthermalstoragespaceheatingunitsfortheirhomes.Thewaterheaterandthermalstorageunitsarealsobeingpromotedtoencourage off-peakusage.Otherre-batesencourage residential cus-tomerstoswitchtogasforspaceandwaterheating.TheCompanyhasalsoinitiated anincentive programtoencourage employees,

retirees, appliance dealersandcontractors toparticipate inthesemarketing efforts.Duringtheyear,morethan17,000homeenergysurveyswerecom-pleted.Atcustomerrequest,theCompanywillconductafreeanalysisofahometodetermine whereenergycanbeconserved.

Financing isalsoavailable forenergy-related improvements.

NYSEGindustrial electricandgasratesareamongthelowestinthestate.TheCompanyhasintro-ducedspecialincentive ratestoattractnewbusinesses toitsserviceareaorencourage existingonestoexpand.About250customers arecurrently benefiting fromtheserates.CustomerAssistance Counseling, EnergyEducation Emphasized NYSEGhasanextensive programforcounseling needycustomers andinforming thepublicaboutenergyandenergyconservation matters.Consumerrepresentatives indis-trictofficesusetheirbackgrounds insocialservicesandknowledge ofhumanserviceagenciestohelpcustomers havingfinancial diffi-culties.Energyconservation work-shopsaresponsored forthegeneralpublicandsafetyandenergyeduca-tionprogramsarepresented tothousands ofschoolchildreneachyear.In1986,twenty-six serviceareaschoolteachersreceivedmodestgrantstodevelopinnovative energyeducation projects.

Anaward-winningnewsletter withenergyconservation tipsandotherusefulinformation issentregularly to35,000elderlycustomers.

ProjectSHARE,ajointprogramwiththeAmericanRedCross,pro-videsgrantstoneedyelderlyordis-abledpeopletohelpthemdealwithenergyemergencies.

Infouryearsofoperation theprogramhasdistributed

$772,300to3,704needyfamilies.

In1986,grantstotaling$178,300wereissuedto853people.Customers contribute toSHAREbyadding$1,$2,or$5totheirNYSEGpayments.

Stockholders maycontribute bysendingchecks,payabletoProjectSHARE-Red Cross,toAmericanRedCross,786DelawareAvenue,Buffalo,N.Y.14209.Donations aretax-deductible.

Anewcustomer-tested electricandgasbillwasintroduced inDecember1986.Amongotherthings,itpresentsthebillcalculation andshowsagraphofthecustomer' energyuseinthepriorfourteenmonths.Customerreactionsofarhasbeenfavorable.

TheCompany.reachesouttohelpcustomers.

Anewmobileoffice(topandmiddleright)travelstorurallocations outsideBinghamton tobringservicesclosertocustomers.

Homeenergysurveysandconservation arepromotedatstatefairsandexhibits.

Workshops (bottomright)deliverenergyconservation tipstovariouspublicgroups.12 IIllllIaINNI4NI,IIN/NgI1N-IIIrII-N~Q~'+>~.LN~pNNQe~<<'NNNfrowYorkSlaloEloctrlc8GasCorpora'IINNNNI4~

gI

/titty(~CHRISHEBDON,aforesterinGeneva,pro!actstheenvironment andhelpsmaintainservicealongtransmission anddistribution lines.NYSEG's36,000-miletransmission anddistribution systemrequirescontinuous monitoring toassurereliableservice.IvvResidential Commercial Industrial TotalRetailOtherUtilities TotalKwhSales43-29-7Revenues14171715-44TheRevenueDollar-1986 tVhereitcamefrom:Inthutrht 18c869trElectricity

~l4GasIoo98Conuemht22cOtherElectriUtituies8cStreetLightingaOther11cRcsidcntht CSCtvhereitvent:FuellreinteresttoBondItoMers.ctc.1stOivMends-Common StockteeDeprcchtion ycpividends-Preferred StockgeOtherptaterhts andScrviecs8cWagestoEmployees.

irgtuding Benefus9cCasttElectricity Purchased tpeTares18ctectatncd inthcgustnmrScLlectricOperations RetailSalesIncrease4%Salesofelectricity toretailcus-tomersrosenearly4%from1985.Corresponding revenueswereup15%,largelyreflecting higherratesmadeeffective inA'pril1986.Salestootherutilities declined29%,primarily asaresultoflowerfuelcostsattheiroil-fired generating facilities.

Totalsalesweredown7%,whilerevenueswere4%higher.Percentchangesbymajorcustomercategorywereasfollows:Operating

expenses, excluding fuel,depreciation andtaxes,in-creasedabout5%.Fuelexpensewasdown15%ona10/odecreaseinkilowatt-hours generated.

Onaper-unitbasis,fuelcostwas$1.67permillionBtu,a1%reduction from1985.Morethan11,000residential customers wereaddedin1986,a2%increase, andthelargestyearlyrisesince1973.GasOperations TotalSalesDown3%Salesofgastoresidential customers increased 4%,whilerevenueswere3%higher.Salestonon-residential customers, including transpor-tationofcustomer-owned gas,wereoff7%.Totalsalesweredown3%andrevenueswere6%lower.Operating

expenses, excluding

.purchased gas,depreciation andtaxes,increased 5%.Theaveragecostofgaspurchased was$3.75.adekatherm, or3o/olowerthanthepreviousyear.Thisisthethirdconsecutive yearthattheunitcostofpurchased gashasdeclined.

Theaveragenumberofgascustomers servedwas132,500,a1%increaseover1985.TheCompanyisseekingtoexpanditsgasfranchise areatoincludeseveraltownsinsoutheastern NewYorkandinpartsofcountieslocatednorthwest ofElmira.Ifallthefranchises weregrantedandreceivedrequisite PSCapprovals, itcould,overaperiodofyears,increasethenumberofcustomers servedby15%.BoardofDirectors TtvoNewDirectors ElectedInJanuary1987,theBoardofDirectors electedtwonewmembers,BenE.Lynch,49,andWilliamD.Turner,54.TheactionbringstheBoardto13membersandcon-templates theretirement, laterin1987,oftwodirectors undertheCompany's mandatory retirement provisions.

Mr.Lynchispresident ofWin-chesterOpticalCompany,Elmira,N.Y.Heisactiveinlocalcivicaffairsandhasabachelor's degreeinengineering fromCornellUniver-sityandamaster'sdegreeinnuclearphysicsfromCalifornia Institute ofTechnology.

Mr.Turner,asgroupvicepresident ofTheSingerCompany,isrespon-sibleforitsTrainingSystemsGroup.HejoinedSinger'sLinkSimulation SystemDivisioninBing-hamtonin1958andservedinanumberofmanagement positions.

Hehasabachelor's degreeineconomics fromColgateUniversity.

Dr.RoyS.Arrandale, formerseniorvicepresident-research forThatcherGlassManufacturing Company,'lmira, retiredfromtheBoardafter18yearsofdistinguished service.14 TheCompanypromotessafetyandenergyawareness inschools.ToprANYSEGrepresentative usessignlanguagetoteachelectricsafetytohearing.impairedyoungsters.

Be/owrTheCompanyissued26mini-grantslastyeartoteacherstosupportinnovative energyprojectsintheclassroom.

NewYorkStateElectric&GasCorporation andSubsidiaries Consolidated BalanceSheetASSETSUTILITYPLANT,atoriginalcost(Note1)Electric.GasCommon.$3,004,799 160,76274,658$2,913,589 153,26369,662December3119861985(Thousands ofDollars)Lessaccumulated depreciation

.Netutilityplantinservice.Construction workinprogress(Notes8and10)3,240,219 769,3362,470,883 1,132,826 3,136,514 687,4722,449,042 918,8753,603,709 3,367,917 OTHERPROPERTYANDINVESTMENTS CURRENTASSETSCashSpecialdepositsAccountsreceivable Fuel,ataveragecostMaterials andsupplies, ataveragecostPrepayments DEFERREDCHARGES(NotesI,9and10)Abandoned projectcostsSomersetStationphaseincosts.Unamortized debtexpenseAccumulated deferredfederalincometaxOther68,90310,2674,823126,08149,28344,27227,546262,272108,92674,34864,76219,01123,053290,10071,0687,60113,599116,53758,09538,68820,454254,974117,60870,67560,52615,20118,650282,660CAPITALIZATION ANDLIABILITIES CAPITALIZATION (Notes3-6)CapitalstockandretainedearningsPreferred stockredeemable solelyattheoptionoftheCompany.Preferred stocksubjecttomandatory redemption requirements

.CommonstockequityCommonstockCapitalinexcessofparvalueRetainedearnings.TotalcommonstockequityLong-term debtTotal$4,224,984

$3,976,619 22,82087,470360,408503,364534,190360,047501,523469,6611,397,962 1,331,231 1,928,40?

1,748,606 3,509,689 3,327,807

$160,500$160,500CURRENTLIABILITIES Currentportionoflong-term debtandpreferred stockCommercial paper(Note6)AccountspayableDividends payableonpreferred stock.PensionsaccruedTaxesaccruedInterestaccrued.OtherDEFERREDCREDITSAccumulated deferredinvestment taxcredit(Note2)OtherACCUMULATED DEFERREDFEDERALINCOMETAX(Note2)COMMITMENTS ANDCONTINGENCIES (Notes7-10).65,332110,60064,8984,516=14,04414,61954,97328,555357,537106,43619,307125,743232,01559,513118,30077,1606,09012,6115,04552,04431,324362,08775,43821,62097,058189,66716$4,224,984

$3,976,619 Theaccompanying notesshownonpages19through29areanintegralpartofthefinancial statements.

NewYorkStateElectric&GasCorporation andSubsidiaries Consolidated Statement ofIncomeOPERATING REVENUESElectric.GasTotalOPERATING EXPENSESOperation

-fuel(NoteI)-otherElectricity purchased

.Gaspurchased Maintenance Depreciation Federalincometax(Note2)Othertaxes(Note12).TotalOPERATING INCOMEOTHERINCOMEANDDEDUCTIONS Allowance forotherfundsusedduringconstruction (Note1)Non-cashreturn-utilityplantinservice(Note1).............

-abandoned projects(NotesI,9and10).......Abandoned projectcosts(Note9).Federalincometaxcredit(Note2).IncometaxbenefitsfromAFDCandnon-cashreturn...........

Other-netINCOMEBEFOREINTERESTCHARGESINTERESTCHARGESInterestonlong-term debtOtherinterest.Allowance forborrowedfundsusedduringconstruction (Note1).Interestcharges-net.NETINCOMEPREFERRED STOCKDIVIDENDS EARNINGSAVAILABLE FORCOMMONSTOCK$1,098,089 179,1951,277,284

$1,051,579 190,2011,241,780

$921,248207,8181,129,066 238,371182,71029,302111,14788,486100,796122,987122,400280,397167,92335,984129,80981,59198,08596,651113,587227,998141,05669,206146,04068,60665,19878,144102,152996,1991,004,027 898,400281,085237,753'30,66663,1689,8685,9064,64830,10839394,82250,26340,1856,6825702,54432,2563,839374,09268,14522,0029,283(11,026)3,43529,8148,307360,626187,23812,020(32,930)166,328228,49420,104178,98512,263(25,589)165,659208,43325,226164,43511,650(26,835)149,250211,37627,370208,390$183,207$184,006YearsEndedDecember31198619851984(Thousands ofDollars)EARNINGSPERSHAREAVERAGENUMBEROFSHARESOUTSTANDING

$3.8654,013,868

$3.4653,013,086

$3.6849,955,493 Consolidated Statement ofRetainedEarningsBalance,beginning ofyearAddnetincomeYearsEndedDecember31198619851984(Thousands ofDollars)$469,661$418,472$352,524228,494208,433211,376698,155626,905563,900Deductcashdividends Preferred stock(atserialrates)Redeemable solelyattheoptionoftheCompany..Subjecttomandatory redemption requirements

..Commonstock($2.60,$2.50,and$2.38persharein1986,1985,and1984,respectively)

Deductpremiumpaidonpreferred stockredemption (Note5)Balance,endofyear.11,3388,766140,432160,5363,429$534,19012,55912,667132,01815?,24413,17214,198118,058145,428$469,661$418,472Theaccompanying notesshownonpages19through29areanintegralpartofthefinancial statements.

NewYorkStateElectric&GasCorporation andSubsidiaries Consolidated Statement ofChangesinFinancial PositionSOURCEOFFUNDSOPERATIONS NetincomeAFDCandothernon-cashreturn.Depreciation

.Amortization ofdeferredcharges.Fuelandpurchased gascostsdeferredInterchange profitsdeferred-net

.Abandoned projectcosts.Federalincometaxdeferred-netInvestment taxcreditdeferred-netFundsfromoperations

$228,494(111,872) 100,79625,1881,332(7,412)38,53830,998306,062-$208,433(122,719) 98,08523,7732,820(10,121)(570)59,8201,727261,248$211,376(126,265) 65,19813,6596,01515,18111,02623,89722,688242,775YearsEndedDecember31198619851984(Thousands ofDollars'INANCING ARRANGEMENTS FirstmortgagebondsCommonstockLong-term notespayableCommercial paper.Obligations undercapitalleases.Fundsfromfinancing arrangements Totalfundsavailable APPLICATION OFFUNDSConstruction expenditures

.Capitalization ofequipment leases.Bondsandpreferred stockreacquired Securities toberedeemedorduewithinoneyearDividends onpreferred stockDividends oncommonstockIncrease(decrease) inworkingcapital*.Other(net).TotalfundsappliedINCREASE(DECREASE)

INiUORKINGCAPITALCURRENTASSETSCash.Specialdeposits.................................

Accountsreceivable

.FuelMaterials andsuppliesPrepayments Totalincrease(decrease) incurrentassets..CURRENTLIABILITIES Currentportionoflong-term debtandpreferred stockAccountspayableDividends payableonpreferred stock................

PensionsaccruedTaxesaccruedInterestaccruedOther.~J~~~~~~~~Totalincrease(decrease) incurrentliabilities*

.Increase(decrease) inworkingcapital'75,000 1,815(6,200)(7,700)2273265,188$571,250$230,892227397,32564,20420,104140,4324,14811,872$571,250$2,666(8,776)9,544(8,812)5,5847,0927,2985,819(12,262)(1,574)1,4339,5742,929(2,769)3,150$4,148175,00045,494228,35058,2009,169516,213$777,461$256,1499,169214,76958,01025,226132,01864,21117,909$777,461$3,273(56,593)(86)(10,843)7,96184(56,204)(84,870)(30,548)(726)(128)(4,611)(1,469)1,937(120,415)

$64,211200,00065,086174,850(37,650)10,560412,846$655,621$349,71810,5605,056142,28327,370118,058(4,499)7,075$655,621$(3,944)59,94622,69028,8423,3093,080113,923120,633(28,820)645223,60418,4303,989118,422$(4,499)'Exclusive ofchangesincommercial paperTheaccompanying notesshownonpages19through29areanintegralpartofthefinancial statements.

18 NotestoConsolidated Financial Statements 1.Significant Accounting Policiesa.Principles ofconsolidation Theconsolidated financial statements includetheCompanyanditswholly-owned subsidiaries.

SomersetRailroadCorpo-ration(SRC),theonlyactivesubsidiary, ownsrailfacilities fortransport ofcoalandothersuppliestotheSomersetGenerating Station(Somerset).

Allsignificant intercompany balancesandtransactions havebeeneliminated inconsoli-dation.b.Accounting recordsTheCompanymaintains itsaccounting recordsinconformity withtheuniformsystemofaccountsprescribed bytheFed-eralEnergyRegulatory Commission (FERC)andthePublicServiceCommission oftheStateofNewYork(PSC).c.UtilityplantCostofcurrentrepairsandminorreplacements ischargedtoappropriate operating expenseandclearingaccounts; costofrenewalsandbetterments, including indirectcosts,iscapitalized.

Originalcostofutilityplantretiredorotherwise disposedofandthecostofremovallesssalvagearechargedtoaccumulated depreciation.

Inaccordance withtransition rulesofStatement ofFinan-cialAccounting Standards No.71,capitalleaseswithincep-tiondatessubsequent to1982havebeencapitalized whilethoseexecutedpriorto1983andoutstanding atDecember31,1986,consisting ofadditional assetsandobligations ofapproximately

$7million,werenotcapitalized.

d.Allowance forfundsusedduringconstruction (AFDC)andothernon-cashreturnAFDCisanon-cashreturnwhichisshownintheConsoli-datedStatement ofIncomeasallowance forotherfundsusedduringconstruction andallowance forborrowedfundsusedduringconstruction.

AFDCratesaredetermined according toFERCregulations.

TheCompanyusednet-of-tax ratesof10%for1984and9.6%for1985,exceptduringthelasteightmonthsof1985whenabeforetaxrateof12.3%wasusedforprojectsotherthanNineMilePointnucleargenerating unitNo.2(Unit).In1986,theAFDCratewas9.4%(net-of-tax) fortheUnitand12.1%(beforetax)forprojectsotherthantheUnit.Non-cashreturnwasaccruedontheportionoftheSomer-setplantcostswhichwerenotincludedinratebaseandisalsoaccruedoncertainunamortized abandoned projectcosts.(SeeNotes1.h.and9.)ForAFDCandothernon-cashreturnaccruedatnet-of-tax rates,theCompanyisallowedrevenuesequaltothefederalincometaxeffectoftheinterestportion.e.RevenueRevenuesfromthesaleofelectricity andgasarerecordedonthebasisofmetersread.f.Federalincometaxes(SeeNote2.)TheCompanyfilesaconsolidated federalincometaxreturnwithitswholly-owned subsidiary, SRC.Actuarial presentvalueofaccumulated planbenefits:

VestedNonvested Netassetsavailable forbenefits$141,400$140,70021,00019,300363,500296,000Deferredincometaxesareprovidedontimingdifferences betweenbookandtaxableincometotheextentpermitted forratemaking purposes.

Investment taxcredit,whichreducesfederalincometaxcurrently payable,isdeferredandamortized overthelivesoftheapplicable property.

g.Deferredcharges(SeeNote9.)TheCompanydeferscertainfuelandpurchased gascostswhicharesubsequently reflected inbillingstocustomers throughadjustment clausesinrates.Debtexpenseisdeferredandamortized ratablyoverthelivesoftherelatedissues.Unamortized debtexpensealsoincludespremiumspaidonreacquisitions offirstmortgagebondstotalingapproximately

$41millionwhichisamortized ratablyoverperiodsrangingfromfivetothirtyyears.h.SomersetGenerating StationSomersetplantcostsofapproximately

$1billionwerephasedintoelectricratesinthreesegmentstomoderateratein-creases.Thefirstsegmentof$365millionwasincludedinelectricrateseffective April1984.Thesecondsegmentin-creasedto$725millionthetotalplantcostsincludedinelectricrateseffective inApril1985.Thefinalsegmentwasincludedinelectricrateseffective April1986.WhenSomer-setbeganoperating onAugust17,1984,anon-cashreturnsimilartoAFDCwasrecordedontheportionofcostsnotin-cludedinratebase.Thisnon-cashreturn,whichamountedtoapproximately

$10million,$40millionand$22millionfor1986,1985and1984,respectively, isbeingamortized overtheremaining lifeoftheplantandisincludedinotherincomeintheConsolidated Statement ofIncomeandinde-ferredchargesontheConsolidated BalanceSheet.AsofDecember31,1986theunamortized balanceofnon-cashreturnwasapproximately

$70million.i.Retirement benefitsTheCompanyhasnoncontributory retirement annuityplanswhichcoversubstantially allemployees.

PensioncostsarebasedonnormalcostsandtheCompany's policyistofundthepensioncostaccruedeachyeartotheextentdeductible forfederalincometaxpurposes.

Theprovision forpensioncostfor1986,1985and1984totaled$8.4million,$12.6millionand$12.7million,respectively.

Acomparison ofaccumulated planbenefitsandnetassetsisasfollows:January119861985(Thousands ofDollars) 19 Theassumedinvestment rateofreturnusedindetermining actuarial presentvalueswaschangedfrom6.5%to7.5%,effective January1,1986.Theeffectsofchangesinactuarial assumptions andinplanprovisions weretodecreasetheactuarial presentvalueofaccumulated planbenefitsbyap-proximately

$18.3millionandtoreduce1986provision forpensioncostbyapproximately

$4.4million,substantially allofwhichrelatestotheeffectsofchangesinactuarial as-sumptions.

Therequiredmethodfordetermining theactuarial presentvalueofaccumulated planbenefitsisbasedoncurrentdataand,accordingly, failstoconsiderprobablefutureeventssuchasfuturewageandsalaryincreases andfutureemployeeservice.Sucheventshavebeentakenintoconsideration bytheCompanyindetermining thecostsandfundingconceptfortheplans.Thenetassetsavailable forbenefitsarebaseduponmarketvaluewhichwillfluctuate depending onmarketconditions.

InDecember1985theFinancial Accounting Standards Board(FASB)issuedStatement ofFinancial Accounting Standards No.87,Employers'ccounting forPensions, whichwillbeeffective for1987.Theadoptionoftherequire-mentsofthisstatement isnotexpectedtohaveamaterialeffectontheresultsofoperations orfinancial positionoftheCompany.Inadditiontoproviding pensionbenefits, theCompanyprovidescertainhealthcarebenefitsforretiredemployees andtheirdependents.

Substantially alloftheCompany's em-ployeeswhoretireunderaCompanypensionplanmaybe-comeeligibleforthosebenefitsatretirement.

Thoseandsimilarbenefitsforactiveemployees areprovidedthrough'ninsurance companywhosepremiumsarebasedonthebenefitspaidduringtheyear.TheCompanyrecognizes asexpensethecostofinsurance premiumswhichwereapprox-imately$8.0million,$7.8millionand$7.6millionfor1986,1985and1984,respectively.

Thecostofproviding thosebenefitsfor1,456retireesandtheirdependents isnotsepar-ablefromthecostofproviding benefitsforthe4,423activeemployees.

j.Depreciation Depreciation expenseisdetermined usingstraight-line rates,basedonaverageservicelives,appliedtotheoriginalcost,bygroupsofdepreciable propertyinservice.Depreciation accrualswereequivalent to3.1%ofaveragedepreciable propertyfor1986,1985and1984.2.FederalIncomeTaxesFederalincometaxexpenseconsistsof:Chargedtooperations:

CurrentDeferred-net:Accelerated depreciation

.Costofreacquired debtIncometaxbenefitsfromAFDCandnon-cashreturnMiscellaneous Investment taxcreditsdeferredIncludedinotherincomeTotal.Effective rate.42,89649330,108(3,744)39,268122,987(4,648)$118,33934.1%46,20613,98632,256(289)3,31096,651(2,544)$94,10733.1%32,029(142)29,814(5,857)23,01778,144(3,435)$74,70926.1%198619851984(Thousands ofDollars)$13,966$1,182$(717)Theeffective taxratesdifferedfromthestatutory taxrateof46%dueprimarily tothetaxeffectofAFDC,whichisnotnormalized.

For1986,1985and1984thetaxeffectofAFDCwas10.1%,12.9%and14.6%,respectively.

Thecumulative netamountofincometaxtimingdif-ferencesforwhichdeferredtaxeshavenotbeenprovidedwasapproximately

$544millionatDecember31,1986.The'IhxReformActof1986(TRAof1986)wasenactedonOctober22,1986.Amongotherthings,theTRAof1986pro-videsforareduction inthestatutory corporate incometaxrates,elimination oftheinvestment taxcreditasofJanuary1,1986,reduction ofinvestment taxcreditcarryforwards andchangesindepreciation ratesandlives.Inamemo-randumdatedNovember5,1986,theStaffofthePSChasrecommended thattheimpactoftheTRAof1986bedeferreduntilthebenefitscanbepassedontoratepayers inthenextrateproceeding.

TheCompanyhasapproximately

$91millionofunusedinvestment taxcreditsatDecember31,1986whichwillex-pirebeginning in1999andwhichreflectsa$20millionre-ductionfor1987asaresultoftheTRAof1986.Unutilized carryfoiwards willbefurtherreducedby$17millionin1988.20 3.Long-term DebtAtDecember31,1986long-term debtwas(Thousands ofDollars):

FirstmortgagebondsSeriesDueAmountSeriesDueAmount4/s/037/sold17s/sold17s/s%4s/s%lls/4%12s/s%147/s%8ls%%d*8s/s%5s/sold6'/4/o6'/2o/o7/s%%dMay1,1987Feb.1,1988Mar.1,1989Mar.1,1990May1,1991Apr.1,1993Jan.1,1994July1,1994Aug.1,1994June1,1996Jan.1,1997Sept.1,1997Sept.1,1998Nov.1,2001$25,00025,00050,00050,00025,000100,000100,00050,000100,00050,00025,00025,00030,00050,0009.35o/o9s/sold9s/s%7'/4%%d6~/s%8s/s%18o/o16/s%13s/s%1612%"12'/sold**10/s/o'i/4o%%d*July1,2003Mar.1,2005Jan.1,2006June1,2006Dec.1,2006Nov.1,2007Feb.1,2012Aug.1,2012Dec.1,2012July1,2014July1,2015Oct.1,2015Feb.1,2016Apr.1,2016$43,70075,00056,98612,00025,75060,0003,5031,800100,0001,173100,00075,000125,00050,000TotalfirstmortgagebondsPollution controlnotes1,434,912 LetterofCreditExpiration DateInterestMaturityRateDate6.SPa0UInterestRateAdjustment DateDec.15,1988Mar.15,1988Mar.31,1988July31,1988Oct.31,1988Dec.15,1988Lessdebtduewithinoneyear-included incurrentliabilities Total12May1,201460,00012.30%July1,201440,0003/s%***.Dec.1,2014Dec.1,198774,0007%***Mar.1,2015**Mar.1,198837,5005.15%**'ar.

15,2015*'ar.

15,198760,0004i/4%***July15,2015**July15,198763,5004.05%***Oct.15,2015**Oct.15,198730,0003s/4%***Dec.1,2015**Dec.1,198742,000Totalpollution controlnotes407,0004375o/onotespayabledueAugust27,198950,000RCcommercial paperdueDecember31,198939,900rticipations inminingcompanynotesdueApril5,19897,775bligations undercapitalleases(Note1)22,002namortized premiumanddiscountondebt-net(2,500)1,959,089 30,682$1,928,407

Issued1986'*Issued1985*'*Adjustable RateAtDecember31,1986long-term debtwhichwillbecomedueduringthenextfiveyearsis:19871988198919901991(Thousands ofDollars)$30,682$33,914$159,603$57,883$32,348 TheCompany's mortgageprovidesforasinkingandim-provement fund.Theprovisions requiretheCompanytomakeannualcashdepositswiththeTrusteeequivalent to1%oftheprincipal amountofallbondsdelivered andauthenticated bytheTrusteepriortoJanuary1ofthatyear(excluding anybondsissuedonthebasisoftheretirement ofbonds).Pursuanttothetermsofthemortgage, theCom-panyhassatisfied theserequirements bycrediting "bondable valueofpropertyadditions" againsttheamountofcashtobedeposited.

Mandatory annualcashsinkingfundrequirements are$3,000,000 forthe9/s%seriesdue2006,$2,100,000 forthe9.35%series,$600,000beginning June1,2001forthe7i/4%seriesand$250,000beginning December1,1992forthe67/e%series.Theamountincreases to$500,000and$750,000onDecember1,1997andDecember1,2002,respectively, forthe67/8%series.Themortgageindenture securesthefirstmortgagebondswhichconstitute adirectfirstmortgagelienonsubstantially allutilityplant.Adjustable ratepollution controlnoteswereissuedtose-curelikeamountsoftax-exempt adjustable ratepollution controlrevenuebonds(RevenueBonds)issuedbyagovern-mentalauthority.

TheRevenueBondswillbearinterestattherateindicated throughthedatepreceding theinterestrateadjustment date.Thepollution controlnoteswillbearinterestatthesamerateastheRevenueBonds.Onthein-terestrateadjustment dateandannuallythereafter, theinterestratewillbeadjusted, nottoexceedarateof15%,orattheoptionoftheCompany,subjecttocertainconditions, afixedrateofinterest, nottoexceed18%,maybecomeef-fective.Bondowners mayelect,subjecttocertainconditions, tohavetheirRevenueBondspurchased bytheTrustee.TheCompanyhasirrevocable lettersofcreditwhichexpireontheletterofcreditexpiration datesandwhichmaybeex-tendeduponmeetingcertainconditions.

TheselettersofcreditsupportcertainpaymentsrequiredtobemadeontheRevenueBonds.Paymentsmadeunderthelettersofcreditinconnection withpurchases ofRevenueBondsbytheTrusteearerepaidwiththeproceedsfromtheremarketing oftheRevenueBonds.Totheextenttheproceedsarenotsufficient, theCompanyisrequiredtoreimburse thebankthatissuedtheletterofcredit.SRChasaletterofcreditbackedcommercial paperpro-gramwhichprovidesforborrowing upto$60millionthroughDecember31,1989.Theweightedaverageinter-estratefor1986,including feesfortheletterofcredit,amountedto7%.Substantially allofthepropertyofSRC,otherthanequipment, issubjecttoalienofamortgageandsecurityagreement.

4.CommonStockandCapitalinExcessofParValueThefollowing isasummaryofchangesincommonstockandcapitalinexcessofparvaluefor1986,1985and1984:BalanceatDecember31,1983Publicoffering:

19841986Dividendreinvestment andstockpurchaseplan:19841985Employeestock48,501,706 1,0001000 32,1002,415,307 1,901,714 16,10212,67825,15032,118CommonStockCapitalinExcess$6.662/aParValueofParValueSharesAmountAmount(7housands ofDollars)$323,345$427,7866,66713,799214850ownership plans:198419851986Reacquired capitalstock1986BalanceatDecember31,1986160,38527,86222,12354,061,197 1,069186147$360,4082,171499574417$503,36470,000,000 Sharesauthorized atDecember31,198622 103.94E102.00j003/1/91Thereafter 2/1/892/1/94Thereafter 2510/1/8810/1/93Thereafter 8.48o/oAdjustable Rate(2)5.Preferred StockAtDecember31,1986serialcumulative preferred stockwas:ParValueRedeemable SeriesSharePriortoPerShareRedeemable solelyattheoptionoftheCompany:3.759o$100"'104.004i/2o/o(1949)100103.75415o%%d100101.004.40%100102.004.15%%d(1954)100102.006.48o%%d100102.008.80%1SharesAuthorized(1) andOutstanding 150,00040,00040,00075,00050,000300,000250,0001,000,000 1,800,000 Amount(Thousands ofDollars)$15,0004,0004,0007,5005,00030,00025,00025,00045,000TotalSubjecttomandatory redemption requirements:(7) 4.5096100(3)9.009o10010/1/87(4) 9.1096257/1/87(5) 15251/1/92(6) 105.25200104.00184,50025.33360,00027.501,200,000

$160,500$2018,4509,00030,000Lesssinkingfundrequirements atparvalue-includedincurrentliabilities Total57,47034,650$22,820AtDecember31,1986redeemable preferred stocksinkingfundrequirements andpreferred stockredemptions duringthenextfiveyearsare:19871988198919901991(Thousands ofDollars)$34,650$4,670$4,650$4,650$4,650(1)AtDecember31,1986therewere1,550,000 sharesof$100parvaluepreferred stock,6,800,000 sharesof$25parvaluepreferred stockand1,000,000 sharesof$100parvaluepreference stockauthorized butunissued.

(2)TheAdjustable RateSerialPreferred Stock,SeriesAwasissuedinSeptember 1983.Dividends paidfromthedateofissuancethroughtheJanuary1,1987paymentvariedfrom7~/2%to12.95%perannum.ThepaymentforApril1,1987hasbeenadjustedtoarateof7~/2o/operannumandsubsequent paymentscanvaryfrom7~/2%to13'/2%perannum,baseduponaformulaincludedintheCertificate ofIncorporation.

(3)ByMarch31,1988,theCompanymustredeemat$103.25persharethe200outstanding sharesofthe4.50o/oSeries.TheCompanyreacquired 300sharesin1985andcanceledthesharesin1986.(4)OnOctober1,ineachyear1987through1995,theCompanymustredeematpar16,500sharesofthe9.00%Series.Since1984,16,500shareshavebeenreacquired andcanceledannually.

The9.0096Seriesisredeemable at$104.00persharepriortoOctober1,1987.The$104.00pricepersharewillbereducedannuallyby$.50.AsofOctober1,1994andthereafter, theredemption pricewillbeatpar.BySeptember 30,1996,theCompanymustsetasidetheamountrequiredtoredeematparallsharesoutstanding.

(5)ByJuly1,ineachyear1987through'1989, theCompanymustredeematpar120,000sharesofthe9.10o%%dSeries.TheCompanyreacquired andcanceled120,000sharesin1986and1985.(6)OnJanuary1,1987,theCompanyredeemed1,104,000 sharesofthe15o%%dSeriesatapriceof$27.50pershareand96,000sharesatpar.(7)TheCompanyredeemed300,000sharesofthe153/oo%%d Seriesin1986atapriceof$110.00pershareplusaccrueddividends.

Thepremiumpaidonreacquisition isreportedasachargetoretainedearnings.

23 6.BankLoansandOtherBorrowings TheCompanyhasarevolving creditagreement withbankswhichprovidesforborrowing upto$200milliontoJuly31,1992.AttheoptionoftheCompany,theinterestrateonborrowings isrelatedtotheprimerateortheLondonInter-bankOfferedRateortheinterestrateapplicable tocertaincertificates ofdeposit.Theagreement alsoprovidesforthepaymentofacommitment feeontheunborrowed amountofone-quarter ofapercentperannum.Therevolving creditagreement doesnotrequirecompen-satingbalances.

TheCompanydidnothaveanyoutstanding loansunderthisagreement orprioragreements atDecember31,1986or1985.Interimfinancing intheformofshort-term borrowings oncommercial paperisutilizedtofinanceconstruction ex-penditures.

Information relativetoshort-term borrowings is$61,000$12,800Commercial PaperNotesPayable198619851984"19851984(Thousands ofDollars)Endingbalance$110,600$118,300$60,100Maximumamountoutstanding

........$141,400$145,700$125,600$70,000Averageamounto'utstanding(l)

........$93,300,$84,400$57,800'13,600Weightedaverageinterestrate:Onendingbalance.......6.1%8.0%8.5%Duringtheperiod(2)

...............

7.3/08.5%10.7%.8.4%10.7%(1)Calculated astheaverageofthesumofdailyborrowings.

~(2)Calculated bydividingtotalinterestexpensebythe,averageofthesumofdailyborrowings.

7.JointlyOwnedGenerating Stations(SeeNote8.)TheCompanyhasanundivided 50%interestintheoutputandcostsofthreegenerating unitscomprising theHomerCityGenerating Station.ThestationisownedwithPennsyl-vaniaElectricCompanywhichalsooperatesthefacility.

TheCompany's shareoftheratedcapability is946,000kwanditsnetutilityplantinvestment is$270million,whichincludes$6millionofconstruction workinprogress.

Theaccumu-latedprovision fordepreciation asofDecember31,1986was$100million.TheCompany's shareofoperation andmain-tenanceexpenseofthestationisreflected intheConsolidated Statement ofIncome.TheCompanyenteredintotwocontracts forthesupplyofcoaltotheHomerCityGenerating Station.BythetermsofonecontractdatedJanuary2,1985,theCompanyisobli-gatedtopaytermination costsundercertainconditions foraperiodof17years.Theobligation atJanuary2,1987of$11.5millionwillbereducedperiodically through2001.8.Commitments andContingencies (SeeNote10.)TheCompanyhasanundivided 18%interestinthe1,084,000 kwNineMilePointnucleargenerating unitNo.2(Unit)beingconstructed byNiagaraMohawkPowerCorpor-ation(NiagaraMohawk)nearOswego,NewYork.Ownership oftheUnitissharedwithNiagaraMohawk41%,LongIslandLightingCompany(LILCO)18%,Rochester GasandElectricCorporation 14%andCentralHudsonGas6ElectricCor-poration9%.OnOctober31,1986Nia'garaMohawkobtainedfromtheNuclearRegulatory Commission (NRC)alowpowerlicenseandascheduleexemption topermittheloadingoffuel.Thefuelloadingprocesshasbeencompleted.

NiagaraMohawkhasinformedtheCompanythatitisawaitingapprovalbytheNRCofcertainengineering analysisrelatedtorepairsmadetotheUnit'seightmainsteamisolation valves(MSIV)thatverifytheircontinued suitability foroperation andthatthisapprovalisconditioned.

upontheresultstobeobtainedfromthetestingofaprototype valvewhichiscurrently inprocess.InJanuary1987NiagaraMohawkadvisedtheCompanythatasaresultoftheMSIVrepairsandengineering

analysis, coupledwiththeNRCreviewandaconsequent changeintheestimated commercial operation datetoSeptember 1987,itrevisedtheestimated totalUnitcostto$5.878billion($4.059billionofconstruction costsand$1.819billionofAFDC),excluding nuclearfuelcosts.InNovember1986,NiagaraMohawkhadestimated thatthetotalUnitcostwouldbe$5.787billion($4.010billionofconstruction costsand$1.777billionofAFDC),excluding nuclearfuelcosts.TheCompany's shareofthenewestimated costisapproximately

$1.114billion,including AFDCbutexcluding nuclearfuelcosts,plus$25millionforcertaincommonfacilities andother-costs foratotalinvestment ofapproximately

$1.13924 billionintheproject,excluding the$52millionpaymentbyNiagaraMohawkasdescribed below.AsofDecember31,1986,theCompany's investment intheprojectwas$1.035billion,including AFDCbutexcluding nuclearfuelcosts.Thetestingandstart-upofallnewnuclearplantsissub-jecttotheriskofencountering unforeseen problemsand,therefore, itmustberecognized thatcommercial operation of:theUnitmaybelaterthancurrently projected.

TheCom-panyestimates thatanydelayinachieving commercial oper-ationbeyondSeptember 1,1987wouldaddapproximately

$12millioneachmonthtoitsshareofthecostoftheUnit,themajorportionofwhichisfinancing costs.Althoughnoassurance canbeprovidedastotheprecisedateonwhichcommercial operation willbeaccomplished, theCompanybelievesthattheUnitwillcommencecommer-cialoperation inthefourthquarterof1987.Inconnection witha1982PSCproceeding discussed fur-therbelow,whichconcluded thatcompletion oftheUnitwaswarranted, thePSCstatedthatitwouldapplyastrictstandardofprudenceforallcostsincurredincompleting theUnit.OnJuly3,1985thePSCissuedanOrderestablishing aproceeding toinvestigate theprudenceofcostsrelatingtotheconstruction oftheUnit(Prudence Proceeding).

OnSep-tember18,1985thecotenants andthePSCStaffsubmitted tothePSCanOfferofSettlement (Offer)tosettlethePru-denceProceeding.

TheOfferprovidedthatamaximumof$4.45billionofcostsrelatingtoconstruction oftheUnitweretobeincludedinratebaseanddisallowed costswouldnotbelessthan$900million.Thecotenants maypetitionthePSCtoincreasethemaximuminresponsetoanextraordinary eventandtheco-te'nantsrepresented intheOfferthat,atthetimeoftheOffer,theywerenotawareofanyfactsthatwouldwarrantaclaim.TheOfferalsoprovides, amongotherthings,that(1)theallowedcostsfortheUnitwouldbephasedintoratebaseoverareasonable periodtogetherwithaccumulated de-ferredcarryingcostsontheportionoftheUnit'scostthathasnotyetbeenincludedinratebase,andthatthephase-inofeachcotenant's allocable shareofallowedUnitcostswillberesolvedinthecontextofitsrateproceeding; (2)certaintaxbenefits, basedupontheaccounting requirements arisingoutoftheOffer,aretobereservedforthebenefitofthestockholders; (3)thelevelofexpenditures fortheUnitthataredisallowed undertheOffershallbeallocated amongthecotenants inproportion totheirrespective ownership inter-estsintheUnitandeachcotenantwaivesanyandallclaimsarisingoutofthedesign,engineering orconstruction oftheUnitthatitmayhaveagainstanyothercotenantorcoten-ants;(4)thecotenants agreethattheywillnotchallenge thelegalvalidityoftheIncentive PlanortheJuly1984Orderwhicharediscussed below;and(5)theprovisions intheOffershallbeinfullsatisfaction ofanymonetarypenaltyorin-centiveprovidedforundertheIncentive PlanortheJuly1984Order.OnJuly15,1986thecotenants, inresponsetoarequestbythePSC,notifiedthePSCthattheywouldagreetomodifytheOffertoprovideforachangeintheallowable costto$4.16billion.Inaddition, inordertoinducesettlement amongthecotenants, NiagaraMohawkenteredintoanagree-mentwiththeothercotenants (Cotenant Agreement) wherebyitwouldmakeapaymenttothecotenants, uponcommercial operation oftheUnit,fortheirsharesofthe$290millionincremental disallowance betweentheoriginalproposedal-lowedcostof$4.45billionandtherevisedproposedallowedcostof$4.16billion.TheCompany's shareofthispaymentwouldbe$52million.Thispaymentwillnotcauseare-allocation ofownership interests intheUnit.OnOctober3,1986thePSCissuedOpinionNo.86-24approving theOffer,asmodifiedbythe$4.16billioncostallowance

proposal, andterminating thePrudenceProceed-ing.OnOctober22,1986theAttorneyGeneraloftheStateofNewYorkandtheConsumerProtection BoardoftheStateofNewYork(CPB)filedpetitions withthePSC,requesting thatthePSCreconsider theconclusions reachedinOpinionNo.86-24andresumethePrudenceProceeding.

OnDecem-ber17,1986thePSCissuedanorderwhichdeniedthepeti-tionsforrehearing.

TheExecutive DirectoroftheCPBandtheAttorneyGeneraloftheStateofNewYorkhavepubliclyexpressed theirintenttoappealthePSCactiontothecourts.TheCompanycannotpredictwhetheranappealtothecourtswillbetakenor,iftaken,theresultsthereof.BaseduponthetermsoftheOfferasapprovedbythePSCandbasedonNiagaraMohawk'srevisedcostestimatedis-cussedabove,theCompany's shareofthedisallowed amount(afterreflecting the$52millionpaymentbyNiagaraMohawkundertheCotenantAgreement) isexpectedtoapproximate

$326million,reducedtoapproximately

$234millionafterrecognition ofthefederalincometaxeffectata46%rate.(SeeNote10.)Thedisallowed amounttotheCompanywillbeincreased byitsshareoft6ecostofanyfurtherdelaysinthecommercial operation oftheUnitbeyondSeptember 1,1987andmightbefurtherincreased dependent ontheulti-matePSCdecisionastothecostscoveredbytheOfferandbytheimplementation requirements thatmayultimately beorderedbythePSC.25 InNiagaraMohawk'scurrentratecase,theStaffofthePSChasraisedgenericissueswithrespecttotheOfferwhichmayaffecteachofthecotenants.

Intheirtestimony, Staffcontendsthatthedisallowance shouldincludecostsforcom-monfacilities andcertainothercostswhichthecotenants considertobeoutsidethescopeoftheOffer.IfallsuchcostswereheldtobewithinthescopeoftheOffer,theCompany's shareoftheamountdisallowed, netofanytaxbenefits, wouldincreasebyapproximately

$16million.Staffalsoproposedvaluingthetaxbenefitsassociated withthedisallowed costata34%rateandonapresentvaluebasis.TheCompanybelievesthosepositions tobecontrarytotheOfferand,inthecaseofvaluingtaxbenefitsonapresentvaluebasis,contrarytogenerally acceptedaccount-ingprinciples.

IfStaff'spositions wereultimately sustained andthetaxbenefitsassociated withthedisallowed costwerevaluedata34%rateandonapresentvaluebasis,thereduc-tionintaxbenefitswouldincreasetheCompany's after-tax disallowance by$48million.NiagaraMohawkhasinformedtheCompanythatitexpectsadecisiononitscurrentratecase,including theimplementation requirements fortheOffer,inMarch1987.TheCompanycannotpredictwhethertheStaff'sproposals willultimately beadoptedandsustained.

InApril1982thePSCestablished anincentive rateofre-turnplan(Incentive Plan)fortheratemaking treatment of.theremaining construction costsoftheUnit.InJuly1984thePSCissuedanOrder(July1984Order)thatamendedtheIncentive Planbyimposinga$5.4billionceilingontheUnit'sfinalallowable cost.UndertheamendedIncentive Plan,thecotenants'ommon stockholders would,withacertainlimitation, bepenalized bya20~/oreduction intherateofreturnoncommonequityassociated withthecapitalcostsfortheUnitinexcessof$4.6billion,butlessthan$5.4billion.CapitalcostsfortheUnitinexcessof$5.4billionwouldbeborneintotalbythecotentants'ommon stock-holders.SincethePSC'sapprovaloftheOfferwasinfullsatisfa'ction ofanymonetarypenaltyprovidedforundertheIncentive Plan,asamendedbytheJuly1984Order,theIn-centivePlanandtheceilingimposedbytheJuly1984Orderarenotexpectedtobeimplemented.

TheCompanyisunabletopredictwhatfurtheractionsorproceedings, ifany,maybeinstituted withrespecttotheUnit.InFebruary1984LILCOdiscontinued makingconstruc-tionpaymentsfortheUnitandstateditwantedtodisengage itselffromtheUnit.Sincethattime,NiagaraMohawkandLILCOhaveenteredintoagreements whichinitially providedforfundingupto$400millionoftheLILCOconstruction costrequirements withrespecttotheUnitsubsequent toFebruary1984.InDecember1986LILCOpaidallamountsowingonitsshareoftheUnitandresumedpaymentstocovercurrentprojectexpenditures.

Inlightoftheforegoing andthesubstantial costincreases, construction delaysandlicensing problemsthathavearisenwithrespecttoothernucleargenerating

stations, theCom-panycanpredictneitherthefinalcostofitsshareoftheUnitnorthecompletion andlicensing oftheUnitconsistent withthepresentschedule.

IftheUnitweretobeabandoned, itisanticipated that,totheextenttheCompany's investment intheproject($1.035billionatDecember31,1986includ-ingAFDCbutexcluding nuclearfuelcosts)isnotrecovered throughratesandalternative regulatory reliefisnotgranted,theCompanywouldhavetochargeexpensewiththeprojectcosts,netofthefederalincometaxeffect.(SeeNote10.)9.Abandoned Projects-NewHavenandJamesport (SeeNote10.)TheCompanyfiledpetitions withthePSCrelativetotheNewHavenandJamesport

Projects, twoabandoned nucleargenerating

projects, requesting authorization to(1)continuetoaccrueAFDConitsshareofcostsuntilamortization ofsuchcostscommences toberecovered inrates,(2)amortizetheinvestments throughratesand(3)includeinratesap-propriate carryingchargesontheunamortized balances.

Theprojectswereoriginally plannedforcompletion onajointventurebasiswithLILCO.OnSeptember 19,1984thePSCissuedOpinionandOrderNo.84-25whicheffectively authorized recoveryof70~%%doftheCompany's investment intheNewHavenProject.AsaresultofPSCOrderNo.84-25,theCompanycharged$8.7million(netoffederalincometaxes)toexpensein1984andthebalancewasincludedinDeferredCharges-Abandoned projectcostsintheConsolidated BalanceSheet.ThroughApril1985theCompanyaccruedanon-cashreturn,calcu-latedsimilarly toAFDC,onthisdeferredcharge.Amortiza-tionofthedeferredchargeisbeingrecordedratablyoverfiveyearsbeginning May1985coincident withrecoveryinrates.AsofDecember31,1986theunamortized balancewas$29million.OnMay22,1985theCompanyfiledapetitionintheSupremeCourtoftheStateofNewYork(AlbanyCounty)challenging thePSC'sdisallowance ofapartoftheCom-pany'sinvestment intheNewHavenProject.Theproceeding wastransferred totheAppellate Division(ThirdDepartment).

TheCompanyandLILCOhaveagreedthatshouldthePSCfindthatcertaincostsforpredecessor projectsincludedintheNewHavenProjectcostsmaynotberecovered byLILCOthroughitsrates,theCompanywouldthenrefundtoLILCO26 itsshareofthesecosts.InOrderNo.84-25thePSCstatedthatthesecostsshouldbeallowedtoberecovered inLILCO'srates;therefore, theCompanybelievesthatnoamountisrefundable toLILCO.InMarch1982thePSCauthorized theCompanytocon-tinueaccruingAFDConitsJamesport investment untilthePSCrendersitsdecisionwithrespecttotheprudenceanddisposition oftheprojectcosts.Theseproceedings arecon-tinuing.IftheCompany's requesttoamortizeitsinvestment isdeniedandalternative regulatory reliefisnotgranted,theCompanywouldhavetochargeexpensewiththedisallowed costs,netofthefederalincometaxeffect.TheCompanyisunabletopredicttheportionoftheJamesport investment, ifany,whichwillbeallowedtoberecovered inrates.In1986theCompanyrecorded$5.9millionrelatingtonon-cashreturnonitsJamesport investment whichisin-cludedinotherincomeintheConsolidated Statement ofIncome.AsofDecember31,1986theCompany's Jamesport investment of$80million,beforethefederalincometaxef-fect,isincludedinDeferredCharges-Abandoned projectcostsintheConsolidated BalanceSheet.10.Statement ofFinancial Accounting Standards No.90Financial Accounting Standards currently applicable toregu-latedenterprises donotrequire,subjecttocertainexcep-tions,theimmediate chargetoexpenseofcostsrelatingtoanewlycompleted plantwhicharedisallowed forratepur-poses.Currentstandards alsodonotrequiretheimmedi-aterecognition ofalosswhenthecarryingamountoftheabandoned projectisgreaterthanthepresentvalueoftheprobablefuturerevenueforrecoveryoftheabandoned projectcosts.Mattersofthisnatureexist,orareexpectedtoexist,intheCompany's operations andaremorefullydiscussed inNotes8and9.TheCompany's consolidated financial state-mentsasofDecember31,1986werepreparedinaccordance withcurrentfinancial accounting standards.

InDecember1986theFASHissuedStatement ofFinancial Accounting Standards No.90,Regulated Enterprises-Ac-countingforAbandonments andDisallowances ofPlantCosts(SFASNo.90).SFASNo.90includesrequirements that(1)whenitbecomesprobablethatpartofthecostofanewlycompleted plantwillbedisallowed forratemaking purposesandareasonable estimateoftheamountofthedisallowance canbemade,theestimated amountoftheprobabledisallow-anceshallbeimmediately chargedtoexpense,(2)AFDCbecapitalized onlyifitisprobablethatitwillbeincludedasanallowable costforratemaking purposesand(3)ifpartialornoreturnoninvestment islikelytobeprovidedontheal-lowedcostoftheabandoned plant,thenthelossontheabandoned plantshallbeequaltothecarryingamountoftheabandoned plantlessthepresentvalueoftheprobablefuturerevenueforrecoveryoftheabandoned plantcosts.SFASNo.90iseffective fortheCompany's financial re-portingcommencing withfiscalyearsbeginning afterDe-cember15,1987(Effective Date),withearlierapplication encouraged.

Theprovisions ofSFASNo.90alsoapplytothefinancial reporting ofeventsoccurring priortotheEffective Date.TheCompanyhasanalyzedtheeffectthattheprovisions ofSFASNo.90haveontheCompany's investment intheabandoned NewI.lavennucleargenerating projectandthedisallowance ofcostsrelatedtotheNineMilePointnucleargenerating unitNo.2(Unit).Basedonthatanalysis, theCompanyhasconcluded thattherewouldnothavebeenamaterialadverseeffectontheCompany's consolidated finan-cialstatements asaresultoftheabandoned NewHavennucleargenerating projectifSFASNo.90hadbeenineffectinprioryears.However,ifSFASNo.90hadbeenineffectin1986and1985,thenet-of-tax lossontheUnitwouldhavebeenallocated toeachofthoseyearsandreported1986and1985earningsavailable forcommonstockwouldhavebeen,onaproformabasis,approximately

$115millionand$65million,respectively, andrelatedproformaearningspersharewouldhavebeen$2.13and$1.23,respectively.

Inaddi-tion,1987earningsavailable forcommonstockwouldbereducedbyapproximately

$22million.(SeeNote8.)TheCompanycurrently anticipates application ofSFASNo.90in1987andanticipates recording thedisallowance asacumu-lativeeffectofachangeinaccounting principle.

InorderfortheCompanytobeabletoissuefirstmort-gagebondsorpreferred stock,certainearningsrequirements (subjecttocertainexceptions inthecaseoffirstmortgagebonds)underitsMortgageorCertificate ofIncorporation havetobemetforatwelve-month period.TireimpactoftheUnit'sdisallowed cost,asdiscussed above,isexpectedtohaveamaterialadverseeffectonsuchearningsandcouldresultintheCompanybeingunabletomeetsuchrequirements.

ThisadverseeffectisexpectedtocontinueforaslongastheUnit'sdisallowed costisreflected inthedetermination ofearningsfortheapplicable twelve-month period.IftheCompanywereunabletomeetsuchearningsrequirements suchinability isnotexpectedtohaveasignificant impactonthecontinuing operations oftheCompany.27 11.IndustrySegmentInformation Certaininformation pertaining totheelectricandgasoperations oftheCompanyis:19851984ElectricGasElectricGas(Thousands ofDolla'rs)

ElectricGas$1,051,579

$190,201825,719178,308.225,86011,89394,1633,922$179,195159,72819,4673,992247,7593,623,481 5,912105,463Operating:

Revenues............

$1,098,089

$921,248$207,818Expenses............

836,471708,383190,017Income.............

261,618212,86517,801Depreciation*

..........

96,804-60,9234,275Construction expenditures

.........

220,27510,6178,390343,806Identifiable assets**.....3,844,469 119,565'13,035 3,362,574

'Included inoperating expenses.

- Corporate assets($260,950,$240,103and$265,109atDecember31,1986,1985and1984respectively) consistprimarily ofcash,specialdeposits, accountsreceivable, prepayments, unamortized debtexpenseandaccumulated deferredincometaxes.AmountschargedtoaccountsotherthantaxesTotalothertaxes12.Supplementary IncomeStatement Information Chargesformaintenance, repairsanddepreciation, otherthanthosesetforthintheConsolidated Statement ofIncome,werenotsignificant inamount.Taxes,otherthanfederalincometaxes,are:198619851984~(Thousands ofDollars)Property.$62,245$55,987$48,598Franchise andgrossreceipts53,96049,24747,735Payroll,11,58310,78710,228Miscellaneous 5,8406,0116,994133,628122,032113,555(11,228)(8,445)(11,403)$122,400$113,587$102,15228 13.Quarterly Financial Information (Unaudited)

March31QuarterEndedJune30Sept.30(Thousands)

Dec.311986Operating revenues.Operating income..NetincomeEarningsavailable forcommonstockEarningspershare(indollars).......Dividends pershare(indollars)......Averagesharesoutst'anding Commonstockprice(indollars):*

HighLow1985Operating revenues.Operating incomeNetincomeEarningsavailable forcommonstock.Earningspershare(indollars).......Dividends pershare(indollars)......Averagesharesoutstanding Commonstockprice(indollars):*

High.Low$381,321$87,150$79,593$73,599$1.36$.6454,007$32$27'/a$361,982$69,546$69,388$62,688$1.20$.6152,288$23'/2$21'/4$305,177$70,230$55,269$50,240$.93$.6454,007$331/8$28a/s$306,049$63,988$53,852$47,510$.90$.6152,774$27'/z$23'/s$274,945$62,475$46,596$42,031$.78$.6654,007$38'/z$30$270,992$51,381$42,288$36,194$.68$.6453,233$29'/4$23'/4$315,841$61,230$47,036$42,520$.79$.6654,040$34'/4$30'/4$302,757$52,838$42,905$36,815$.69$.6453,739$28'/4$23'/e*TheCompany's commonstockislistedontheNewYorkStockExchange.

Thenumberofstockholders ofrecordatJanuary21,1987was71,935.DividendLimitations:

Afterdividends onalloutstanding preferred stockhavebeenpaid,ordeclaredandfundssetapartfortheirpayment,thecommonstockisentitledtocashdividends asmaybedeclaredbytheBoardofDirectors outofretainedearningsaccumulated sinceDecember31,1946.Suchdividends arelimitedifCommonStockEquity(40%atDecember31,1986)fallsbelow25/0oftotalcapitalization.

Dividends oncommonstockcannotbepaidunlesssinkingfundrequirements ofthepreferred stockaremet.TheCompanyhasnotbeenrestricted inthepaymentofdividends oncommonstockbytheseprovisions.

29 SelectedFinancial DataOperating revenues.........

NetincomeEarningspershare..........

Dividends paidpershare.....Averagesharesoutstanding

...Bookvaluepershareofcommonstock(year-end)

..Interestcharges............

AIDCandothernon-cashreturn..........

Depreciation OthertaxesConstruction expenditures TotalassetsLong-term obligations andredeemable preferred stock.1986$1,277,284

$228,494$3.86$2.6054,01419851984(Thousands

-exceptper$1,241,780

$1,129,066 S208,433S211,376$3.46$3.68$2.50$2.3853,01349,9551983sharedata)$993,589$156,680$3.06$2.2643,5301982S953,714S145,095$3.36$2.1036,414$25.86$24.65$23.71$22.75$22.39$199,258$191,248$176,085$137,372$109,266$111,872$100,796$122,400$230,892$4,224,984

$122,719$98,085$113,587$256,149$3,976,619

$126,265$65,198$102,152$349,718$3,733,146

$91,641$56,799$90,604$466,642$3,200,466

$54,466$53,174$82,877$524,310$2,728,005

$1,951,227

$1,836,076

$1,663,784

$1,426,681

$1,242,627 Coopers8Lybrandcertifedpublicaccountants TotheStockholders andBoardofDirectors NewYorkStateElectric2GasCorporation andSubsidiaries Ithaca,NewYorkWehaveexaminedtheconsolidated balancesheetsofNewYorkStateElectric6GasCorporation andSubsidiaries asofDecember31,1986and1985,andtherelatedconsolidated statements ofincome,retainedearningsandchangesinfinancial positionforeachofthethreeyearsintheperiodendedDecember31,1986.Ourexaminations weremadeinaccordance withgenerally acceptedauditingstandards and,accordingly, includedsuchtestsoftheaccounting recordsandsuchotherauditingprocedures asweconsidered necessary inthecircumstances.

Inouropinion,thefinancial statements referredtoabovepresentfairlytheconsolidated financial positionofNewYorkStateElectric6GasCorporation andSubsidiaries atDecember31,1986and1985,andtheconsolidated resultsoftheiroperations andthechangesintheirfinancial positionforeachofthethreeyearsintheperiodendedDecember31,1986,inconformity withgenerally acceptedaccounting principles appliedonaconsistent basis.NewYork,NewYorkJanuary30,198730 Management's Discussion andAnalysisofFinancial Condition andResultsofOperations Liquidity andCapitalResources TheCompanyhasanundivided 180/0interestinthe1,084,000 kwNineMilePointnucleargenerating unitNo.2(Unit)beingconstructed byNiagaraMohawkPowerCorporation nearOswego,NewYork.TheCompany's shareoftheesti-matedconstruction costisapproximately

$1.114billion,in-cludingallowance forfundsusedduringconstruction (AFDC)but'excluding nuclearfuelcosts,plus$25millionforcertaincommonfacilities andothercostsforatotalinvestment ofapproximately

$1.139billionintheproject.AsofDecember31,1986,theCompany's investment intheprojectwas$1.035billion,including AFDCbutexcluding nuclearfuelcosts.(SeeNote8.)Construction expenditures, including AFDC,duringtheperiodfrom1984-1986 totaledapproximately

$1.1billion.TheUnitwasthelargestconstruction projectduringthosethreeyears,requiring approximately

$561million.Inad-dition,approximately

$172millionwasexpendedfortheSomersetGenerating Station(Somerset) whichwasplacedincommercial operation inAugust1984.Estimated construction expenditures for1987through1989areincludedinthetablebelow.The1987estimatehasincreased overtheestimatemadepreviously largelybecauseofincreased costsrelatedtothechangeinscheduled com-mercialoperation oftheUnittoSeptember 1987.TheCompany's construction programisundercontinuing re-viewandisrevisedfromtimetotime.Construction expenditures otherthanfortheUnitareplannedtoextendservicetonewcustomers, forimprove-mentsatexistinggenerating stationsandtoimproveoper-atingefficiency.

Withthescheduled additionofgenerating capability fromtheUnitin1987andwiththeimprovements currently underwayatexistinggenerating

stations, theCompany's generating capability willbesufficient andleavesroomforgrowthwithouttheneedformajorexpenditures fornewgenerating facilities.

Theregulatory treatment oftheallowedcostoftheUnithasnotyetbeendetermined; however,theCompanyantici-patesthatwhentheUnitisallowedinratebase,theentireagreeduponcostforratepurposeswillbephasedinoveraperiodofyears.IncludedintheCompany's February1987ratefilingisarequesttophase-intheUnit'sallowedcostsoverathree-year period.Thenon-cashreturnincludedinthetablebelowrelatestothedeferraloffinancing costsduringthephase-inperiod.TheCompany's needforoutsidecapitalresultsprimarily fromitsconstruction programanditsprogramtoreducethecostofcapitalbyrefinancing high-cost firstmortgagebondsandpreferred stock.Externalfinancings in1986included:

~Thesaleof$125millionprincipal amountofFirstMort-gageBonds,10s/s%Series,dueFebruary1,2016.~Thesaleof$50millionprincipal amountofFirstMort-gageBonds,9I/4%Series,dueApril1,2016.~Thesaleof$100millionprincipal amountofFirstMort-gageBonds,83/8%Series,dueAugust1,1994.Inaddition, acontinuous offeringprogramforthesaleof1,500,000 sharesofcommonstockcommenced inDecember1986andisexpectedtoconcludebytheendofthefirstquarterof1987.Proceedsfromtheseexternalfinancings wereusedfortheredemption of$110millionprincipal amountofhighinterestbondsoriginally issuedin1981and1979,andforthere-demptionofthe300,000outstanding sharesoftheCom-pany's15'/8%SerialPreferred Stock(Cumulative,

$100ParValue)originally issuedin1981.Thebalanceoftheproceedswasusedforthepaymentofshort-term unsecured noteswhichwereusedforconstruction purposes.

TheCompanyusesinterimfinancing intheformofshort-termunsecured notes,usuallycommercial paper,tofinanceconstruction expenditures, therebyproviding flexibility inthetimingandamountsoflong-term financings.

TheCom-panyhad$110.6millionofcommercial paperoutstanding atDecember31,1986.Theamountofexternalflinancings in1986decreased overrequirements in1985and1984,primarily duetothecom-pletionofSomersetin1984andduetodeclining costsasso-ciatedwiththeUnitas.theUnitgetsclosertoitsscheduled completion dateofSeptember 1987.Externalfinancings fortheperiodfrom1987through1989areincludedinthetablebelow.During1986theCompanyenteredintoanewrevolving creditagreement withcertainbankswhichprovidesforbor-rowingupto$200milliontoJuly31,1992.AttheoptionoftheCompany,theinterestrateonborrowings isrelatedtotheprimerateortheLondonInterbank OfferedRateortheinterestrateapplicable tocertaincertificates ofdeposit.Theagreement alsoprovidesforthepaymentofacommitment feeontheunborrowed amountofone-quarter ofapercentperannum.Therevolving creditagreement doesnotrequirecompen-satingbalances.

TheCompanydidnothaveanyoutstanding loansunderthisagreement atDecember31,1986.InDecember1986theFinancial Accounting Standards BoardissuedStatement ofFinancial Accounting Standards No.90,Regulated Enterprises-Accounting forAbandon-mentsandDisallowances ofPlantCosts(SFASNo.90)whichisexpectedtohaveamaterialadverseeffectontheCompany's consolidated financial statements.

(SeeNote10.)TheCom-panyhasanalyzedtheeffectthattheprovisions ofSFASNo.90haveontheCompany's investment intheabandoned NewHavennucleargenerating projectandthedisallowance ofcostsrelatedtotheUnit.(SeeNotes8and9.)Basedonthatanalysis, theCompanyhasconcluded thattherewouldnothavebeenamaterialadverseeffectontheCompany's consolidated financial statements asaresultoftheaban-donedNewHavennucleargenerating projectifSFASNo.90hadbeenineffectinprioryears.However,ifSFASNo.90hadbeenineffectin1986and1985,thenet-of-tax losson theUnitwouldhavebeenallocated toeachofthoseyearsandreported1986and1985earningsavailable forcommonstockwouldhavebeen,onaproformabasis,approximately

$115millionand$65million,respectively, andrelatedproformaearningspersharewouldhavebeen$2.13and$1.23,respectively.

Inaddition, 1987earningsavailable forcommonstockwouldbereducedbyapproximately

$22million.(SeeNote8.)InorderfortheCompanytobeabletoissuefirstmortgagebondsorpreferred stock,certainearningsrequirements (subjecttocertainexceptions inthecaseoffirstmortgageUsesofFunds:Construction NineMilePointUnitNo.2OtherProjectsAFDCTotalConstruction WorkingCapitalNineMilePointUnitNo.2Non-CashReturnRetirement ofSecurities andSinkingFundObligations Total$42,000168,00074,000284,00086,00032,00065,000$467,000Thefollowing tablesetsforthcertaindataconcerning theCompany's estimated usesandsourcesoffundsfortheyears1987through1989.198735,000$280,000150,000'385,000250,000$1,132,000 bonds)underitsMortgageorCertificate ofIncorporation havetobemetforatwelve-month period.TheimpactoftheUnit'sdisallowed cost(SeeNote8.),isexpectedtohaveamaterialadverseeffectonsuchearningsandcouldresultintheCompanybeingunabletomeetsuchrequirements.

ThisadverseeffectisexpectedtocontinueforaslongastheUnit'sdisallowed costisreflected inthedetermination ofearningsfortheapplicable twelve-month period.IftheCompanywereunabletomeetsuchearningsrequirements suchinability isnotexpectedtohaveasignificant impactonthecontinuing operations ofthe.Company.1988..1989Total(Thousands ofDollars)s$-,S-S42,000176,000,~170,000514,0009,000"9,00092,000185,000,-'-179,000648,00023,000-33,000142,00037,000",'3,00092,000SourcesofFunds:NiagaraMohawkpayment(SeeNote8.)Long-Term Financing Increase(Decrease) inShort-Term DebtInternalSourcesTotal$=52,000'150,000(12,000)277,000S100,000(19,000)199,000$467,000$280,000$'40,00031,000'"214,000$385,000S52,000390,000690,000$1,132,000 ResultsofOperations EarningsEarningsavailable forcommonstockandearningspersharefor1986increased 14%and12%,respectively, ascomparedwith1985,primarily asaresultofhigherretailelectricsalesandgreateramountsofAFDCcapitalized.

Inaddition, earn-ingswerehigherduetotheredemption ofthe15~/8%pre-ferredstock.Theseincreases werepartially offsetbyhighermaintenance andoperation-other expenses.

Thenumberofaveragesharesoutstanding increased slightlyduringthisperiod.Earningsavailable forcommonstockandearningspersharefor1985decreased lessthan1%and6%,respectively, ascomparedwith1984,whichresultedprimarily fromare-ductioninthe.returnoncommonequityfrom16.2%to15.5%allowedbythePublicServiceCommission oftheStateofNewYork(PSC)intheApril1985ratedecision.

Thedecreaseinearningspersharewasalsoduetoagreaternumberofaveragesharesoutstanding.

os32e Operating RevenuesOperating revenuesincreased 3o/oin1986comparedwiththeprioryearafterincreasing 10%in1985.Theincreases werecomposedprimarily ofthefollowing factors:RateincreaseFuelcostadjustment Electricity salestootherutilities Surcharge for(passback of)interchange profitsSalesvolumeandotherTotal(75,366)63,86418,39355,770(10,380)(31,862)27,663(14,373)$46,510$(11,006)$130,331$(17,617)Increase(Decrease) fromPriorYear1986over19851985over1984(Thousands ofDollars)ElectricGasElectricGas$69,630$1,586$83,246$5,233(21,917)(2,212)(12,580)(8,477)ThePSCgrantedthefollowing rateincreases whichbecameElectricApril15,1986$64,590August29,1985$3,120April15,1985$78,458April24,1984$84,500Therateincreases inApril1986,1985and1984reflectthethreeyearphase-inoftheSomersetplantcostsofapproxi-mately$1billion.Inconnection withthe1986rateincrease, theCompanyagreedwiththePSCtonotfileforfurtherin-creasesinelectricorgasratestobecomeeffective beforeJanuary1,1988.Duringthattime,anycostsincurredre-sultingfromcommencement ofcommercial operation oftheUnitwillbedeferred.

Thedeferredaccounting includesbothUnitrelatedrevenuesandexpensesandprovision forcarry-ingchargeallowances.

InFebruary1987theCompanyfiledwiththePSCforanelectricrateincreaseofapproximately 4/otobecomeeffec-tiveinJanuary1988.Theproposedincreaseassumesa13o%%dreturnoncommonequityandathree-year phase-inoftheallowedcostsoftheUnit.PriortotheApril1985PSCratedecision, fuelcostadjust-mentrevenuesreceivedbytheCompany-completely recov-eredfuelcostsnotincludedinthebaserateschargedtocustomers, andtherefore, didnotaffectearnings.

TheApril1985ratedecisionprovidedthatratepayers andstockholders sharetheeffectsofavariation infuelcostsfromforecasted levelsuptoa$6.6million,aftertax,maximumgainorlosseffective ontheindicated dates:%IncreaseGas(Thousands ofDollars)7.0%.3/o$509.2%9.1/o$2,1721.0lo10.7/o$7,4003.2lotostockholders.

In1985and1986,theeffectwastoincreaseearningsbyapproximately

$.4millionand$1.2million,re-spectively.

Thisprovision intheApril1985ratedecisionwillbeineffectuntilJanuary1988.Inaddition, theApril1984andtheApril1985PSCratedecisions contained provisions forcustomers toshareinthebenefitorshortfall ofprofitsfromsalesofelectricity tootherutilities.

TheApril1984ratedecisionprovidedthatprofitsonelectricity salestootherutilities exceeding

$32.8millionduringthetwelvemonthsendedApril15,1985besharedbyratepayers andstockholders onan80/o/20%basis.TheApril1985ratedecisionmodifiedthisprovision toallowratepayers andstockholders toshareonan80%/20%%d basisinthebene-fitorshortfall ofallprofitsfromsalesofelectricity tootherutilities aboveorbelowamonthlyforecasted amount.Asaresultoftheseprovisions,

$31.9millionwaspassedbacktocustomers in1985.However,in1986,primarily asaresultofthedecreaseinelectricity salestootherutilities,

$18.4millionwaschargedtocustomers underthisprovision.

Asaresultofthissharingprovision, 1985earningsincreased byapproximately$

4millionand1986earningsdecreased byap-proximately

$3million.Theprovision intheApril1985ratedecisionwillbeineffectuntilJanuary1988.Residential Commercial Industrial TotalRetailOtherUtilities

-7%Electricsalesandrevenuechangesbymajorcustomercategoryareasfollows:Increase/Decrease fromPriorYear19861985SalesRevenuesSalesRevenues4o/o14%1/o10%1736317-124%%d15'Yo1%7%%d-29%44%59%60%Total4%14%14%33 In1985theCompany's electricity salestootherutilities increased by59/oprimarily asaresultofincreased generat-ingcapability atfavorable ratesduetothecommercial oper-ationofSomersetbeginning inAugust1984.The29%declineinsalestootherutilities in1986islargelyattributable toloweroilpriceswhichenabledoil-fired plantsofotherutilities toproduceelectricity onacompetitive basiswithsomeoftheCompany's coal-fired units,thusreducingdemandfortheCompany's generation.

Sales-3%-5-21-8%Gassalesandrevenuechangesbymajorcustomercategoryareasfollows:Increase/Decrease fromPriorYear19861985SalesRevenuesRevenuesResidential 4%3%-4%Commercial 1}-5Industrial 35-23Total-7%-6%-8%Industrial gassalesdecreased inboth1986and1985pri-marilyasaresultofcertainlargeindustrial customers pur-chasinggasdirectlyfromproducers.

TheCompanyreceivedrevenuesfromthesecustomers fortransporting gastothemfromtheproducers.

Althoughthisresultedinadeclineinindustrial gasrevenues, therewasarelateddeclineinpur-chasedgascostsandtheeffectonearningsafterconsidering thetransportation gasrevenueswasnotsignificant.

In1986thedecreaseinunitsalestoindustrial customers wasalsoaffectedbycertaincustomers switching tooil.Operating ExpensesComparedwiththeprioryear,operating expensesdeclined1%in1986afterincreasing 12%in1985.The1986declinewasdueprimarily toadecreaseinenergycosts,partially off-setbyincreases intaxes.Fuelexpensedecreased 15/oasaresultofadecreaseof10%inelectricity generated dueprimarily tolowersalestootherutilities andmoreefficient generation coupledwithlowerpurchasecostsforcoal,asthefuelcosttogenerateonekilowatthourofelectricity decreased 3%.In1985the23%increaseinfuelexpensewasdueprimarily toa24%increaseinelectricity generated, partially offsetbya4%de-creaseinfuelcosttogenerateonekilowatthourofelectricity.

Electricity andgaspurchased waslowerby15%and23%in1986and1985,respectively, resulting fromlowerpur-chasecostsperkilowatt-hour andperdekatherm, respec-tively,inadditiontosignificant decreases inthequantityofgaspurchased asdiscussed above.Inaddition, the1985decreasewasalsoattributable tofewerkilowatt-hours pur-chased.Federalincomeandothertaxesrose17%inboth1986and1985.Theincreases primarily resultedfromhighertaxableincomeandhigherpropertytaxesasaresultofsignificant propertyadditions.

TheTaxReformActof1986(TRAof1986)wasenactedonOctober22,1986.TheimpactoftheTRAof1986willbedeferreduntilthebenefitscanbepassedontoratepayers inthenextrateproceeding.

Asaresultofthisdeferral, theCompanydoesnotexpecttheTRAof1986tohaveamaterialeffectonitsfinancial positionorresultsofoperation.

(SeeNote2.)Non-operating IncomeAFDCwas27%higherin1986afterdeclining 20%in1985.Greaterlevelsofconstruction workinprogress(CWIP)relatingtotheUnitwereresponsible forthe1986increase, whileCWIPlevelswerelowerin1985duetoSomersetbeingplacedinserviceinAugust1984.Non-cashreturndecreased 66%in1986aftera50%in-creasein1985.Anon-cashreturnwasaccruedontheSomersetplantcostsnotincludedinratebaseandoncer-tainabandoned projectcosts.Intotal,AFDCandothernon-cashreturnamountedto54%,67%and69%ofearningsin1986,1985and1984,respectively.

Interestchargesbeforethereduction forAFDC-borrowed fundsincreased by4%and9%overtheprioryearin1986and1985,respectively.

Theincreases primarily resultedfromadditional borrowings tofinanceconstruction expenditures, including pollution controlfacilities, andtheredemption ofcertainhigh-cost firstmortgagebondsandpreferred stock,partially offsetbyadecreaseinthecostofdebtasaresultoftheCompany's refinancing ofcertainhighinterestbondsduringeachofthepastthreeyears.Theimpactofinflation andchangingpricesonrevenuesandearningsavailable forcommonstockwasnotmaterialduringtheperiodfrom1984through1986.34 Financial andOperating Statistics SUMIiIARY OFEARNINGSOPERATING REVENUESElectric.Gas.TotalOPERATING EXPENSESOperation

-fuel-other.....Electricity purchased

..Gaspurchased

........Maintenance

.........

Depreciation

.........

Federalincometax....Othertaxes..........

TotalOPERATING INCOME....19861985$1,051,579 190,201$1,098,089 179,1951,277,284 1,241,780 198419831982(DollarsinThousands)

$921,248$785,723$768,717207,818207,866184,99?1,129,066 993,589953,714238,371182,71029,302111,14788,486100,796122,987122,400280,39?167,92335,984129,80981,59198,08596,651113,587227,998141,05669,206146,04068,60665,19878,144102,152237,753230,666281,085187,148128,98666,575160,41561,23456,79967,89190,604819,652173,937200,895125,04468,781132,30060,54153,17453,60682,877777,218176,496996,1991,004,027 898,40019811976177,592108,29472,591112,17651,61649,44843,84472,935688,496144,60572,62160,13249,56947,94429,75732,5897,75144,296344,65979,498$674,740$346,760158,36177,397833,101424,157OTHERINCOMEANDDEDUCTIONS Allowance forotherfundsusedduringconstruction

....Non-cashreturn-utilityplantinservice-abandoned projects.......Abandoned projectcosts.......Federalincometaxcredit......

IncometaxbenefitsfromAFDCandnon-cashreturn........Other-net.................

INCOMEBEFOREINTERESTCHARGES63,1689,8685,9064,64830,10839394,82250,26368,14557,89533,69116,1987,80340,1856,6825702,54422,0029,283(11,026)3,4358,9273,4179,256(328)8,5442,6351,16632,2563,83929,8148,30723,4491,60811,77411,9536,836(234)(158)374,092360,626269,233242,842178,58488,309INTERESTCHARGESInterestonlong-term debt..Otherinterest............

Allowance forborrowedfundsusedduring.construction

...........

Interestcharges-net..NETINCOME..............

PREFERRED STOCKDIVIDENDS

..............

EARNINGSAVAILABLE FORCOMMONSTOCK.........

COMMONSTOCKDIVIDENDS

..............

RETAINEDEARNINGS.......187,23812,020178,98512,263164,43511,650130,4886,884104,0805,18668,7739,98739,7122,673(32,930)(25,589)(26,835)166,328228,494165,659149,250208,433211,376(24,819)112,553156,680(11,519)(7,977)(5,961)97,74770,78336,424145,095107,80151,88520,10425,2262?,37023,46622,61017,53610,465208,390140,43228,375$13,04558,657$31,608132,018118,05898,15575,484$35,059$47,001$67,958$51,189$65,948183,207184,006133,214122,48590,26541,420Averagenumberofsharesofcommonstockoutstanding (thousands)

..............

Earningsperaverageshare...Dividends paidpershare54,014$3.86$2.6053,01349,95543,53036,41430,58618,181$3.46$3.68$3.06$3.36$2.95$2.28$2.50$2.38$2.26$2.10$1.94$1.6035 Financial Statistics INCOMESTATISTICS:

Returnonaveragecommonstockequity-percent...........

Mortgagebondinterest-timesearned......Interestchargesandpreferred dividends

-timesearned......AveragecommonstockequitypersharePROPERTY, PLANTANDEQUIPMENT:

ElectricGas.Common.............

Total.............

ACCUMULATED DEPRECIATION CAPITALIZATION:

Long-term debt.........

Preferred stock.........

Commonstockequity....Totalcapitalization

..CAPITALIZATION RATIOS(percent):

Long-term debt.........

Preferred stock.........

Commonstockequity....NUMBEROFSTOCKIIOLDERS:Commonstock.........

Preferred stock.........

PAYROLL(including

pensions, etc):Chargedtooperations Chargedtoconstruction andotheraccounts....Total..............

198619851984198319821981(DollarsinThousands) 197615.32.914.32.915.93.013.515.227'.2713.42.811.42.41.81.91.81.91.91.8$25.24$24.17$23.21$4,129,838 164,42678,781$3,828,220

$3,526,364 154,675147,12072,49460,775$22.62'22.14r,'3,109,469

$2,616,720 142,0?2-:137,78849,115."50,432$22.01$19.96$2,105,593

$1,353,604 133,156111,06249,27836,743$4,373,045

$4,055,389

$3,734,259

$3,300,656

$2,804,940

$2,288,027

$1,501,409

$769,336$687,472$617,687$563,118$526,471$490,579$324,852$1,959,089 217,9?01,397,962

$1,803,469

$1,691,367

$1,331,981

$1,123,789

$863,398$635,526252,620277,300278,950236,075246,812176,5431,331,231 1,234,561 1,103,655 888,594722,709393,184$3,575,021

$3,387,320

$3,203,228

$2,714,586

$2,248,458

$1,832,919

$1,205,253 54.86.139.153.27,.539.352.88.738.549.110.340.650.010.539.547.113.539.452.714.632.771,9356,06079,0136,36481,2586,38082,9826,60776,0736,66971,4645,93245,1466,59155,936$182,24357,07556,57353,42251,01544,50434,419$175,786$165,280$154,657$145,234$127,548$85,594$126,307$118,711$108,707$101,235$94,219$83,044$51,175Numberofemployees endofyear........4,4234,3604,3474,3784,4264,3074,170 ElectricSalesStatistics 1986198519841983198219811976KwhSales(millions):

Residential Commercial Industrial Publicauthorities

.....SubtotalOtherelectricutilities

..Total4,79127722,8991,34511,8073,54515,3524,6152,6782,8111,3014,5752,6112,8321,2694,3982,5362,6911,2314,4122,4922,6211,2014,4292,5162,8451,2184;09323222,3691,11211,40511,28710,85610,72611,0089,8965,0213,1581,4291,8271,60288616,42614,44512,28512,55312,61010,782Operating Revenues(thousands):

Residential Commercial Industrial Publicauthorities

...........

SubtotalOtherelectricutilities

........Otheroperating revenues.....Totaloperating revenues..$457,132235,246187,372109,181988,93195,70713,451$1,098,089

$401,345$365,331$335,284$325,124$271,335$151,790201,654190,891169,537163,755142,64379,857160,089156,680133,007128,633121,61858,09593,18086,40075,49072,35764,11335,808856,268799,302713,318689,869599,709325,550171,073107,20958,23964,78065,86316,30424,23814,73714,16614,0689,1684,906$1,051,579

$921,248$785,723$768,717$674,740$346,760Operating Revenuesperkwh(cents):Residential Commercial Industrial

.Publicauthorities

...............

SubtotalOtherelectricutilities

............

Averagerevenueperkwh.....9.548.496.468.128.382.707.158.707.997.537.315.705.537.166.817.627.376.696.5?4.944.916.136.026.133.715.673.444.272.455.263.227.517.086.576.435.453.293.413.394.083.554.111.846.406.386.406.125.353.22NumberofCustomers (averageforyear):Residential Commercial Industrial Other.Total635,53664,5631,39310,503711,995624,751616,051608,886603,904599,117564,50263,36862,11560,71059,48258,16454,8081,3891,3621,3331,3401,3481,27910,38810,1389,9789,9169,6878,633699,896689,666680,907674,642668,316629,222AnnualAverageUse(kwh):Residential Commercial Industrial (thousands) 7,53842,9352,0817,3877,4267,22342,26142,03541,7722,0242,0792,0197,30641,8951,9567,3937,25143,25?42,3662,1111,852AnnualAverageBill:Residential Commercial Industrial

$7193.644134,510$642$593$551$538$453$2693,1823,0732,7932,7532,4521,457115,255115,03799,78095,99590,22145,42237 ElectricOperating Statistics 1986198519841983198219811976PRODUCTION DATA:SystemCapability (megawatts):

Netgenerating capability:

CoalfiredHydroDieselTotal.Purchased

-PowerAuthority

...-OtherTotalsystemcapability

....AnnualLoadFactor(percent)

CoalBurned(thousands ofnettons).CoalHeatValue(Btuperlb.).....BtuperKwhGenerated (net).....KwhProduction

-net(millions):

Generated:

CoalfiredHydroTotalgenerated

..Purchased

-PowerAuthority

-Other...........

Total.2,3666872,4415633,00466.35,33412,3359,95913,19633813,5342,590'46416,5882,3666472,4376213,05864.42,3761,7331,731605638710ll2,4431,7991,7806836807683003503,1262,7792,89867.364.465.11,72038ll1,7697642422,7756,0515,1264,6664,80312,30912,20212,03311,93710,09310,56210,55210,6704,86711,60010,70114,76924215,0112,31549117,81711,85010,64124621310,74810,55219721012,09610,8542,9802,02365071410,94510,7622,1042,06166390415,72613,59113,71213,7271,37738141,4298482002,47761.03,39511,12311,1126,7972497,0464,07686911,991Production Expenses(thousands):

Generated

.Purchased

.Total.$318,885$353,26529,30235,984$348,187$389,249$287,299$237,309$248,278$216,80569,20666,57568,78172,591$356,505$303,884$317,059$289,396$91,72449,569$141,293CostsperKwh(mills):Generated

.Purchased

.Operating expense(excl.production)

Total.23.569.599.8530.8423.5323.7521.8622.6820.1513.0212.8219.0724.3224.8624.4810.028.467.978.608.397.354.9130.3130.6430.9531.5128.4316.69ELECTRICOPERATION ANDMAINTENANCE EXPENSES(thousands):

Production Transmission Distribution Customeraccounting

.......Customerservice.Administrative andgeneralTotal.$348,18722,43849,52219,2208,86763,328$511,562$389,24923,45046,12018,2557,00555,868$539,947$303,88413,38239,11116,6035,22142,508$356,50516,09342,49417,8246,14942,783$317,05913,02336,49516,5684,45744,476$289,39611,30832,28713,4493,71940,129$481,848$420,709$432,078$390,288$141,2937,05821,5697,6722,50720,068$200,16738 GasDepartment Statistics 1986198519841983198219811976Dekatherm (dth)Sales(thousands):

Residential Commercial Industrial

.OtherSubtotalTransportation ofcustomer-owned gas................

Total.14,1397,3435,126337329,9813,28733,26813,6527,3927,7903,54714,1207,7619,8173,69132,38135,3891,92634,30735,38913,8577,5149,2963,71834,38534,38515,6888,1239,8044,31437,92937,92916,4128,04411,5093,99139,95639,95619,9589,4849,2433,80842,49342,493Operating Revenues(thousands):

Residential Commercial Industrial OtherSubtotalTransportation ofcustomer-owned gas..............

Totaloperating revenuesOperating Revenuesperdth:Residential Commercial Industrial OtherAveragerevenueperdth.........

NumberofCustomers (averageforyear):Residential withhouseheating.......Residential withouthouseheatingCommercial withspaceheating.......Commercial withoutspaceheating....Industrial OtherTotal.$91,06842,71124,42918,818177,0262,168$179,194S6A45.824.775.58$5.90105,0948,30016,1211,4064051,173132,499$71,39930,98940,07715,896158,361921$190,201$207,818$207,866$184,997$158,361S6.505.814.845.62$5.85S6.545.855.005.70$5.87$6.715.995.295.57S6.05$5.304.704.434.70$4.88$4.353.853.483.98S3.96103,8228,44015,9531,3964091,159131,179103,1328,63015,7881,4153981,137130,500102,7288,83015,3161,4103831,139129,806102,3869,91013,5401,0803951,144103,0319,10614,5131,2863841,135129,455128,455$88,677$92,288$92,974$83,16?42,95245,40344,98038,19237,73449,08749,21743,38319,91721,04020,69520,255189,280207,818207,866184,99?$40,38716,85013,6686,49277,397$77,397$2.021.781.481.70$1.8297,49612,81212,9851,2663841,142126,085AnnualAverageUse(dth):Residential Commercial Industrial AnnualAverageBill:Residential

.Commercial Industrial CostofNaturalGasPurchased:

Amount(thousands)

.........

PerdthGasOperation andMaintenance Expenses(thousands):

Production Transmission anddistribution

.Customeraccounting

........CustomerserviceAdministrative andgeneralTotal12541912,65712242619,04612645124,66612444924,27214051425,53114655029,13718166524,070$111,53811,0134,08522279,589$138,452$130,26910,2243,9771,7799,508$155,757$160,9288,9083,7831,3288,703$132,7249,0103,9471,1418,661$112,4108,2492,9758717,476$146,4019,6514,0431,5809,383$171,058$183,650$155,483$131,981S48,2105,9391,7053213,681S59,856S803S790$826$833$742S636$3662,4372,4762,6392,6892,4172,1201,18260,31992,259123,334128,504112,977101,46135,594$111,147$129,809$146,040$160,415$132,300$112,176$47,9443.753.874.094.523.492.821.1139 Directors OfficersWellsP.Allen,Jr.ChairmantkChiefExecutive OfficeroftheCompanyJamesA.CarriggPresident 6iChiefOperating OfficeroftheCompanyAlisonP.CasarettDean,TheGraduateSchoolCornellUniversity Ithaca,N.Y.EileenD.Dickinson Free-lance EconomicResearcher

Brainard, N.Y.EverettA.GilmourChairmanoftheBoard,'he NationalBankandTrustCompanyofNorwichNorwich,N.Y.Alexander HorwitzDirectorofvariouscorporations Binghamton, N.Y.CharlesF.KennedyChairmanoftheExecutive andFinanceCommittee oftheCompanyBenE.LynchPresident tvinchester OpticalCompanyElmira,N.Y.AltonG.MarshallChairmanEiChiefExecutive OfficerLincolnSavingsBankBrooklyn, N.Y.DavidR.NewcombFormerPresident BuffaloForgeCompanyBuffalo,N.Y.RobertA.PlaneDirectorNewYorkStateAgricultural Experiment StationGeneva,N.Y.C.WilliamStuartChairmanEcChiefExecutive OfficerC.tV.StuartEcCo.,Inc.Newark,N.Y.WilliamD.TurnerGroupVicePresident TheSingerCompanyStamford, Conn.DirectorEmeritusEdgar1V.CouperFormerChancellor, NewYorkStateBoardofRegentsBinghamton, N.Y.WellsP.Allen,Jr.ChairmanittChiefExecutive OfficerJamesA.CarriggPresident illChiefOperating OfficerDoloresR.Hix*RichardKrobothAssistants totheChairmanRobertB.MacKenzie Executive VicePresident Engineering andOperations E.EugeneForrestSeniorVicePresident Administration AllenE.KintighSeniorVicePresident Generation JamesA.AckermanVicePresident AreaAdministration FrancisX.CarneyVicePresident ResearchandDevelopment OrlinW.DarrachVicePresident CustomerServicesRichardW.PageVicePresident HumanResources RaymondA.PerineVicePresident GasOperations BernardM.RiderVicePresident Electrical Engineering andSupplyVincentW.RiderVicePresident PlantOperations andEngineering JackH.RoskozVicePresident PublicAffairsMichaelJ.TurkovicVicePresident Purchasing JohnI.FialaAssistant VicePresident PlantOperations JohnV.KutzAssistant VicePresident Transmission andDistribution Operations IreneM.Stillings Assistant VicePresident ConsumerAffairs'AlsoAssistant Secretary IthacaExecutive OfficesRoute13,DrydenRoad,Ithaca,N.Y.14851Tel.607/347-4131 RichardA.JacobsonSeniorVicePresident Corporate MatthewF.Felo,Jr.VicePresident andTreasurer JohnD.ScottVicePresident Economics RichardP.FaganComptroller JaimeS.HechtSecretary GaryG.ChabotAssistant VicePresident Economics DanielW.FarleyAssistant Secretary JamesM.NieferAssistant Secretary RobertT.PochilyAssistant Treasurer EverettA.RobinsonAssistant Comptroller Binghamton Executive Offices4500VestalParkwayEast,Binghamton, N.Y.13903Tel.607/729-2551

.GeneralCounsel:HuberLawrenceti'bell99ParkAvenueNewYork,N.Y.10016TransferAgentforPreferred Stock:Manufacturers HanoverTrustCompany450tVest33rdStreetNewYork,N.Y.10001TransferAgentforCommonStock:Manufacturers HanoverTrustCompany450)Vest33rdStreetNewYork,N.Y.10001Stockholder Inquiries:

Communications regarding stocktransferrequestsorlostcertificates shouldbedirectedtotheTransferAgent.Stockholders withchangesofaddress,dividend, dividendreinvest-mentandotherinquiries maycalltoll-freebetween8:00a.m.and4:30p.m.:InNewYorkState:1-800-521-1NGE OutsideNewYorkState:1-800-225-5NGE TheCompanyfilesanannualreportonForm10-KwiththeSecurities andExchangeCommission.

Stock-holdersmayobtainafreecopyofthisreportfromtheSecretary, IthacaExecutive Office,uponrequest.Securities ListedontheNewYorkStockExchange:

CommonStock3.75%Preferred Stock8.80%Preferred StockAdjustable RatePreferred Stock8.48%Preferred Stock($25ParValue)7Fs%FirstMortgageBondsdue20019ls%FirstMortgageBondsdue20059I's%FirstMortgageBondsdue20068s/s%FirstMortgageBondsdue200740 Newutilitybillsarepreparedformailing.NYSEGwasthefirstutilityinthestatetoissuetwo-pagebillsthatmakeiteasierforcustomers tounder-standchargesforelectricity andgas.Meterreaderswilluseportable, computerized devicessoontorecordmeterreadings, reducingerrorsandcustomerinquiries.

~.'THEANNUALNEETINCofstockholders willbeheldattheCorporation sGeneralOfficeBuildingonRoute18(DrydenRoad)intheTownofDryden,N.Y.onNay81987atlla.m.Formalnoticeofthemeeting,aproxystatement andformofproxywillbesenttostock-holdersinearlyApril.

NewYorkStateElectric&GasCorporation Box287,Ithaca,NewYork14851BULKRATEU.S.POSTAGEPAIDNewYorkStateElectric8GasCorporation STATEMENT OFINCOME-(Thousands ofDollars)1986198519841983198219811980197919781977197610-Year%Ch~cCePortionofCommonStockDividends Nontaxable forFederalIncomeTaxPuOperating RevenuesElectric(1)Gas(2)..TotalOperating ExpensesOperation Maintenance.

Depreciation.

Operating TaxesFederalIncomeTaxDeferredIncomeTax-NetTotal$377,103$436,6526144868150438551504802$454,86068329523189$384,160$398,392$291,999$225,971$186,264$184,391$149,88461649464893599428813247382344920831$411,77061988473738445809444881327993254784211002207840170715240,19619,73324,89442,55131,9657489316,55314,88424,24941,67520,78117301235,25211,13215,22024,481(2,534)8744352,64213,81422,53139,68124,15010058169,7429,81814,83921,2681715794100,9176,79412,85916,9754,0502342133,6888,09813,27918,5604,5522547325,15814,45620,52435,69315,12310157132,5548,15113,39318,7796,5043,387333,96612,45016,10829,2747,3814,169321,41912,93716,92331,4746,10211,86136682843544346287642111140071640334829229522163218276818072414393715219515713819094151689220155~hee1eeee aNoneNoneNoneNoneNone790NoneNoneNone10$2.962.902.752.602AS2.332.181.991.941.601.7219661985198419831982198119801979197819771976(a)Asinitially reportedtoshareholders; subjecttoacceptance byU.S.TreasuryDepartment.

Operating Income.71,72369359603135262745093415333569833152282342711626778OtherIncomeandDeductions Allowance forEquityFundsUsedDuringConstruction FederalIncomeTax-Credit.....

DeferredIncomeTax-Credit....

Other-NetTotalIncomebeforeInterestCharges....21,59418,644(289)(18)6,9796,588371~60415,70911,105(23)454,9884,560621~3899,7295374,0444612865524610212951532114771100378939698160867,948598646,1989281,820~533841349,9464,4953,4762,388418933721253178138~295~333~3484,871425428994056937.406311331,56062875~9021732928979640930~84115127929(171)542*259InterestChargesInterestonMortgageBonds..........

InterestonUnsecured Long-term Debt..InterestonShort-term Debt...........

OtherInterestAllowance forBorrowedFundsUsedDuringConstruction Amortization ofPremiumandExpenseonDebtTotal37,2266,1051,63737,2003,22032593133,6646701,37262729,6743652,11657024,9183743,39963621,0431,8154,29665215,0173,7784,76330511,3065,1953,42226210,7507621,67327210,6278051,07579310,4691,4677043081792419531156733549434297304712771224535202671667115712108731154212002(10,131)(7,788)(6,212)(5,324)(5,033)(7,718)(7,287)(4,536)(2,640)(1,831)(1,014)256316(100)431(899)866196NetIncomeDividends onPreferred StockIncomeAvailable forCommonStock..Dividends onCommonStockRetainedEarnings64,88459,67251,13740,23635,32929,67923,89821,69420,26017,74715,9275614618464595783412641264126412641263626286659,27053,48844,67834,45331,20325,55319,77217,56816,13414,12113,06140393339452886023480206381675113308109611053189668382$18877$19543$15818$10973$10565$8802$6464$6607$5603$5155$467930796303CommonStock:AverageSharesOutstanding (000's).......EarningsPerShare-onAverageSharesOutstanding

-Dollars.Dividends DeclaredPerShare-Dollars....Dividends PaidPerShare-Dollars........

Pay-outRatioonDividends Declared-PerCent.RetainedEarningsPerShare-onAverageSharesOutstanding

-Dollars..........

(1)Seefootnote(a)onpage.13.(2)Seefootnote(a)onpage14.13,2074.492.962.9611,4584.672.932.90621.7110,0874A32.782.751.578,7453.942.632.60671.257,9793.912.512A81.326,8673.722.392.331.285,8513.382.202.181.105,3733.272.041.99621.235,3103.041.961.941.064,8732.901.841.801.064,8732.681.721.72171687272.96'hangeof1,000percentormore.

Notes600ELECTRICANDGASREVENUESTOTOTALOPERATING REVENUES500V)lU4000O300V)c0200100CI0I-j197677787980818283848586~ElectricGasOPERATION ANDMAINTENANCE EXPENDITURES TOTOTALOPERATING REVENUES600TotalOperating RevenuesOperating andMaintenance Expenditures 500tO=400OOo300lOc~o2001001976777879808182838485861976USEOFREVENUEDOLLAR(INCENTS)19S6CostofFuels470FuelUsedlnElec.Gen.331Purchased Gas250FuelUsedinElec.Gen.CostofFuels410Purchased GasSgOCDKQI-KI-cCI-Oepreciation SCWages&Benefits1004gOther(net)1O3gReinvested EarningsDividends Purchased 7gElect.InterestonBds&Nts7C7$Purchased Depreciation interestonBds&Nts100Wages&Benefits1044pReinvested EarningsTaxes19l'0l'Oividends ElectricOperating Revenues.

$377103$436652$411770INCOMEFROMOPERATIONS

-ELECTRICANDGASDEPARTMENTS

-(Thousands ofDollars)198619851984198319821981$3983921980$291,9991979$225,9711978$1862641977$184391$149,88415210-Year1976%ChancCeRatioofCorporate rat1RevenuesElectric~perCnrrGas~perCenrOperating ExpensesProduction

-Operation.........

Maintenance.......

Transmission

-Operation.........

Maintenance.......

Distribution

-Operation.........

Maintenance.......

Customer-AccountsandService......Sales.Administrative 8General-Operation....

Maintenance

..TotalOperation andMaintenance......

Depreciation Operating TaxesFederalIncomeTaxDeferredIncomeTax-Net............

TotalOperating Expenses...........

Operating Income.GasOperating Revenues.

Operating ExpensesProduction

-Operation.........

Maintenance.......

Transmission

-Operation.........

Maintenance.......

Distribution

-Operation.........

Maintenance.......

Customer-AccountsandService......Sales..Administrative

&General-Operation....

Maintenance

..TotalOperation andMaintenance......

Depreciation Operating TaxesFederalIncomeTax.DeferredIncomeTax-Net........:...

TotalOperating Expenses...........

Operating Income..154,1628,1703,3201,6525,6197,0399,21326,354879216,40822,87536,55829,4436822228,6374,9252,8881,0365,6296,6288,53123,343751282,36821,25535,66917,72116688267,5595,0962,8228635,3315,6837,98521,885601317,82519,47433,75420,7899228242,9385,245'2,4621,2754,5945,6227,28720,249700290,37218,67630,41315,0279186242,6884,5552,8951,0554,8035,1557,19618,249639287,23514,87126,7014,66911167270,6314,7672,4121,0204,5584,6435,97816,530530311,06913,97425,2736,5123,951183,7273,9642,0201,0984,0174,3724,85213,743553218,34613,63321,141(2,328)8428128,5093,15917731,3403,5273,6734,21311,304602158,10013,30518,394(26)575997,4152,5431,7929713,2603,2103,99110,924454124,56011,88716,1295,6583141101,3472,6991,5828433,0003,1723,6959,211341125,89011,81315,9854,4262,24172,5532,2471,6045822,9172,6593,4687,70131494,04511,43114,5074,0352226312106373701401070363674344643360779$64997$62951$53,790$48096$39517$37613259220$32779195532$30439161375$24889160355126244$24036$23640$61448$68150$68329$61968$61649$46489$35994$28813$24738$23449$2083133,555544651671,9321,6581,587943,89511440,484413861451,8821,2681,552933,1289040,222404502731,6971,1921,491953,1066541,211484472881,6661,2141372912,8416439,616463782451,6631,1811,334542,5436128,690683702961,4271,0781,052872,2314822,602523242411,256795761391,9115716,763733112141,1486876291,5657011,771502801921,0746815871,4605011,783542842249877225211,278439,809362401978667105571,2024943,5212,0195,9932,52266749,0692,9946,0063,06061348,6313,0575,9273,36183049,2421,8485,2809697147,1212,0524,7731,43369435,3472,1344,00186921828,0381,5873,340(206)31621,4601,5342,8741973516,1451,5062,65084624615,8961,4662,57512630613,6661,4282,468151165472261742618065743756073425693307526100213932036917693(Expressed inPerCent),$6726$6408$6523$4531$5576$3920$2919$2713$3345$3080$3138112264107184931651662421801301001526302061471751952425094(15)12313418522413321841143475209114198619851984198319821981198019791978197719768686878786908989888988141413131410111112111219861985198419831982198119801979197819771976RatioofCorporate eratinIncomeElectric~PerCenr9191899188919292888988Gas~riant991191298812111219861985198419831982198119801979197819771976ratinRatioElectricGas73.183.977.785.281.684.382.491.085.687.587.989.286.791.684.089.881.982.183.485.080.184.3corlx3rate 74.678.781.983.685.988.187.284.681.983.580.6(d)TheOperating Ratio,expressed asapercentage, represents therelationoftotaloperating

expenses, excluding fedealincometaxes,tooperating revenues.

RatioofOperating IncometoYear-endNetPlant(a):Electric(includes allocation ofcommonplant)...Gas(includes allocation ofcommonplant)......

Corporate TotalMaintenance andDepreciation asPerCentofTotalRevenue.19.3214.2518.7010.1819.2414.6418.697.7516.9015.5616.746.9515.2910.6414.746.706.4212.78(c)12.3313.379.7512.85(c)12.0310.717.3810.339.877.239.5610.2110.298.95(b)8.578.958.208.95(b)8.528.608.538.5911.51g7ry(,/0047$2.~K(a)NetPlantexcludesconstruction workinprogress.

(b)NetPlantfor1978excludesthe10%interestintheRosetonPhntpurchased asof12/31/78.

9(c)NetPhntfor1982excludesthe5%interestintheRosetonPlantpurchased asof12I31N2.Changeof1,000percentormore.

NotesUTlLITYPLANT950900850800750m700650600550osoo450000350300g250200150100500197677787980818283848586~Construction WorkNetutilityplantpluSCOn-struction workinprogress, increased 156o%%dduringthe~ffetUtilityPlantlast10years.Theaverageannualgrowthrateduringthisperiodwas9.5%.Grossadditions toubktyphnt(including construction workinprogress) inthelast5yearsamounttoabout39%oftotal1986phnt.Thecom-parablefigureforthehst10yearsis680%%dNetutilityplantincreased 24%duringtheten.yearper-iod1976-1986 andtheaver-ageannualgrowthratewas1.P%%d.CAI-Kl-cCCQChKcCOfLI-OUJKOI-cCf?:0-OOCLUJOOK1000900~800rg7OO~6000o5ooa4000'=300~200rfShortTerm~Oebt~LongTerm~OebtPrefenedStock~Common0~Equity100197677787980818283848586CAPITALlZATIQN ANDSHORTTERMDEBTCapitalization increased 184%duringthelast10yearswhilecapitalization plusshort-term debtin-creased165%duringthesameperiod.Theaverageannualratesofgrowthwere10.7%and9.9%respec-tively.

SUMMARYBALANCESHEETATDECEMBER31-(Thousands ofDollars)ASSETSUtilityPlant-(page12)LessAccumulated Depreciation NetUtilityPlantConstruction WorkinProgressOtherPropertyandInvestments CurrentAssetsCashTemporary CashInvestments SpecialDepositsAccountsReceivable fromCustomers Receivable

-NineMile2Settlement AccruedUnbilledUtilityRevenues.

FederalIncomeTaxCarry-back

.OtherReceivables

.Materials andSupplies.Prepayments

.1986$636,761253,168383,593555,7356,2901,6906,41319,72732,34426,1008,4753,23523,02481191985$611,905240,878371,027441,8633,6021,65314,35053,47343,4488,9632,10525,97565241984$585,538225,284360,254343,2533,2021,26410,5187,73043,2068,3772,15134,63654031983$567,160210025357,135253,6302,1831,5762,92943,3247,9102,23131,20451061982$560,337196,133364,204186,7772,1092,1336,20043,1597,5292,90120,29646941981$524,517179268345,249160,2491,8402,95825239,1517,5351,14826,87942591980$511,167165487345,680123,8271,9683,34124731,9475,7714,6761,87827,26437711979$498,282152,407345,87598,0191,7973,26716521,4285,5473,08584024,3343,1631978$486,116140813345,30372,5461,7873,28225816,9624,5471,59416,22830101977$445,235127049318,18649,3373,59019114,8244,769122314,6232,6461976$428,543116709311,83436,6103,03137412,0564,3081,81413,4892732129,127156491113,28594,28086,9128218278,895618294186637804DeferredChargesUnamortized DebtExpense.Unamortized ProjectCosts**Unamortized Investment inSterlingProject'*

....DeferredSterlingCancellation ChargesDeferredElectricFuelCosts.DeferredGasCostsDeferredEnvironmental Costs.DeferredRosetonLitigation Settlement DeferredFinanceCharges-NineMile2Project..Other'Total.LIABILITIES 5,6743,04215,0839905191,5797357,37122,1193,2273,64817,6986,4042,7611,8741,6649,2133,25972294,2893,312.13,7956,5041,7662,2078708,2929,20080119,9732,7319,0631,0125808945996,44941,9719681842965541582465697782,953$1157698$1038524~$878240~$7642053,3053,96521,1271,1434,8141,3622773756146050$6860522,4934,4496,4101,0003,422382421598$6111182,19041110,3516233,099366120335$5707056,7115173,9821,7565132,57316052$523,5722,5508343,6031,5556161,59110749$4762662,0295392,5761,6427711,6379194$4194203,2944011,6151,47292713739082$396181Capitalization

-(page17).CurrentLiabilities Long-term DebtMaturingwithinOneYear..SinkingFundRequirements

.NotesPayabletoBanksNotesPayable(Commercial Paper).AccountsPayable.AccruedTaxesAccruedInterest.

AccruedVacationCustomerDeposits.

Dividends DeclaredSterlingCancellation ChargesOther$96021517527,2344,9668,0552,8062,80911,79444410,05768,340$88147717522,2595,0198,8852,6752,68810,457622456057,340$74040317526,8505,19573222,5532,4799,4311,6438,04663,694$61860011,00017523,00023,0803,6976,5332,6778,1243,2866,30087872$57396717526,50014,9916,2496,62627336,5625,88769723$4989686,00017516,50026,6696,0735,8552,8405,65451907495618,00017518,00025,8087,1834,0222,6774,6965,77586336$404,48212,00017545,00018,4115,7673,1482,7443,933526296,440$40535217523,00012,5195,9882,5232,6983,664364754,2148,00017517,00010,6094,4142,6892,5433322267851,4304,20017520,0009,7252,9852,7202,4142,8122,77747,80810DeferredCreditsandOtherLiabilities*

DeferredFinanceCharges-NineMile2Project..Accumulated DeferredIncomeTaxesTotal.'Rechssified for1980toconformtocurrentpresentation.

"Rechssified for1982toconformtocurrentpresentation.

17,83341,3048,09122,1196,1599,2005,7463,259$1,157,698

$1,038,524

$878,240$764,205700066949758784487283,56838794$6860526,14331051$6111184,22328702$570,7052,43920211$523,5722,10514595$476,2661,93711347$419,4209628875$396,181 Notes250~200~150O0<1000NETFUNDSFROMOPERATIONS TOTOTALSOURCEOFFUNDSFromInternalSourcesFromExternalSourcesVH197677787980818283848586140120ttl100OO80060O.-'=4020INTERNALCASHFLOVfANDCASHCONSTRUCTION CHARGESCashConstruction ChargesInternalCashFlow'NTERNAL CASHFLOWREPRESENTS"NET FUNDSFROMINTERNALSOURCES"LESSDIVIDENDS" 197677787980818283848586 STATEMENT OFRETAINEDEARNINGS-(Thousands ofDollars)19861985198419831982198119801979197819771976BalanceJanuary1.NetIncome$145,85664884210740$126,31359672185985$110,49551137161632$99,52240236139758$88,95735329124286$73,69123898$80,15529,679109,83497589$67,08421694$61,4812026081741$56,3261774774073$51,6471592767574Dividends Declared-cash:OnCumulative Preferred Stock.OnCommonStockTotal.BalanceDecember31.5,6144039346,007$164,733',184 3394540,129$145,8566,4592886035,319$1263135,783234804,126206384,126167514,1261330824764208771743429263$110495$99522$88957$801554,1261096115,087$73,6914,1261053114,657$67,0843,626896612,592$61,4812,866838211,248$56,326Pursuanttothetermsofthe4.85%promissory notes,due1995,$156,319isnotrestricted withrespecttothedeclaration ofdividends oncommonstockatDecember31,1986.STATEMENT OFCHANGESINFINANCIAL POSITION-($000)SOURCEOFFUNDS19861985198419831982198119801979197819771976FundsfromOperations:

NetIncome.IncomeItemsnotRequiring CurrentOutlays:Depreciation Accruals:

ChargedtoDepreciation Expense.ChargedtoOtherIncomeAccountsAmortization ofInvestment inSterlingProjectDeferredIncomeTax-NetAllowance forFundsUsedDuringConstruction

.Other-Net.NetFundsfromOperations.

$64,88418,8737816,021510(31,725)~1035969703$59,67219,1827655,067~10,713(26,432)305472021$51,13718,6277383,90410,056(21,921)461667157$40,23617,0957673,4299,935(16,429)223257,265$35,329$29,679$23,89816,51469716,10862915,2205864097,8172,3498,491(13,916)1973(14,762)723(11,782)1,314467273682237727$21,69414,8395305,616(8,012)355$20,26013,3935083,249(5,028)57732959$17,74713,2792652,472(3,391)49530867$15,92712,8592432,312(1,810)248Available fromOutsideSources:MortgageBonds.Pollution BondFundsHeldbyTrustee-Net...TermLoanNotes.Preferred Stock.CommonStock.Short-term DebtTotalFundsfromOutsideSources....

TotalSourcesofFunds50,00035,66865,221150,889$22059292,250(46,005)75,893$14791445,00028,42427,889101,313$1684703,44920,00025,92749,376$10664144,900.(5,730)19,8351000069005$11573230,00050,00015,61919,17545,61969,175$82441$10690220,0002200042,000$7702210,340600051,340$842994,50015,00019,500$50,36717,00017,000$46779APPLICATION OFFUNDSConstruction andPlantExpenditures:

GrossChargesforConstruction'.

LessAllowance forFundsUsedDuringConstruction

.Netconstruction expenditures Dividends.

$145,08231,72511335746,007$129,91826,43210348640,129$112,26821,9219034735,319$84,3731642967944147621391611782691784213429673247642087717,434$83,940$56,050$41,455$40,52680123251415,087$64,5135,0285948514,657$32,3433,3912895212,592$25,6931,81023,88311,248Retirement ofSecurities andShort-term Debt:MortgageBonds.Convertible Debentures Long-term Promissory Notes.Short-term DebtTermLoanNotes.55,00017517511,00017523,0001753,5006,0001758,0001751,5001000012,00017527,00010000175150008,0001754,3753,00032555175175341753675617519675491751517581757375325NetIncrease(decrease) inWorkingCapital,otherthanShort-termDebtandCurrentMaturities ofLong-term DebtandPollution ControlNotes.ChangesinDeferredandOtherAccounts-Net............

TotalApplication ofFunds...*Exotudes S26,100NineMile2Settlement eceivabtefromNiagaraMohawk.(2,696)8749$220,5923,555569$1479144,2064423$1684701695590$106,6418,2327,3836,1704450$115732$82441$106,9027,7226524(769)2751$84,2991,240208$50,3679,7961527$46779l2,7og/ggQX2-QP Notes180160GROSSCONSTRUCTION CHARGESzOI-MO0Ozzz(0LJIC9zKOI-zIJltifI-ClKElectricProduction OtherOftotalconstruction chargesof$816,568,000 inthepast10years,$52,800,000 represents thecostoftheCompany's 35c/ointerestintheRosetonElectricGenerating Plant,$465,729,000 represents theinvestment todateinthecon-struction oftheNineMilePointNo.2nuclearfacility,

$88,385,000 represents thecostofsteamgenerating facili-tiesattheDanskammer, PointElectncGenerating Plantand$14,104,000 represents costsrelatedtotheabandoned Ster-lingNuclearPhntProject.NetUtilityPlantTotalOperating Revenue5505004504000350Clv-3000250tO20015010050NETUTILITYPLANTTOTOTALOPERATING REVENUE197677787980818283848586I14Otuo120Ov-100080600>4o.oE3E3E3197677787980818283848586C9zzC5zcCI-OI-zI-I-V)RATIOOFACCUMULATED DEPRECIATION TOTOTALDEPRECIABLE PLANT100908070t-60<~50ICL40302010197677787980818283848586TheCompany's annualpro-visionsfordepreciation arecomputedonthestraightline methodusing ratesbasedontheestimated usefullivesandestimated netsalvageofproperties.

Totaldepreciable plantin-cludestotalutilityphntinser-vice,exclusive ofnondepre.

ciableitemssuchashnd,intangibles, etc.

1986198519841983DETAILOFUTILITYPLANTANDACCUMULATED DEPRECIATION

-(Thousands ofDollars)198219811980197919781977197610-Year~%GhaneUtilityPlant-December31Electric~GasCommon.TotalUtilityPlant.........

Construction WorkinProgress..Total.Accumulated Depreciation

-December31Electric.Gas.Common..;.TotalNetUtility-December31(b)Electric.Gas.CommonTotal$522,86670,09843797636,7616667361182486212,60126,80713760263168310,26543,29130037$383,593$506,20465,86839833611,9054416631063768.202,68525,63612667240878303,51940,23227276$371027$487,18861,88636464$472,34060,15234668$470,88958,32231,126$441,945$433,64055,642-53,5512663023876$425,81150,52021061$416,35549,33520426$377,75348,72618766$363,94846,75617838567,160263630585,538343263828781820780560,337186777(a)747114486,11672646498,28288018511,167423827524,517460249428,54336610445,23549337684766634994696301668662484672466163190,72323,23811,323336284178,21720,64241466166,91619,3978820141,25116,0668170152,55517,7888326129,59914,8167092119,90413,6937216107,18512,6477,21798,67311,6806366210036496433179288166487162407140813127048116700296,46538,64826141$360264294,12339,51023,502303,97338,92521,306289,39037,85418,005292,38937,48515,806296,21235,70413368296,&135,64213,210270,56836,07911639265,27535,07611483$367136$364204$346249$346680$346876$346303$318,186$311834445014649156115130116117182316224RatioofAccumulated Depreciation toTotalDepre-ciabtePlantDecember31~PetCallt40.840.339.337.635.434.632.831.029.329.027.6ructionWork19861985198419831982198119801979197819771976Excluding ConstNetUt(T(tyRantPerDoihrofTotalRevenue~of~tars.87.73.69.75.82.781.051.361.501.531.83inProgress.

GrossConstruction ChargesofDollarsGrossAdditions toPlantDuringYear(b)ElectricProduction..............

OtherElectric.

Gas.CommonTotal.Retirements DuringYearElectricProduction...

OtherElectric.

Gas.Common.Total.$7,86713,3274,64063764,64717,5754,17149162,0612,4774101,41463623,06719089741643121031300$6,20810,3001,8594278$(3,808)(e) 7,638(e)2,08139863886$19,513(d)

$4,51612,2709,2083,2282,2766177362840188(d)19628$8168,7553,143283316647$3,8507,8001,352206115,053$34,396(c) 7,125754282846>03(ci$3,27512,9762,2351,1302,24310,4151,37982819616148661041,55612416803632,0832652135632,2742103919871,606140878401,92514511634141,9231316311351,6891116514131,7811675267711,609251452337330833611308826862887327328243438198619851984198319821981198019791978197710-YearTotalTotal171,182129,918112,26884,37383,940(d) 56,05041,45540,52664,513(c) 32,343816,568ElectricProduction 144,255103,49593,27169,545(e) 68,872(d) 41,37325,79928,56451,622(c) 20,227Other26,92726,42318,99714,82815,06814,67715,65611,96212,89112,116647,023169,545Adjustments DuringYearElectricProduction...

OtherElectric.

GasCommon.Total.NetAdditions toPlantDuringYear(b)ElectricProduction............

OtherElectric.

GasCommon.Total.(137)8~88~8841,44317,5753,9813368$263675,80610,8554,2303866$248664(4)1010(253)7(408)~103~757)(3,090)8(54)~43~3,178(608)(346)5~8481567(1)~25~176(2)2(230)(37)2265(4,575)6,0251,83036436,1048,7441,735178618,27310,6712,68044861,0127,2932,09129646967,1333,03120363,4376,0191,18516262,91010,8951,9709171,4508,1041,17170233,7484,8546091670$18,378$6,833$36,820$13,360$12,886$12166$40,881846682$114271986198519841983198219811980197919781977197661.5858.1262.8159.6059.2157.8162.3962.5640.8944.4143.7850.5346.1944.6235.9336.2641.2242.19RatiostoNetPlantPercentlug-termDebtandMortgagePreferred StockBondsl2(a)Construction workinprogressreflectstransferof$20,341toextraordinary propertylossesfortheabandoned SterlingNuclearPlant.(b)Excluding Construction WorkinProgress.

(c)Grossadditions includepurchaseofanadditional 10%interestintheRosetonPlantatoriginalbookcostof$33,620.Grossconstruction charges,however,reflectoriginalbookcostlessaccumulated depreciation, intheamountof$3,799.(d)Grossadditions includepurchaseofanadditional 5%interestintheRosetonPlantatoriginalbookcostof$17,056.Grossconstruction charges,however,reflectoriginalbookcostlessaccumulated depreciation intheamountof$3,781.(e)Adjustments includeRosetonlitigation settlement.

"Changeof1,000percentormore.g-7gg(oOO>Q-0+

Notes~300Oo2500200M0150g100rogPprt197677787980818283848586TOTALELECTRICOPERATING REVENUES(OWNTERRITORY) 400350~Resldentlal

~Commercial

~Industrial

~Other4500TOTALELECTRICSALES(OWNTERRITORY)

KOIC>444Kes:I-KI-OC4~Resldentlal

~Commercial

~Industrial

~Other'o4OOO3500300002500200001500co100050019767778798081828384858680007000600055000OK40003000hd2000100012.010.590A7.56.o~O4.530o1.5~AverageRevenueAverageUse197677787980818283848586AVERAGEUSAGEPERCUSTOMERANDAVERAGEREVENUEPERKifH(RESIDENTIAL)

ELECTRICREVENUES, SALES,ANDCUSTOMERS 1986198519841983198219811980197919781977197610-Year~%0haheRevenues-Thousands ofDollarsResidential

.Commercial

.Industrial Street8AreaLighting.

Other.Total-OwnTerritory (a)OtherUtilities TotalRevenues$139,416103,468102,4853,863~1639$144,494118,329113,2474,0684493$141,034112,107102,4243,9795670347,59329510384,63152021365,21489646$377103$436652$454860$126,332100,67189,4833,8023333$116,29492,53682,2653,7993353$110,13587,09283,8923,843'2101$90,26570,10963,1873,4731564323,62188149298,24785913287,063111329228,59863401$411770$384160$398392$291999$72,35954,12250,5453,0071672$65,36847,33941,5612,7671749181,70544266158,78427480$225971$186264$65,22546,02338,5712,8021745154,36630025$184391$57,13439,68030,4292,6101708131,56118323$14988414416123748(196)16461152Sales-MillionsofKwh.Residential.

Commercial Industrial

..Street8AreaLighting.

Other.Total-OwnTerritory OtherUtilities TotalSalesCustomers

-AverageResidential

.Commercial Industrial Street8AreaLighting.

Other(including otherutilities)

.TotalCustomers.

1,3111,1851,6313024,1597954,954201,97726,3817232,8565231,9421,2371,1851,4443013,89711045,001197,68725,3916402,8496226,5731,2381,1181,2923113,68017805,460193,76424,6166932,8288221,9091,1811,0621,2113213,48717955282190,32624,3657062,87282182771,1551,0321,1703413,39216361,1641,0231,2063513,4292,0931,1691,0061,1493513,3601390502855224750188,05024,0037162,89910183,23823,3807363,0618185,62323,7447262,948102156782130512104231,2049841,1923513,41613244,740181,63122,9667313,1265208,4591,2039571,126351332210194,341178,93422,2967153,1306205,0811,1999221,0303513,18711044,291176,89121,5537263,1868202,3641,2038979383613,0757383,813175,13021,2897433,25611200,42993274(17)100358301524(3)(12)(55)16Residential AverageKwh.PerCustomerAverageRevenuePerKwh..AverageAnnualBill.MaximumHourlyLoad-Kw.-Winter.SummerAnnualLoadFactor-onAnnualPeakRevenues-PerCentofTotalOwnTerritory Residential

.Commercial Industrial Street8AreaLighting.

OtherTotal-OwnTerritory 6,49110.63$690.26713,900764,40067403029106,25411.69$730.93719,280739,000373129126,38911.39$727.86647,450689,00066393128116,20510.70$663.77646,500662,500393128116,14210.07$618.42623,000666,000393128116,2719.46$593.33640,980625,980393029116,3807.72$492.61598,900640,300393128116,6296.01$398.38633,200619,800403028116,7235A3$365.32607,580613,580413026216,7785A4$368.73617,460621,20062423025216,8694.75$326.24607,480534,2006144302321(6)1241121843(a)Revenuesrelatedtoincreased electricfuelcostsbilledpursuanttoanelectricfuelcostadjustment are."Electric fuelcostsrolledintothebaseratesresulting fromRateCaseProceedings were1.5cperkwheffective November3,1979and1.2cperkwheffective July18,1981.Effective July25,1986.75cwasrolledoutofbaserates.Seesectionon"Rates"onpage3.$(36,654)e e$11,838$19,286$7,479$5,918$36,663**$16,390$28,792ae$20,322$24,729$8,055 NotesTOTALFIRMGASOPERATING REVENUES(OWNTERRITORY) 5550Residential withoutHeating45Ill~40O35Cl~300til25O205QHoIiijP~~~~~197677787980818283848586Residential HeatingCommercial withoutHeatingCommercial HeatingMIndustrial andOtherResidential withoutC7Heating80007000TOTALFIRMGASSALES(OWNTERRITORY)

Residential HHeatingCommercial withoutC3HeatingCommercial C3HeatingIndustrial andOtherLLO6000~50000m4000CPn3000O2000I-1000UoHtjQa197677UClClHaaE7879808182~~a83848586MLslOVlClzMeL:VlVlLLJKul)OI-LalLslAVERAGEUSAGEPERCUSTOMERANDAVERAGEREVENUEPERMCF(RESIDENTIAI-)

180~160LL-140~120O~100O~et8Og6oc+40201976777879808182838485869.00O8.007.00'a6.005oooC4.oog3.00O2.00UIO1.00QRAverageMCFPerCustomer~AverageRevenuePerMCF GASREVENUES, SALES,ANDCUSTOMERS Revenues-Thousands ofDollarsResidential withHouseheating Residential withoutHouseheating TotalResidential Commercial Industrial

.Interruptible andSeasonal.

OtherTotal-OwnTerritory (a).OtherUtilities TotalRevenuesSales-Thousands ofMcf.(b)Residential withHouseheating

.Residential withoutHouseheating

.TotalResidential

.Commercial

.Industrial Interruptible andSeasonal.

-OtherTotal-OwnTerritory OtherUtilities TotalSalesCustomers

-AverageResidential withHouseheating

.Residential withoutHouseheating TotalResidential

..Commercial Industrial Interruptible andSeasonal.

Other(including otherutilities)

TotalCustomers.

TotalResidential AverageMcf.PerCustomerAverageRevenuePerMcf.AverageAnnualBill.Househeating Saturation

-PerCent.MaximumDailySend-out-Mcf..Date.Revenue-PerCentofTotal-OwnTerritory Residential withHouseheating Residential withoutHouseheating Commercial

.Industrial

.Interruptible andSeasonalOtherTotal-OwnTerritory DegreeDaysasPercentofNormal(c)Degreedaysinbillingcycle.Degreedaysincalendaryear1986$26,658319429,85218,1202,9927323316161,448$614483,5033263,8292,8874911,6443159,166916630,45214,49344,9454,9791924915016685.1-7.80664.2067.867,542Jan.84353051251001011001985$25,618338829,M617,7882,84214,245426968,150$681503,2083323,5402,6784382,7831539,592959229,08014,79943,8794,6341605114872580.68.19661.0666.367,441Dec.1838526421610096981984$25,620345629,07617,1702,74416,421291868,329$683293,3853593,7442,7244503,16311610,1971019727,97815,12343,1014,4451414914773786.97.77674.6064.965,341Feb.13852542441001021001983$24,162334827,51017,6583,10710,093360061,968$619683,0893513,4402,4784371,9282178,5008,50027,20415,31642,5204,3291424014703280.98.00646.9964.065,632Dec.25395295166100971011982$23,824351927,34315,5963,26312,755269261,649$616493,3193933,7122,5615382,7662609,837983726,3111563741,9484,1311343614625088.57.37651.8362.762,122Dec.133962552141001041001981$17,325284220,1679,7142,40211,761203246,076413$464893,2134153,6282,0715172,9961349,346134948025,2001633741,5373,7201405224545187.35.56485.5260.756,054Jan.123862152641001031001980$14,0902,40816,4987,3181,7199,001109435,630364$359943,0023923,3941,7764242,9141028,610142875223,62016,93340,5533,5151405124426183.74.86406.8358.253,719Dec.253972152531001001051979$11,670221813,8886,0861,3466,83965428,813$288133,0463803,4261,7183822,8711098,506850622,56717,42739,9943,3321394914351585.74.05347.2556.455,301Feb.1140821524210096961978$11,868220114,0695,8801,1693,43218824,738$247383,2083853,5931,8153741733787,593759322,25217,50439,7563,3521395014329890.43.92353.8956.044,350Dec.294892441411001071061977$11,271216513,4365,4471,0213,37916623,449$234493,1323853,5171,7463391,739607,401740122,10317,65039,7533,3681425014331488.53.82337.9955.645,668Jan.17489234151100102991976$9,885194511,8304,7709473,13415020,831$208313,2433943,6371,8383882,152768,091809121,9191793039,8493,41115550143,46691.33.25296.8755.047,532Jan.224792351511009910310-Year%Ghw<Ge170641522802161341951958(17)55727(24)314131339(19)134624(2)015P)1401242342(a)Revenuesbilledundertheprovisions ofthegascostadjustment clauseare(b)Theaverageheatingva!ueofgassoldisnotlessthan1,000Btu.percu.ft.(c)Normal=Twenty-year MovingAverage1410,42212,14710,36315,51413,1597,8722,5008,708',257 8,3555,704Gascostadjustment rolledintothebaseratesresulting fromRateCaseProceedings was$1.50permcf.effective November3,1979.'Changeof1,000percentormore.g~oc/ooo52=D7 4COSTOFPURCHASED GASTOGASREVENUESNotes9075u)Lrrr=60OO45rnc03015gaOIHI197677787980818283848586GasRevenuePurchased GasCost(AndPercenrese olGeeRwenue)rnO50000x<<4000ro=3000O3dcnCO=1000TOTALELECTRICOUTPUT197677787980818283848586COSTOFFUELANDPURCHASED ELECTRICITY TOELECTRICREVENUE480440400~360O320O280~Purchased

~Generated O240~200sao[]gP-,TII'll19767778ElectricRevenueOIImI7980818283848586SYSTEMCAPABILITY ANDLOADATPEAK(OWNTERRITORY) 120011001000900I-QO'zV)42:CoDKLII)(13C9Purchased Electricity (AndPercentese ofElectricRevenue)MFuelUsedinElectricGeneration (AndPercentese olElectricRevenue)rn800cr500~4003002001000197677787980818283848586Purchased CapacityatTimeofPeak(Including Reserves)

Generating CapacityatTimeofPeak~AnnualPeak ELECTRICANDGASPRODUCTION DATA1986198519841983198219811980197919781977197610-Year~%ChaneElectricOutput-MillionsofKwh.Generated

-Steam.Generated

-Hydro.Generated

-GasTurbine.TotalGenerated Purchased

-forOwnTerritory Purchased

-forResaletoOtherUtilities TotalPurchased.

PumpedStorage(received from).TotalOutputPumpedStorage(delivered to).CompanyUse,Losses,etcBalanceSold.3,7691351~39051,388~1388325,32549322~49543,748892~38391,589~15891335,561198362~50014,2291311~43611,41072~14821195,962170332~54604,3151322~44491,162~116285,619113265,2823,6241163~37431,533211,5545,297269~50283,810655~38801,72790~18175,6971755,5223,35110543,4601,55561,561385,05950259~47503,53516223,6991,253~1253164,96821207~47403,29512233,4201,1208~112864,5548205~43413,52013453,659798578554,514223~42913,26115653,4224921176094,031218~381316(13)(80)14182(100)128324830ElectricPeakandCapacityAnnualPeak(OwnTerritory)

-Mw.Generating Capability atTimeofPeak-Mw.Steam.HydroGasTurbine.Total.Purchased CapacityatTimeofPeakIncluding Reserves-Mw.Generating Capability PlusPurchased CapacityasPerCentofAnnualPeak764.4*897.042.643.0982.664.0137739.0*894.042.643.0979.663.0141689.0*894.042.643.0979.6110.6662.5*892.542.638.0973.18.3666.0*841.644.638.0924.2168.3641.0839.245.648.0932.8172.4172839.244.638.0921.8839.245.648.0932.8255.6124.8167640.3*633.2613.6*722.944.638.0805.5296.8180621.2"706.244.638.0788.8211.8161607.5697.045.648.0790.626P)(10)24108GasSend-out-Thousands ofMcf.Purchased NaturalGasManufactured orPropaneGas.TotalCompanyUse-BoilerFuel.OtherCompanyUse,Losses,etc..Balance-Sold9,64529,647258223~916614,627514,6324,240800~959215,548315,5515,000354~1019712,3321123333,1177168,50013,4721913,4913,4502049,83714,272314,2754,5872089,48012,670112,6713,4125078,75211,232111,2332,441286~85067,96537,968375~75937,603147,617216~74018,42028,422331~80911515(33)1319861985198419831982198119801979197819771976Thousands ofDolhrs124,510179,928215,833203,807175,536192,637132,47895,79770,80181,61459,587SteamElectricProduction CostaThousands CentsofperDollarsKwh.3.304.805.104.724.845.063.952.712.152.321.83284.3428.4474.4439.7449.1475.9362.2251.2199.1217.6170.110,18510,33710,15310,08310,17210,11910,21010,03510,0259,9789,9312,0241,24422642,0941,6248941,3881,8861,0601,2409801.501.401.731.591AO1.381.321.16.87.93AverageCostofHeatRateCentsFuelBurnedforper(CentsperGeneration Kith.~MMtatcBtuGasTurbinesPurchased cThousands ofDollars334351350279619413313207223334222CentsThousands CentspefofperKwh.DollarsKwh.24.9933,801165350,53834.2152,54020.8240,42820.6367,0948.2676,1627.8352,34510.3532,8457.4326,9916.6818,9624A411,5092A43.183.563.504.38'.413.372.622.412.382.3419861985198419831982198119801979197819771976Thousands ofDollars33,38640,30040,06341,06839,34528,57922,52516,69311,69111,6979,698CentspefMcf.356.4391.5379.8445.7392.6295.1243.3189.9146.8153.8115.2Purchased GasCoste19861985198419831982198119801979197819771976ElectricFuel2939454743464340364237FuelandPurchased Purchased fl~tlEtectlec0 912121018201815141193851575761666155505346CostofFuelandPurchased Electricity asPerCentofElectricRevenue19861985198419831982198119801979197819771976Purchased Gas5459596664626358475047FuelCostofPurchased GasandFuelasPerCentofGasRevenue545959666462635847504715(a)Includescostofoperation andmaintenance.

(b)Includesproduction costsrelatedtosalestootherutilities.

(c)Excludeselectricity purchased forresaletootherutilities.

(d)Fuelburnedduring1979through1986wasacombination offueloilandnaturalgasFuelburnedduring1976through1978wasfueloil.(Naturalgaswasusedforignitionpurposesonly)(e)Excludesgaspurchased forboilerfuel.Annualpeakoccurredinthesummer."Changeof1,000percentormore.$7@k/cocle~-O~

NotesLABGIREXPENSE(INCLUDING BENEFlTS}

TGTGTALGPERATING EXPENSE500450N400-3500d3OO0250Vl0200150100197677787980818283848586TotalOperating ExpensesUnionwagenegotiations in1985resultedinatwo-yearworkingagreement, whichprovidedfora5.1%generalwageincreaseeffective July1,1985,and5.0%effective July1,1986togetherwithfringebenefitimprovements.

cCI-ClKOI-OCIOfLCLMcCC9ChKOI-~LaborExpensesCompensation ofprofessional supervisory andexecutive personnel isgearedtoasalaryprogramdesignedtoassuretheCompany's abilitytoattractandholdhighlyqualified management personnel.

BenefitsprovidedbytheCompanyincludepensions, grouplifeinsurance, hospitalization, majormedicalinsur-ance,adentalplan,andadisability retirement plan.

LABORDATAANDINDUSTRIAL REVENUESLABORDATA198619851984198319821981198019791978197710-Year1976%Ch~<CeEmployees

-YearEndClassified Supervisory andProfessional Executives

.Total(a).924927926.9243913973793851210121113271334131713209523841013469683641313459643371313149763139129898330310129699529491,2981,03929091,338(11)3533(1)WeeklyWagesPaid-YearEndLevelIncluding Overtime.Excluding Overtime.

$736$615$682$583$596$546$562$512$518$481$486$436$442$411$402$371$375$349$324$345$326$302127104EmployeeCompensation

-Thousands PayrollChargedtoOperation andMaintenance ElectricGas.PayrollChargedtoConstruction andOther.....

RosetonPayroll-BilledtoOthers(a).TotalPayroll.29,7265,14811,985389050,74926,4414,4339,578348327,7564,64311,1073555470614393526,0604,3227,90530264131323,5224,0338,08329503858821,0433,5967,7032,5913493318,9163,0417,20222893144817,4202,7306,66621942901015,6512,5196,15223532667514,2302,4306,395217425,22912,9632,3116,593245924.3261291238258109AnnualCostofFringeBenefitsChargedtoOperation andMaintenance

-Thousands..

RatiosforPayrollChargedtoOperation andMaintenance:

Payroll(Including Benefits) asPerCentofCorporate RevenuesBenefitsasPerCentofPayroll.INDUSTRIAL REVENUES-Thousands 7,0169.620.16,8657.821.26,6297.221.56,3997.821.15,5647.420.24,8946.619.93,9867.918.23,5659.317.73,43410.218.92,9309.417.62,25010.314.7212P)37ElectricCustomers BuildingProducts.Chemicals

&Petroleum.

Clothing.FoodProcessing

.Foundries.

MachineandMetalProducts.

PaperandPaperProductsPrintingandPublishing

.RubberProductsTextiles.

Miscellaneous Total13,0341,36120994543478,1672,5742,1341,1836391,80510248514,5841,6873691,19131175,2183,2931,5002,0291,35388915,5121,5343081,04542885,6692,9691,8971,2256711,98911324710242413,8291,4761317162,81460,0343,1011,2401,3311,14936628948313,3111,2621168852,35553,6502,7531,8731,1071,64933048226516,6161,2291521,0132,60451,1832,7121,9091,1302,19431508389213,7261,0071458301,97736,5932,1211,5518911,64926976318713,3637961396051,62426,8401,7341,1857851,30921655054510,6137351366121,29221,4211,5501,0016921,4722,0374156110,1037221266351,36719,7371,3539486881,4131,479385716,6296121155661,29816,1571,1237795651,1091,47630,429FIVELARGESTELECTRICCUSTOMERS IBMIndependent CementLehighPortlandCementCompanyVAWofAmericaTarkett,lnc.1986Revenues(Thousands) 71,0474,6634,2862,0681,513FIVELARGESTGASCUSTOMERS Powell&MinnockBrickWorks,Inc.IBMTechnical TapeCorp.EasternAlloys,Inc.VassarBrothersHospital$1,7861,75079449531616(a)Includesthefolkwiing numberofemployees attheRosetonElectricGenerating PlantwhichtheCompany,Consolidated EdisonCo.ofNewYork,Inc.andNiagaraMohawkPowerCorporation ovmastenantsincommon:TheCompanyhad,initially, a200%%durwfcvided interestintheoccvnership ofthePlant.AsofDecember31,1982,theCompanyhasa350%%duncfcvided interest.

TheCompanyoperatesthePhntasagentforthethreeovmers.112114113107107 CAPITALIZATION RATIOSNotes807060QD4030201001976777879HU5080818283848586f-1Common~EquityPreferred Stock~OtherLongTerm~DebtMMorlgageBondsCOVERAGERATIOS(BEFOREINCOMETAX)OOru2EI-0~1OX197677787980818283848586MARKETANDBOOKVALUEOFCOMMONSTOCK3530I-IInterestCharges~Including AFDC11InterestCharges~Excluding AFDCMInterestChargesandPreferred StockDividends 2510(tr15010RATIOOFINCOMEAVAILABLE FORCOMMONSTOCKTOOPERATING REVENUE,TOAVERAGEEQUITYCflKO'al<<Ctf'-C/3CLKClKcCcCI-ClILO133197677767960616263646566ClosingPriceatDec.31BookValueatDec.31High~MarketValueRangefortheYearLow2520151ruO10ruToOperating Revenue~ToAverage~Equity197677787980818283848586 CAPITALIZATION ANDFINANCIAL RATIOS1986198519841983198219811980197919781977197610-Year~%ChaneBookValuePerShareofCommonStockearEnCapitalization

-Thousands FirstMortgageBonds..............

Convertible Debentures.............

Long-term Promissory Notes.........

TermLoanNotesUnamortized PremiumandDiscountonDebt-Net...........

TotalLong-term Debt(a)...........

Preferred Stock-ParValue..........

CommonStock.RetainedEarningsPremiumonStockCapitalStockExpense..............

TotalCommonEquity.............

TotalCapitalization...............

CurrentMaturities ofLong-term Debt...Short-term Debt.TotalCapitalization including CurentMaturities ofLong-term DebtandShort-term DebtCapitalization Ratios-PerCentIncluding Short-term DebtandCurrentMaturities ofLong-term Debt:Long-term DebtPreferred StockCommonEquityShort-term DebtSelectedFinancial Indices:PretaxCoverageofTotalInterestCharges(b):Including AFDC(c)...........

Excluding AFDC(c)..........

PretaxCoverageofTotalInterestChargesandPreferred StockDividends (b)PercentofConstruction Expenditures FinancedfromInternalFunds(d)............

AFDCasaPercentage ofIncomeAvailable forCommonStock....

Effective TaxRate(e)...........

$327,400112,325$332,400112,500$312,400$267,40040,4257,200$278,4007,375$233,5007,550608~679~5082181,03081,03081,03081,0306103061,030279,685164,73367~4625214,464145,85667~4,303184,816126,31367~4,040156,927110,49567~3840131,00099,52267~2677)111,16588,95767~2480439860356084307156263,649227,912197,709960,215175881,477175740,403175618,60011,17523000573,96717526500498,9686,17516500$960390$881652$740578$652775$600642$52184345.88.445.8100.050.49.240.4100.047.610.941.5100.043.712.440.43.5100.047.510.237.94.4100.047.211.737.93.2100.03.142A33.172.543.192.592.842.352.652.122.381.882.662.512.2317%31%35%41%32%38%55%34%50%35%49%36%48%34%50%27%54%23%439325444383352217273921285025240,229$209,5007,725$159,5008,0007,90020,000$151,5008,0008,07535,000$151,5008,0008,250$147,00016,0008,425~2532169726103095,54680,15567~2326'73,442451,44418,175470501195,568203,0451682511719576103061,03061,03046,03076,37167,08467~224576,37173,69167~2245147,884141,277405,35217523000404,48212,1754500066,03161,48167.~2,154125425354,7068,1751700066,03156,32667~1,875120549338,5364,3752000050.113.036.9100.045.013.232.09.8100.047.446.414.216.133.033.05.44.5100.0100.048.612.733.25.5100.02.231.742.311.923.172.802.812.552.682.721.862.072.0868%61%31%63%78%60%19%46%18%31%31%24%27%14%27%$469619$461657$428527$379881$362911123(100)*(175)15576324192147265184(96)(100)ValueofEquityNumberof(Thousands Shares~ofDollarQho~osands 1986439,86014,1061985356,08412,0751984307,15611,0071983263,6499,6211982227,9128,5091981197,7097,4561980173,4426,5441979147,8845,3731978141,2775,3731977125,4254,8731976120,5494,873BookValuePerShare~Dolhrs31.1829.4927.9127.4026.7826.5226.5127.5226.2925.7424.7419861985198419831982198119801979197819771976MarketValueofCommonStock(Dollars)

~s397/a-26s/a 31'/4-2325s/e-16'Ia 26'/a-21'/a 24s/4-17'/a 19-1619r/a-152(P/4-1822'Ia-19s/4 223/a-19~/a 2(P/4-17'/a NumberofSharesTradedonNewYorkStock~Eaohana11,357,000 4,381,400 3,786,200 1,961,000 2,414,800 1,017,100 801,100402,500451,400574,000498,000(I)PricerangefortheyearontheNewYorkStockExchange.

MarketValuePerShareofCommonStockandSharesTradedRatioofIncomeAvailable forCommonStock-PerCentToOperating Revenue...

ToYear-endEquity......

ToAverageEquity.......

13.513.514.710.615.015.68.514.5'5.77.314.414.57.014.614.75.714.014.06.06.912.711.912.512.27.611.411.76.811.311.57.710.811.017(a)Excludescurrentmaturities ofIong-term debt.(b)Forthepurposeofcomputing thesecoverageratios,earningsavailable forcoverageconsistofnetincomeplustotalinterestchargesplusallfederalincometaxamounts.Totalinterestchargesexcludetheallowance forborrowedfundsusedduringconstruction.

Preferred stockdividends represent thepreferred stockdivi-dendrequirementt determined ona"pre-income taxbasis".(c)AFDCincludesanySterlingcarryingchargeamounts.(d)Construction expenditures represent "CashConstruction Expenditures".

Internalfundsare"FundsfromOperations" less"Dividends" (seepage11).(e)Theeffective taxrateiscomputedby dividingthefederalincometaxasreportedintheStatement ofIncomebytheTaxableIncone.87oC/oo~2.~<'Changeof1,000percentormore.

NotesDEBTMATURITYSCHEDULE757065(I)605550045~400353025020151050(F)(F-)(F)(A)(F)(B)U19881990199119921993199419951999200020022004200520072009201220142020(A)INCLUDES$10MILLIONSINKINGFUNDREQUIREMENT ONFIRSTMORTGAGEBONDSMATURINGIN1992.(B)INCLUDESUNSECURED NOTES-BALANCEOF$5.45MILLIONAFTERANNUALREQUIREDSINKINGFUNDPAYMENT.(C)PROMSSORY NOTES-WILLBESUBJECTTOREPRICING ANDINVESTORTENDERONEACHOCTOBER1,COMMENCING OCTOBER1~1989.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERM FIXEDRATEATANYANNUALTENDERDATE.(D)PROMISSORY NOTES-WILLBESUBJECTTOREPRICING ANDINVESTORTENDERONAWEEKLYBASIS.THECOMPANYHASAONE-TIMEOPTIONTOCONVERTTOALONG-TERM FIXEDRATE.(E)INCLUDESSINKINGFUNDREQUIREMENTS ONRRSTMORTGAGEBONDSMATURINGIN1994($5IN1992AND$20IN1993).(F)INCLUDESSINKINGFUNDREQUIREMENTS ONRRSTMORTGAGEBONDSMATURINGIN1995($4IN1991,1992,1993AND1994).COMPONENTS OFPERMANENT FINANCING COOI-lLKcCzLLOKKQI-h40-O80070056ootgO500Do4ootfl0<300=200100pIjIj5~197677787980818283848586MortgageBondsOtherLongTermOebtPreferred StockCommonMStock DETAILOFLONG-TERM DEBT(Thousands whereDollarsareIndicated) 19861985198419831982198119801979197819771976DateIssuedMaturityDatePublicProceedsRedemption OfferingtoPricePrice~Ccman12/31/86FirstMo27/a%D3.3%D3.2%D41/e%D142/z%D17'le%D13%D14/a%D8'/e%D11%D7'la%DSs/7s/49/4%10s/e%6'/4%1Ã/4%12/a%11'/4TotalFrtgageBonds-December31ue1980ue1982ue1984ue1988ue1990ue1991(i).ue1992(c)ue1994(m)................

ue1994ue1995ue1999Due2000.Due2002Due2004.Due2005.Due2007.Due2009.Due2010(i).Due2012irstMortgageBonds........

$18,00025,00035,00045,00050,00020,00020,00025,00020,00015,00020,0004,50020,0009900$18,00025,00030,00035,00045,00020,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00045,00020,00025,00020,00015,00020,0004,50020,00025,0009900$18,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,0009900$11,00018,00025,00030,00035,00020,00025,00020,00015,00020,0004,50020,00025,00099M$6,000$11,00011,00018,00018,00025,00025,00030,00020,00025,00020,00015,00020,0004,50020,00025,00020,00025,00020,00015,00020,0004,50020,00025,000$6,00011,00018,00020,00025,00020,00015,00020,0004,50020,000$12,0006,000l1,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,0004,500$12,0006,00011,00018,00020,00025,00020,00015,00020,000$327400$332400$312400$267400$278400$233500$209500$159500$151500$151500$147000Dec.1,1950Dec.1,1952Oct.1,1954May15,1958Dec.2,1980Aug.26,1981Nov.30,1982May30,1984Sept.1,1986July2,1985Jan.23,1969June10,1970Feb.17,1972Apr.24,1974Nov.13,1975June9,1977Sept.27,1979May22,1980Sept.30,1982Dec.1,1S80Dec.1,1982Oct.1,1984May15,1988Nov.15,1990Aug.15,1991Dec.4,1992June12,1994Sept.1,1994July2,1995Jan.15,1999June1,2000Feb.1,2002Apr.15,2004Nov.1,2005June1,2007Sept.15,2009May15,2010Sept.1,2012(a)(a)(a)102.172100.0098.75(a)(a)99.854(a)100.00100.50101.763101.500101.595100.0099.556100.00100.00101.12100.00100.00101.3999.2598.00100.00100.0099.204100.0099.1899.625100.931100.407100.515100.0098.63699.125100.00100.22(b)(d)(m)(n)(I)102.95104A3104.93106.31107.59(e)107.82(i)

OtherLong-term Debt-December31Promissory Notes4.85%Due1995(g)............

1984SeriesADue2014(j)1984SeriesBDue2014(j)1985SeriesADue2020(k)1985SeriesBDue2020(k)TotalPromissory Notes..........

6,67516,70016,70036,250360M$6,85016,70016,70036,25036000$112325$112500$7,025$7,200$7,375$7,550$7,725$7,900$8,075$8,250$8,425Dec.16,700Oct.16,700Oct.Nov.Nov.$40425$7200$7375$7550$7725$7900$8075$8250$842521,1965Dec.15,1984Oct.15,1984Oct.26,1985Nov.26,1985Nov.1,1995(a)1,2014100.001,2014100.001,2020100.001,2020100.00100.00100.00100.00100.00100.00101.08O)0)(k)(k)Convertible Debentures 4s/e%Due1981...............

5s/4%Due1978...............

TermLoanNotes(a)(h)...........

TotalDebentures andOtherNotes$8,000$8,000$8,000$8,000June15,1966June1,1S81101.375100.508,000-Feb.25,1971Feb.1,1978100.0099.002000035000Dec.29,1978$28000$43000$8000$16000I8(a)Placedprivately.

(b)Notredeemable priortoNovember15,1987.(c)The13%firstmortgagebondshaveasinkingfundrequirement of$10000in1991.(d)Notredeemable priortoDecember4,1989.(e)Notredeemable priortoJune1,1987.(f)Notredeemable priortoSeptember1,1987.

(g)The4.85%promissory noteshaveanannualsinkingfundrequirement of$175.(h)InDecember1978 theCompanyissuedtermloannotesaggregating

$35milliontothreebanks.TheLoanAgreement underwhichthesenoteswereissuedprovidedthatthenotesshouldbepaidinthreeconsecutive annualinstallments commencing December31,1979.TheCompanyrepaid$15milliononDecember31,1979,$10milliononDecember31,1980,and$10milliononAugust31,1981.Theinterestrateonsuchnoteswasthe"prime"rateineffectattheIrvingTrustCompany.(i)The17V6%and123//8%firstmortgagebondswereredeemedonSeptember 15,1986.(j)Promissory NotesissuesInconnection withthesalebyNewYorkStateEnergyResearchandDevelopment Authority oftax-exempt pollution controlrevenuebonds,seriesAandB,bearinterestat7V2%perannumtromthedateofissuanceuptoandincluding September 30,1989.ThebondswillbesubJecttorepricing andinvestortenderoneachOctober1,commencing October1,1989.TheCompanyhasaone-timeoptiontoconverttoalong-term fixedrateatanyannualtenderdate.(k)Promissory Notesissuedinconnection withthesalebyNewYorkStateEnergyResearchandDevelopment Authority oftax-exempt pollution controlrevenuebonds,seriesAandB,hadaninterestrateof51/8%throughJanuary31,1986.Atthatdatethesebondsbecamevariablerateobligations subjecttoweeklyrepricing andinvestortender.Thecompanyhasaone-timeoptionforeachseriestoconverttoalong.termfixedrate.(I)The11%tirstmortgagebondshavesinkingtundrequirements of$4,000ineachyear1991through1994; notredeemable priortoJuly2,1992.(m)The145//8%firstmortgagebondshavesinkingtundrequirements of$5,000in1992and$20,000In1993.Notredeemable priortoJune12,1991.(n)Notredeemable priortomaturity.

I NotesNotesI-LQClI-cbKOOL5 DETAILOFPREFERRED STOCKANDCOMMONSTOCK(Thousands whereDollarsareIndicated) 19861985198419831982198119801979197819771976DateIssuedPublicProceedsRedemption MaturityOfferingtoPriceDatePrice~Ccman12/31/86Preferred Stock-December31($100ParValue)4'/a%Preferred Stock........4'/a%Preferred Stock.....-...

4.75%Preferred Stock........4.35%Preferred Stock........4.96%Preferred Stock........7.72%Preferred Stock........7.44%Preferred Stock........8.40%Preferred Stock........Adjustable RatePreferred StockTotalPreferred Stock$6,6903402,0006,0006,00013,00012,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,00020000$6,6903402,0006,0006,00013,00012,00015,000200M$81030$81030$81030$81030$61030$61030$61030$61030$61030$61030$46030Oct.1,1936Oct.1,1936Apr.1,1949Nov.1,1954June21,1961Feb.25,1971Jan.17,1973May24,1977Mar.30,1983(a)102.50107.50105.00103.75100.55(b)100.00(b)100.00100.0098.55101.22100.323100.0098.80100.0097.50107.00107.00106.75102.00101.00101.00104.94105.60100.00(c)

NumberofRegistered HoldersofPreferred Stock..........

2,8013,0073,1293,2383,3563,4543,7043,7613,8533,9433,918(a)Exchanged forearlier6%preferred stockandissuedonanequalsharebasisplus$2.50cashpershare.(b)Placedprivately.

(c)Theadjustable ratepreferred stockisnotredeemable attheoptionoftheCompanypriortoApril1,1988.Asinkingfundprovidesfortheannualretirement of8,000shares,at$100pershare,plusaccrueddividends, oneachMarch30,commencing March30,1993.Thedividendtobepaidisatafixedrateof11%perannumfromthedateofissuancetoJanuary1,1984andadjustedeachquarterthereafter tobe1%perannumbelowthehighestofthreespecificTreasuryrates.Theratewillneverbelessthan6%perannumorgreaterthan125%perannum.CommonStock(NoParValue)NumberofShares(Thousands)

-December31.NewSharesIssued(Thousands)

TotalStatedValueSharesOutstanding

-December31..14,10612,07511,0079,6218,5097,4566,5445,3735,3734,8734,8732,0311,0681,3861,1121,0539121171$279,685$214,464$184,816$156,927$131,000$111,165$95,546$76,371$76,371$66,031$66,031NumberofRegistered HoldersofCommonStock..........

31,21232,23432,65131,51427,92325,29624,70924,34724,99023,54523,738 OQI-fjlKOOClKOQI-CilCICLLLOI-cCONotes20DIRECTORS ERNESTE.ALTHOUSEWfkxNStreet,PA.ViceChairmanofthsBoardandViceChairmanoftheCommittee onFinance;MernbeofXecutiveComrninee andCommittee anCampensat'cn andSuccssscn RAYMONDT.BENEDICT"

Stamford, CT.Lawyer,ofCounsel.Cummings&~;McmbeofxecutivsCommittee andCommittee onFinance'AMESR.BREED,M.D.Poughkeepsie, N.Y.Surgeon;MemberofCommittees onAuditandonCompensat'cn andSuccession MARJORIES.BROWNMinbroak, N.Y.Homemaker.

activeincivicandph'nthropc work,formerlyeccutlV8IflfCtaTTingandpromotional organizations:

MemberofCommittee onCompensation andSuccession andRetirement Committee THEODOREJ.CARLSONPoughkeepsie, NYChairmanoftheBoard;ChairmanofExecutive andRctirencnt Committees; RICHARDH.EYMANNorwa&.CT.Communications, DivisionofJ.WalterTfiampson Company;ChairmanofCommittee onAuditEDWARDF.X.GALLAGHER

Newburgh, N.Y.President andOwnerGattagher Transportation Sevices:MemberofRetiremenl Committee ROYC.KETCHAMFeshhN,N.Y.ChairmanoftheBoardandChief'xccut've Offccr,KctchamMotors,lnc.;ChairmanoftheBoardofTheFishkilNationalBank;Chaieenaee oftheCommittee onCompensation andSuccession; MemberofXxccut'vs Committee JOHNE.MACKIIIPoughkeepsie.N.Y.

President andChiefExecutive Offcer,MenberofExecutive andRetirement Committees.

andComminees onFinanceandonCompensation andSuccession HOWARDC.ST.JOHNGlenford, N.Y.ChairmanoltheBoardandresident.

UlsterSavingsBank;Lawyer,HowardC.SLJohn&Associates:

ChairmanofCommittee onFinanceLEEC.WHITEWashington, D.C.Lawyer.White,Fine&VcrvRle;MemberofCammittee onAuditJOHNWILKIEKatonah,NY.'iceCharrnanofXxecufNeComminee; MemberafRetirement Committee andCommittees onFinanceandAuditRetired12/31/86"Retired41/86OFFICERSOFTHEBOARDTHEODOREJ.CARLSONChairmanoltheBoard;ChairmanofExecutive andRetirement Committees JOHNWILKIEViceChairmanofthexecutiveCommittee ERNESTE.ALTHOUSE'ice ChairmanoftheBoardandofCammfneeonFinanceROYC.KETCHAMChairmanofCommittee onCompensation andSuccession HOWARDC.ST.JOHNChairmanofCommittee onFinanceRICHARDH.EYMANChairmanafCommittee onAxQOFFICERSJOHNE.MACKIIIress'dent andChiefXxcculisOffcerLWALLACECROSSSanerVicePresident-Finance, andAccaunbng PAULJ.GANCISeniorVicePresident-Opeations WILLIAME.VANWAGENEN VicePresident.

Corporate Communications andGovernmental AffairsGLADYSL.POWELLSecretary ERICM.MARKELLTreasurer JOHNFDRAINCcntrotfe HERBERTM.ROUNDVicePresident.

Corporate BanningandEnergyControlALLANR.PAGEVcePresidcm.Xnginccring CARLE.MEYERAss'stant VcePresident.

Production JOSEPHJ.DeVIRGILIO, JR.Viceress'dent-Customer ServkmJAMESE.SMITHVcePresident WALTERA.BOSSERT,JR.ecretaryandSsistantTreasurer CHARLESH.DENNY,JR.Treasurer andAss'stant SccetaryTRANSFERAGENT&REGISTRAR COMMON&PREFERRED STOCKMorganSharehoklsr SevicesTiust~30BroadwayNewYbrk,N.Y.10015GENERALCOUNSEL Gould&WitkieOneWaftStreetNewark,N.Y.10005INDEPENDENT ACCOUNTANTS PriceWaterhouse 153East53rdStreetNew+A,N.Y.10022 IrVHN/(Mvk"~.IMtl<<critHfhflrfjnf~f~r

~sfsa'hadg/St{tINCOtthnlIFI,adgatcrt<<dz'rernhjd1'~v6InsfneMldddburg wdrvcswI'L'ft~iLnPrpHl'tllosdafsse!Whore"s<<r>>vn.;.h"'gist{I

.';gr/1I<<NrInegWe.nettfn<<wfr/.G(ACr,lsllsrsfIWrofte5tof/

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~nd4vhexingKnCrash;!Cs sen~Bd4INSWcdgdtantasfsgoH2thMsn>>!1atroAsshes'INa 4<<PtvponyMvL>>(OMHNI(Xlvlrls4Wood.cŽfCMfa/cacvont'nlcrrcfrfgrrrwRna4II(NWtY/pgdftvi' One{inta" 41ItHereofAINfflfIa~crtadpdc'{3'se4~gpncaetavigoRcaswnd4ntoaapfSlopsirCVohfm<<CC{Itt(V2dgfes~NllsNWNosBcgpttp4/ritNt~AMŽ/I71/.IAcn<<NP'ejtooIGtMen<<l/ro(<<cpLCetodV4HudSOnmont/pgf(pofschH.kcaetM!P6t/cssdMn!thgna1Cfrw'IsfL~/'I"jcwcasHsrNn!4eg6tttnrlglt0(hcrnI('rrfnert NetttPteMHNINsMra<<O~(f1<<dtOolyn'giicnnowntv(Mt/Qr)nflnppl

~~rdNtlIIl(MrfactsNign~u<<wh4//tNN//An<<a<<G<<w,Notlolaffwts/Lcf1C<<sNItajjchv/y myitsMVotto2ojns~6IMd!pl(doa~oISccaCRVn~cN6/IMNWtlMel/tllSWsrGleanI51,tlGyfinttcdh~1~toSSH/ttsnf/IvINaf1vinest~tnsrnt/vlngpcctt Msfxvrrrw,sa444-,"I3hk<<GaveMnrwKlgstpntnHertII/{I,fifam'fkr',GaWdfsrvOCCM2'1/dooefCape(ornConHWIId7CtfaSWSMOOpres~.f/~nrdr<<<<tao{too<<I RcafccoP<<rdvsa(Ma<<N(aMa1~onMsp'>>Bewfyjttpoop(a5CvoosacwotnCBcl6para44'Creat<<a<<4HNcsvrwnsO~vi<<levsljsvtaWss1rtlUssrCrsssc~,Veve<<tI~I(CXNIICt<<fist(Oar IWwtpeSv!!4vr/Sist'ler~geest/4telosXrnlsteloStt~Ltst2Pcr<<r<<4i1tHlmglasssaaxffyShtfnfOM(rlerlMfhr11~IPougbtteeps 4<~sttBredeI~<<Os,nO<<4rCsgltrcrees<<lIce/jrosvna I2!v(!~~Iatrv<<fifa2gchfd<<WaresrnNldIrrdWI>>HoMrol<<NI~~IgrfrjdHrtf2/lrk:1!slo/Hvkfsdhn(HlhtiIVHrlvg'llvnl<<rrlnpens<<pcrpve/Igrfc'rn~nL'lrrnsy~refersow/rdRcslrsCrw<<rNeeodtngttsnr5I/clroIftsll,rrBwf4>~W"VWrftn<<nL~4<<eWrest/Rrforttlorg gx!IelfrLWWf<<~,G,'IJwslorglofl WstenowP!BctvfMWatefbuGffth/twoweasnoa~~-4Wrglg~paso<<nnttlrgn<<fag k~gtetHlIfrrnvrwvccr2Wr,ters6,'Ms!IrdMsfdNNope"9'tgvrps

~vestNew{Ig)Mfi/ofdfloIIIialtslaCHtrrcccna Irtfrr/eH*QW(cd8!pf5thrsD1{BS~nt'yi(ttsrie{it

""-/t~5IIjt'dlVsr/esa6Cwe<<enwcJM(waSpsnnvrpor(sacsMljomnfat*i'xjofdIOG(NLRAC GNAnlscnCGWHC'.~h'1el,55s<<c<<scpVoceCalo~jyMnar'rvIf5<<.BPt/Nw'!Or'IP'fknfIB,.VlN.Ssl<<aLhnsod<<sf'e///I,.CsHcvslrsDanbupitc<acth',tffyiRMCfats>>kgpgptp(tc bjscf5ntItarv<<THEREGIONmfUSERVECentralHudsonisaninvestor-owned utilityservingmorethan281,000electriccustomers and50,000naturalgascustomers intheMid-Hudson ValleyandtheeasternCatskillMountains.

Its2,600square-mile serviceterritory reachesfrom25milesnorthofNewYorkCityto10milessouthofAlbanyandincludesportionsofeightcounties.

IIIIIIIII

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