UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    Form 10-Q
(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934

For the quarterly period ended                                    June 30, 2000
                               ------------------------------------------------
                                                                  OR
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934

For the transition period from                     to
                               ------------------    ------------------

                         Commission file number 1-14161
                                                --------

                               KEYSPAN CORPORATION
                              ---------------------
             (Exact name of Registrant as specified in its charter)

          New York                                       11-3431358
-------------------------------               ----------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)


                 One MetroTech Center, Brooklyn, New York 11201
              175 East Old Country Road, Hicksville, New York 11801
           -----------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


                            (718) 403-1000 (Brooklyn)
                           (631) 755-6650 (Hicksville)
                          -----------------------------
              (Registrant's telephone number, including area code)


 (Former name, former address and former fiscal year, if changed since last
  report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

   Class of Common Stock                          Outstanding at August 1, 2000
---------------------------                      ------------------------------
      $.01 par value                                        134,262,534


<PAGE>



                      KEYSPAN CORPORATION AND SUBSIDIARIES

                                      INDEX

                     Part I. FINANCIAL INFORMATION                     Page No.
                                                                       --------

Item 1. Financial Statements

           Consolidated Balance Sheet -
           June 30, 2000 and December 31, 1999                              3

           Consolidated Statement of Income -
           Three and Six Months Ended June 30, 2000 and 1999                5

           Consolidated Statement of Cash Flows -
           Three and Six Months Ended June 30, 2000 and 1999                6

           Notes to Consolidated Financial Statements                       7

Item 2. Management's Discussion and Analysis Of Financial
           Condition and Results of Operations                             16

Item 3. Quantitative and Qualitative Disclosures
           About Market Risk                                               33


                           Part II. OTHER INFORMATION

Item 1 - Legal Proceedings                                                 34

Item 4 - Submission of Matters to a Vote of Security Holders               34

Item 6 - Exhibits and Reports on Form 8-K                                  35


Signatures                                                                 45



                                        2

<PAGE>



                           CONSOLIDATED BALANCE SHEET
                            (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                                                                    June 30, 2000                 December 31, 1999
---------------------------------------------------------------------  ----  ----------------------------  ----  ------------------
                                                                                   (Unaudited)                        (Audited)
<S>                                                                                <C>                             <C>
ASSETS
Current Assets
    Cash and temporary cash investments                                $                92,127     $                   128,602
    Customer accounts receivable                                                       620,739                         425,643
    Other accounts receivable                                                          268,464                         235,156
    Allowance for uncollectible accounts                                               (27,762)                        (20,294)
    Special deposits                                                                    42,325                          60,863
    Gas in storage, at average cost                                                    145,896                         144,256
    Materials and supplies, at average cost                                             85,206                          84,813
    Other                                                                               92,433                          98,914
                                                                             -----------------        ------------------------
                                                                                     1,319,428                       1,157,953
                                                                             -----------------        ------------------------


Equity Investments and Other                                                           428,828                         391,731
                                                                             -----------------        ------------------------

Property
    Electric                                                                         1,367,512                       1,346,851
    Gas                                                                              3,522,284                       3,449,384
    Other                                                                              387,523                         375,657
    Accumulated depreciation                                                        (1,655,540)                     (1,589,287)
    Gas exploration and production, at cost                                          1,278,786                       1,177,916
    Accumulated depletion                                                             (561,966)                       (520,509)
                                                                             -----------------        ------------------------
                                                                                     4,338,599                       4,240,012
                                                                             -----------------        ------------------------

Deferred Charges
    Regulatory assets                                                                  334,976                         319,167
    Goodwill, net of amortizations                                                     328,510                         255,778
    Other                                                                              369,811                         366,050
                                                                             -----------------        ------------------------
                                                                                     1,033,297                         940,995
                                                                             -----------------        ------------------------

                                                                             -----------------        ------------------------
Total Assets                                                           $             7,120,152     $                 6,730,691
                                                                             =================        ========================
</TABLE>






        See accompanying Notes to the Consolidated Financial Statements.



                                        3

<PAGE>



                           CONSOLIDATED BALANCE SHEET
                            (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                                                        June 30, 2000             December 31, 1999
----------------------------------------------------------------------------------------------------------------------
                                                                        (Unaudited)                 (Audited)
<S>                                                                     <C>                    <C>
LIABILITIES AND CAPITALIZATION
Current Liabilities

    Current redemption of preferred stock                               $       -          $       363,000
    Accounts payable and accrued expenses                                  684,291                 645,347
    Commercial paper                                                       262,481                 208,300
    Dividends payable                                                       61,071                  61,306
    Taxes accrued                                                           64,917                  50,437
    Customer deposits                                                       30,607                  31,769
    Interest accrued                                                        44,033                  28,093
                                                                         ---------               ---------
                                                                         1,147,400               1,388,252
                                                                         ---------               ---------
Deferred Credits and Other Liabilities
    Regulatory liabilities                                                  39,520                  26,618
    Deferred income tax                                                    223,551                 186,230
    Postretirement benefits and other reserves                             528,700                 501,603
    Other                                                                   98,677                  66,200
                                                                         ---------               ---------
                                                                           890,448                 780,651
                                                                         ---------               ---------

Capitalization

Common stock, $.01 par value, authorized
450,000,000 shares; outstanding 133,896,426
and 133,866,077 shares stated at                                         2,985,936               2,973,388
    Retained earnings                                                      528,082                 456,882
    Accumulated foreign currency adjustment                                 (1,716)                  7,714
    Treasury stock purchased                                              (722,080)              (722,959)
                                                                         ---------               ---------
      Total common shareholders' equity                                  2,790,222               2,715,025
    Preferred stock                                                         84,339                  84,339
    Long-term debt                                                       2,112,377               1,682,702
                                                                         ---------               ---------
Total Capitalization                                                     4,986,938               4,482,066
                                                                         ---------               ---------

Minority Interest in Subsidiary Companies                                   95,366                  79,722
                                                                         ---------               ---------
Total Liabilities and Capitalization                                 $   7,120,152      $        6,730,691
                                                                         =========               =========
</TABLE>



        See accompanying Notes to the Consolidated Financial Statements.



                                        4

<PAGE>



                        CONSOLIDATED STATEMENT OF INCOME
                                   (Unaudited)
               (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                        Three Months        Three Months            Six Months           Six Months
                                                           Ended                Ended                  Ended                Ended
                                                        June 30, 2000       June 30, 1999          June 30, 2000       June 30, 1999
--------------------------------------------------------------------------------------------- -------------------------------------
<S>                                                      <C>                  <C>                 <C>                <C>
Revenues
Gas Distribution                                     $     361,540 $            281,384  $         1,166,243 $           999,682
Electric Services                                          388,695              190,435              723,099             365,293
Gas Exploration and Production                              57,842               35,021              107,218              61,541
Energy Related Services and Other                          139,511               36,686              267,641              78,118
                                                       -----------   ------------------    -----------------   -----------------
Total Revenues                                             947,588              543,526            2,264,201           1,504,634
                                                       -----------   ------------------    -----------------   -----------------
Operating Expenses
Purchased gas for resale                                   197,378              106,145              609,125             430,414
Purchased fuel                                              72,772                    -              140,649                   -
Operations and maintenance                                 378,986              239,642              734,465             472,177
Depreciation, depletion and amortization                    73,810               59,383              143,391             117,568
Operating taxes                                             91,118               77,145              206,541             181,038
                                                       -----------   ------------------    -----------------   -----------------
Total Operating Expenses                                   814,064              482,315            1,834,171           1,201,197
                                                       -----------   ------------------    -----------------   -----------------

Operating Income                                           133,524               61,211              430,030             303,437
                                                       -----------   ------------------    -----------------       -------------

Other Income and (Deductions)
Income from equity investments                               4,683                2,509               11,928               5,481
Interest income                                              4,290                7,746                6,881              18,789
Minority interest                                           (4,766)              (1,887)              (7,795)             (2,191)
Other                                                        3,816                1,056                 (112)              4,305
                                                       -----------   ------------------    -----------------   -----------------
Total Other Income                                           8,023                9,424               10,902              26,384
                                                       -----------   ------------------    -----------------   -----------------
Income Before Interest Charges
  and Income Taxes                                         141,547               70,635              440,932             329,821
                                                       -----------   ------------------    -----------------   -----------------
Interest Charges                                            42,256               34,893               77,325              70,779
                                                       -----------   ------------------    -----------------   -----------------
Income Taxes
    Current                                                 13,184              (39,505)             108,817               7,141
    Deferred                                                32,741               52,258               29,180              85,691
                                                        -----------   ------------------    -----------------  -----------------
Total Income Taxes                                          45,925               12,753              137,997              92,832
                                                       -----------   ------------------    -----------------   -----------------
Net Income                                                  53,366               22,989              225,610             166,210
Preferred stock dividend requirements                        6,286                8,690               14,977              17,379
                                                       -----------   ------------------    -----------------   -----------------
Earnings for Common Stock                            $      47,080 $             14,299  $           210,633 $           148,831
Foreign currency adjustment                                 (9,082)               2,425               (9,430)              5,735
                                                       -----------   ------------------    -----------------   -----------------
Comprehensive Income                                 $      37,998 $             16,724  $           201,203 $           154,566
                                                       ===========   ==================    =================   =================
Average Common Shares Outstanding (000)                    133,889              140,749              133,881             141,865
Basic and Diluted Earnings Per
     Common Share                                    $        0.35  $             0.10    $             1.57  $             1.05
                                                       ===========   ==================    =================   =================
</TABLE>


        See accompanying Notes to the Consolidated Financial Statements.



                                        5

<PAGE>



                                            CONSOLIDATED STATEMENT OF CASH FLOWS
                                                          (Unaudited)
                                                   (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                        Three Months        Three Months            Six Months           Six Months
                                                           Ended                Ended                  Ended                Ended
                                                        June 30, 2000       June 30, 1999          June 30, 2000       June 30, 1999
--------------------------------------------------------------------------------------------- --------------------------------------
<S>                                                         <C>                   <C>                 <C>                 <C>
OPERATING ACTIVITIES
Net Income                                           $         53,366 $             22,989  $           225,610 $           166,210
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
    Depreciation, depletion and amortization                   73,810               59,383              143,391             117,568
    Deferred income tax                                        32,741               52,258               29,180              85,691
    Income from equity investments                             (4,683)              (2,509)             (11,928)             (5,481)
    Dividends from equity investments                           9,944                    -               11,807               4,296
Changes in assets and liabilities
    Accounts receivable                                        76,154              217,523             (139,344)            146,397
    Materials and supplies, fuel oil and
         gas in storage                                      (102,777)             (54,475)              (1,515)             48,252
    Accounts payable and accrued expenses                     (12,093)             (75,596)              30,676            (161,065)
    Interest accrued                                           11,326               (2,433)              15,932              (4,647)
    Special deposits                                            6,477               12,449               18,538              37,307
    Prepayments and other                                      32,317              (52,218)              44,499             (57,534)
                                                       --------------   ------------------    -----------------   ----------------
Net Cash Provided by Operating Activities                     176,582              177,371              366,846             376,994
                                                       --------------   ------------------    -----------------   -----------------
Investing Activities
Capital expenditures                                         (125,577)            (288,353)            (237,151)           (374,684)
Investments                                                         -                    -             (141,719)                  -
Other                                                          (1,935)              (3,563)               5,154              12,451
                                                       --------------   -------------------   -----------------   -----------------
Net Cash (Used in) Investing Activities                      (127,512)            (291,916)            (373,716)           (362,233)
                                                       --------------   -------------------   -----------------   -----------------
FINANCING ACTIVITIES
Treasury stock purchased                                            -              (68,671)                   -            (122,732)
Issuance of commercial paper                                  262,481                    -               54,181                   -
Issuance of long-term debt                                     19,232                8,000              449,627              15,000
Payment of long-term debt                                     (16,000)            (397,000)             (20,000)           (397,000)
Payment of preferred stock                                   (363,000)                   -             (363,000)                  -
Preferred stock dividends paid                                 (8,286)              (8,690)             (17,124)            (17,379)
Common stock dividends paid                                   (59,584)             (63,323)            (119,159)           (127,683)
Other                                                         (11,124)                 186              (14,130)               (448)
                                                       --------------   -------------------   -----------------   -----------------
Net Cash (Used in) Financing Activities                      (176,281)            (529,498)             (29,605)           (650,242)
                                                       --------------   -------------------   -----------------   -----------------
Net (Decrease) in Cash and                                            $                                         $
     Temporary Cash Investments                      $       (127,211)            (644,043) $           (36,475)           (635,481)
                                                       ==============   ==================    =================   =================
Cash and temporary cash investments at
    beginning of period                              $        219,338 $            951,338  $           128,602 $           942,776
Net (Decrease) in cash and
     temporary cash investments                              (127,211)            (644,043)             (36,475)           (635,481)
                                                       --------------   ------------------    -----------------   -----------------
Cash and Temporary Cash Investments at
    End of Period                                    $        92,127  $            307,295  $            92,127 $           307,295
                                                       ==============   ==================    =================   =================
</TABLE>

Temporary cash investments are short-term  marketable  securities purchased with
maturities of three months or less that were carried at cost which  approximates
fair value.
        See accompanying Notes to the Consolidated Financial Statements.




                                        6

<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


    KeySpan Corporation d/b/a KeySpan Energy (the "Company" or "KeySpan Energy")
    is a holding company operating two utilities that distribute  natural gas to
    approximately  1.6 million  customers  in New York City and on Long  Island,
    making it the fourth largest  gas-distribution company in the United States.
    Other  KeySpan  Energy  companies  market a portfolio of  gas-marketing  and
    energy-   related    services   in   the   Northeast,    own   and   operate
    electric-generation  plants in New York City and on Long Island, and provide
    operating  and  customer  services to  approximately  1.1  million  electric
    customers of the Long Island Power Authority  ("LIPA").  The Company's other
    energy activities include: gas exploration and production, primarily through
    The Houston  Exploration  Company ("THEC");  a domestic pipeline and storage
    facilities;  and  international  activities,  including  gas  processing  in
    Canada, and a gas pipeline and local distribution in Northern Ireland.  (See
    Note 2,  "Business  Segments" for  additional  information on each operating
    segment.)

1.    BASIS OF PRESENTATION

    In the  opinion of the  Company,  the  accompanying  unaudited  Consolidated
    Financial Statements contain all adjustments necessary to present fairly the
    financial  position of the Company as of June 30,  2000,  and the results of
    its  operations  and cash flows for the three and six months  ended June 30,
    2000 and June 30, 1999. The accompanying financial statements should be read
    in conjunction with the consolidated financial statements and notes included
    in the  Company's  1999  Annual  Report on Form 10-K.  Income  from  interim
    periods may not be indicative of future results.  Certain  reclassifications
    were made to conform  prior  period  financial  statements  with the current
    period financial statement  presentation.  Other than as noted,  adjustments
    were of a normal, recurring nature.

2.    BUSINESS SEGMENTS

    The  Company  has  six  reportable  segments:  Gas  Distribution,  Electric
    Services,   Gas  Exploration  and  Production,   Energy  Services,   Energy
    Investments and Other.

    The Gas Distribution  segment consists of the Company's two gas distribution
    subsidiaries.  The Brooklyn Union Gas Company d/b/a KeySpan Energy  Delivery
    New York  ("KeySpan  Energy  Delivery New York")  provides gas  distribution
    services to customers in the New York City Boroughs of Brooklyn,  Queens and
    Staten Island.  KeySpan Gas East  Corporation  d/b/a KeySpan Energy Delivery
    Long  Island   ("KeySpan   Energy   Delivery  Long  Island")   provides  gas
    distribution services to customers in the Long Island counties of Nassau and
    Suffolk and the Rockaway Peninsula of the Borough of Queens.

     The Electric Services segment consists of Company subsidiaries that operate
     the electric  transmission and  distribution  ("T&D") system owned by LIPA,
     own and provide  capacity to and produce energy for LIPA from the Company's
     generating  facilities  located on Long Island and manage fuel supplies for
     LIPA to fuel the Company's Long Island generating  facilities,  all through
     long-term  service  contracts having terms that range from eight to fifteen
     years. The



                                        7

<PAGE>



    Electric Services segment also includes Company subsidiaries that own, lease
    and operate  the 2,168  megawatt  Ravenswood  electric  generation  facility
    ("Ravenswood Facility"), located in Queens, New York. The Company's contract
    with Consolidated  Edison Company of New York ("Con Ed"), which provided Con
    Ed with 100% of the available capacity of the Ravenswood Facility on a fixed
    monthly fee,  expired on April 30, 2000. The Company now provides all of the
    energy,  capacity and ancillary services related to the Ravenswood  Facility
    to the New  York  Independent  System  Operator  ("NYISO").  Currently,  the
    Company's  primary  electric  generation  customers  are LIPA and the  NYISO
    energy markets.

    The  Gas  Exploration  and  Production  segment  is  engaged  in gas and oil
    exploration and production,  and the development and acquisition of domestic
    natural gas and oil properties.  This segment  consists of the Company's 70%
    equity  interest in THEC,  an  independent  natural gas and oil  exploration
    company,  as well as KeySpan  Exploration  and Production LLC, the Company's
    wholly owned  subsidiary  engaged in a joint venture with THEC. On March 31,
    2000, under a pre- existing credit arrangement, approximately $80 million in
    debt owed by THEC to the Company was  converted  into common equity of THEC.
    Upon such conversion, the Company's common equity ownership interest in THEC
    increased from 64% to the current level of approximately 70%.

    The Company's  Energy Services  segment  primarily  includes  companies that
    provide  energy  services  to  customers  located  within  the New York City
    tri-state  metropolitan  area and in Rhode Island through the following four
    lines of business:  (i) home energy services provides residential  customers
    with service and  maintenance of energy systems and  appliances,  as well as
    the  retail   marketing  of  natural  gas  and  electricity  to  residential
    customers;     (ii)     business     solutions     provides     professional
    engineering-consulting  and  design of energy  systems  for  commercial  and
    industrial   customers,   including   installation  of  plumbing,   heating,
    ventilation  and  air  conditioning  ("HVAC")  equipment;   (iii)  commodity
    procurement provides management and procurement services for fuel supply and
    management of energy sales,  primarily for the Ravenswood Facility; and (iv)
    telecommunications  services  provides various services to carriers of voice
    and data transmission on Long Island and in New York City.

    Subsidiaries in the Energy Investments segment hold a 20% equity interest in
    the Iroquois Gas Transmission System LP, a pipeline that transports Canadian
    gas supply to markets in the  Northeastern  United States; a 50% interest in
    the Premier  Transmission  Pipeline and a 24.5% interest in Phoenix  Natural
    Gas, both in Northern Ireland;  investments in certain midstream natural gas
    assets in Western Canada owned jointly with Gulf Canada  Resources  Limited,
    through the Gulf Midstream Services Partnership ("GMS") and the ownership of
    certain oil producing properties in Alberta,  Canada. These subsidiaries are
    primarily accounted for under the equity method. Accordingly,  equity income
    from  these   investments  is  primarily   reflected  in  other  income  and
    (deductions) in the Consolidated Statement of Income.

    The Other segment represents primarily unallocated  administrative expenses,
    interest  income earned on temporary cash  investments,  and preferred stock
    dividends.

     The accounting  policies of the segments are the same as those used for the
     preparation  of  the  Consolidated  Financial  Statements.   The  Company's
     segments are strategic  business units that are managed  separately because
     of their different operating and regulatory environments. At June



                                        8

<PAGE>



    30, 2000,  the total assets of certain  reportable  segments  increased from
    levels  reported  at  December  31,  1999 as  follows:  the Energy  Services
    segment's assets  increased by  approximately  $200 million during the three
    months  ended March 31, 2000,  due  primarily  to the  acquisition  of three
    additional companies that provide energy-related services and the investment
    in  MyHomeKey.com,  Inc. The segment  information  presented  below reflects
    amounts reported in the Consolidated  Financial Statements for the three and
    six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>

                                                                                                       (IN THOUSANDS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
                          Gas         Electric     Gas Exploration      Energy      Energy
                      Distribution    Services      and Production     Services   Investments    Other    Eliminations  Consolidated
-----------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>             <C>           <C>           <C>           <C>         <C>           <C>
Three Months Ended
June 30, 2000
Unaffiliated Revenue   $   361,540 $     388,695 $        57,842 $      138,021 $    1,490    $       -     $      -  $      947,588
Intersegment Revenue          -             -              -             32,158           -           -        (32,158)         -
Operating Income            21,769        62,215          25,173         33,712     (2,518)        (6,827)         -         133,524
Earnings for
  Common Stock               2,279        28,841          10,465         17,155       1,543       (13,203)         -          47,080
Basic and Diluted
Earnings Per Share         $0.02          $0.22           $0.08          $0.13        $0.01        $(0.11)       $ -           $0.35

Three Months Ended
June 30, 1999
Unaffiliated Revenue   $   281,384 $     190,435 $        35,021 $      36,235  $       451   $       -     $      -    $    543,526
Intersegment Revenue          -             -                 -              -           -            -            -            -
Operating Income            21,461        30,133          10,610        (1,561)      (1,650)        2,218          -          61,211
Earnings for
  Common Stock               1,220        15,037           3,326          (851)       2,605        (7,038)         -          14,299
Basic and Diluted
Earnings Per Share          $0.01          $0.11           $0.02        $(0.01)        $0.02       $(0.05)  $      -          $0.10
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

                                                                                                       (IN THOUSANDS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
                          Gas         Electric     Gas Exploration      Energy        Energy
                      Distribution    Services     and Production     Services     Investments   Other   Eliminations   Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>             <C>            <C>            <C>           <C>        <C>        <C>            <C>
Six Months Ended
June 30, 2000
Unaffiliated Revenue   $ 1,166,243 $     723,099 $      107,218    $    264,640 $    3,001    $     -     $   -     $     2,264,201
Intersegment Revenue         -             -                 -           32,774           -         -      (32,774)              -
Operating Income           234,230       131,827         41,529          32,305     (3,053)      (6,808)      -            430,030
Earnings for
  Common Stock             129,058        71,520         15,963          15,585      5,190      (26,683)      -            210,633
Basic and Diluted
Earnings Per Share          $0.96          $0.53         $0.12           $0.12       $0.04       $(0.20)     $-              $1.57

Six Months Ended
June 30, 1999
Unaffiliated Revenue   $   999,682 $     365,293 $       61,541 $        77,069  $   1,049    $     -     $   -     $    1,504,634
Intersegment Revenue          -             -               -              -           -            -         -              -
Operating Income           227,200        63,260         14,081          (4,492)    (2,715)       6,103       -            303,437
Earnings for
  Common Stock             121,910        31,622          3,804          (2,500)     3,116       (9,121)      -            148,831
Basic and Diluted
   Earnings Per Share       $0.86          $0.22         $0.03           $(0.02)     $0.02       $(0.06)     $-              $1.05
</TABLE>





                                        9

<PAGE>



3.    ENVIRONMENTAL MATTERS

    MANUFACTURED  GAS  PLANT  SITES:  The  Company  has  identified  thirty-four
    manufactured  gas  plant  ("MGP")  sites  that  were  historically  owned or
    operated by KeySpan  Energy  Delivery New York and KeySpan  Energy  Delivery
    Long Island (or such companies'  predecessors).  These former sites, some of
    which are no longer owned by the Company,  have been  identified  to the New
    York State Department of Environmental Conservation ("DEC") for inclusion on
    appropriate waste site inventories.

    The Company  presently  estimates that the remaining cost of its MGP-related
    environmental  cleanup activities will be approximately $120 million;  which
    amount has been accrued by the Company as its current  best  estimate of its
    aggregate  environmental  liability  for known  sites.  The  currently-known
    conditions of the former MGP sites, their period and magnitude of operation,
    generally observed cleanup  requirements and costs in the industry,  current
    land  use  and  ownership,  and  possible  reuse  have  been  considered  in
    establishing   contingency  reserves.  The  Company  believes  that  in  the
    aggregate,  the accrued  liability for  investigation and remediation of the
    MGP sites identified above are reasonable  estimates of likely cost within a
    range of reasonable, foreseeable costs.

    Thirteen of the identified sites are currently the subject of Administrative
    Consent  Orders  ("ACO")  with the DEC and  another  site is  subject to the
    negotiation  of an  ACO  or an  agreement  under  DEC's  Voluntary  Clean-up
    Program. The Company's remaining MGP sites may not become subject to ACOs in
    the future, and accordingly no liability has been accrued for these sites.

    Under prior rate orders,  the Public Service  Commission of the State of New
    York  ("NYPSC")  has allowed  recovery of costs  related to certain  KeySpan
    Energy Delivery New York MGP sites.  The Company  believes that current rate
    plans in effect for both Gas Distribution  subsidiaries provide for recovery
    of environmental costs attributable to the Gas Distribution segment. At June
    30, 2000,  the Company had a total  regulatory  asset of  approximately  $98
    million.  Expenditures  incurred  to date by the  Company  with  respect  to
    MGP-related activities total approximately $19 million.


4.     LIQUIDITY AND FINANCINGS

    On  June  1,  2000,  the  Company  redeemed,  at  maturity,  all  14,520,000
    outstanding  shares of its 7.95%  Preferred  Stock Series AA. The  Company's
    obligation of $370.2 million included the mandatory  redemption price of $25
    per share  totaling  $363.0  million and  dividends  payable  totaling  $7.2
    million.  The  redemption  was satisfied  through  utilization of internally
    generated funds and proceeds from the issuance of commercial paper.

    During the six months  ended June 30,  2000,  the Company  issued and repaid
    commercial  paper  to  satisfy  working  capital  needs  and  the  mandatory
    redemption of preferred stock as discussed above.  During the second quarter
    of 2000, the Company issued $319 million of commercial paper



                                       10

<PAGE>



    and repaid $56.5  million.  At June 30, 2000, the Company had $262.5 million
    of commercial paper  outstanding at an average  annualized  interest rate of
    6.91%.

    KeySpan  Energy  Delivery Long Island filed a shelf  registration  statement
    with the Securities and Exchange Commission ("SEC") in December 1999 for the
    issuance of up to $600  million of Medium  Term Notes.  On February 1, 2000,
    KeySpan  Energy  Delivery  Long Island issued $400 million 7.875 % Notes due
    February 1, 2010.  The net proceeds from the issuance were used to repay the
    Company for its costs in  extinguishing  $397 million of promissory notes to
    LIPA  that  matured  in June  1999.  The  Medium  Term  Notes  are fully and
    unconditionally guaranteed by the Company. At June 30, 2000, $200 million of
    Medium Term Notes remain available for issuance under the shelf registration
    statement.

    During the quarter ended June 30, 2000,  THEC borrowed $14 million under its
    credit facility with a commercial bank and repaid $16 million of outstanding
    borrowings.  At June 30, 2000, $177 million remained  outstanding under this
    facility  at a  weighted  average  annualized  interest  rate of  7.71%.  In
    addition, during the quarter ended June 30, 2000, a subsidiary in the Energy
    Investments   segment  increased  its  borrowings  under  a  revolving  loan
    agreement  with a financial  institution in Canada by $5.2 million U.S. . At
    June 30,  2000,  $120 million U.S.  was  outstanding  at a weighted  average
    annualized interest rate of 6.51%.


5.    ACQUISITION OF EASTERN ENTERPRISES

    On  November  4, 1999,  the  Company  and  Eastern  Enterprises  ("Eastern")
    announced that the companies had signed a definitive  merger agreement under
    which the Company will acquire all of the common stock of Eastern for $64.00
    per share in cash,  subject to adjustment.  The Agreement and Plan of Merger
    is  included  as an exhibit to the  Company's  Form 8-K filed on November 5,
    1999. The  transaction has a total value of  approximately  $2.5 billion and
    will be accounted for utilizing purchase accounting.

    In connection with the merger, Eastern has amended its merger agreement with
    EnergyNorth,  Inc. ("EnergyNorth") to provide for an all cash acquisition by
    Eastern of  EnergyNorth  shares at a price per share of  $61.13,  subject to
    adjustment.  The  restructured  EnergyNorth  merger  is  expected  to  close
    contemporaneously  with the  KeySpan/Eastern  transaction.  The  EnergyNorth
    transaction  has a total  value  of  approximately  $250  million.  Proforma
    financial  statements  for the  Eastern  and  EnergyNorth  transactions  are
    included as an exhibit to this Form 10-Q.

    The Company intends to access the financial markets in the fourth quarter of
    2000 to finance  approximately  $2 billion for the  Eastern and  EnergyNorth
    transactions.  The  Company  intends to use bridge  financing  to fund these
    transactions  initially  and then  replace the bridge  financing  with $1.65
    billion of long-term debt securities as soon as practicable thereafter.  The
    remaining balance will be financed through the issuance of commercial paper.
    The Company  anticipates  issuing several different  maturities of long-term
    debt to balance its future debt capital maturity structure.




                                       11

<PAGE>



    The  Company  expects  pre-tax  annual  cost  savings   resulting  from  the
    transactions  to be  approximately  $40 million.  These cost savings  result
    primarily  from the  elimination of duplicate  corporate and  administrative
    programs,  greater  efficiencies in operations and business  processes,  and
    increased  purchasing  efficiencies.  The  Company  expects to  achieve  the
    majority of the reductions through a variety of programs which would include
    hiring freezes, attrition and separation programs,  including implementation
    of an early retirement program and targeted  voluntary  severance program in
    the third and fourth  quarters  of 2000.  The  Company is  currently  in the
    process of finalizing these programs and will report the potential effect of
    these  initiatives  on  earnings  and cash  flow  from  operations  when job
    positions and cost estimates have been finalized.

    Following the closing of these transactions, the Company will become subject
    to the  regulation  of the SEC as a  registered  holding  company  under the
    Public  Utility  Holding  Company  Act of 1935,  as  amended.  As such,  the
    corporate  and  financial  activities  of the Company and its  subsidiaries,
    including  such entities'  ability to pay dividends,  will be subject to SEC
    regulation.  The  merger  is  conditioned  upon  the  approval  of the  SEC.
    Shareholders of both Eastern and  EnergyNorth,  as well as the New Hampshire
    Public  Utility  Commission  (with  respect  to  Eastern's   acquisition  of
    EnergyNorth)  have approved the transactions.  The Company  anticipates that
    the  transaction  will be  consummated in the fourth quarter of 2000, but is
    unable to determine when or if the required SEC approval will be obtained.

     Eastern owns and operates Boston Gas Company,  Colonial Gas Company,  Essex
     Gas Company,  Midland  Enterprises  Inc.,  Transgas  Inc.,  and  ServicEdge
     Partners, Inc., which primarily serve the Massachusetts area.


6.    NEW YORK STATE INDEPENDENT SYSTEM OPERATOR ("NYISO") MATTERS

    The  Company  currently   realizes  revenues  from  its  investment  in  the
    Ravenswood  Facility  through the  wholesale  sale of energy,  capacity  and
    ancillary  services.  Ancillary  services include spinning  reserves and non
    spinning reserves ("Reserves") available to replace energy that is unable to
    be delivered due to the unexpected loss of a major energy source.

    Due to the  increase in the  market-clearing  price of  Reserves  during the
    first  quarter  of  2000,  the  NYISO  requested  that  the  Federal  Energy
    Regulatory  Commission  ("FERC")  approve a bid cap on  Reserves  as well as
    requiring a refunding of so-called  alleged  "excess  payments"  received by
    sellers  into  the  ancillary  services  market,  including  the  Ravenswood
    Facility and LIPA. Other market  participants,  including buyers of Reserves
    and  electric  utilities  as  load  serving  entities  ("LSEs")  also  filed
    complaints with FERC and intervened in the various FERC proceedings  related
    to Reserves and proposed alternative remedies.

    On May 31, 2000,  FERC issued an order on Reserves  (the  "Reserves  Order")
    that granted approval of a bid cap for non-spinning  reserves which includes
    payments for the  opportunity  cost of not making  energy  sales.  The other
    requests - such as a bid cap for  spinning  reserves,  retroactive  refunds,
    recalculation of Reserve prices for March 2000, and convening a technical



                                       12

<PAGE>



    conference  and settlement  proceeding - were rejected by FERC.  Pursuant to
    the Reserves Order,  the NYISO made its first  compliance  filing to FERC on
    June 15, 2000. However, the NYISO and several other market participants have
    requested  rehearing of the Reserves  Order. In response to a NYISO request,
    FERC has allowed the NYISO to recalculate  Reserve prices for the March 2000
    period applying the bid cap that FERC had previously  rejected,  pending its
    review on the rehearing requests of the Reserves Order.

    Additionally,  the  wholesale  energy  market  has also  been  the  focus of
    increased market based pricing.  On June 30, 2000, the NYISO petitioned FERC
    to approve a $1,300/MWh bid cap in the energy market to be effective July 6,
    2000 through  October 28, 2000.  The NYISO  requested the bid cap because it
    believes that there is a purported lack of price  responsive  demand and the
    start- up problems  associated with  implementation of the NYISO might cause
    severe price spikes during the summer peak months. In response,  on July 26,
    2000,  the FERC  issued an order (the  "Energy  Market  Order")  approving a
    $1,000/MWh  bid cap in the energy  market  effective  July 26, 2000  through
    October  28,  2000.  The  Energy  Market  Order also  requires  the NYISO to
    identify  certain  "market  flaw  problems"  and to  report  them to FERC by
    September 1, 2000.

    The Company is opposing  the relief  requested by the NYISO and the LSEs and
    believes  that  the  ultimate  resolution  of these  issues  will not have a
    material  effect  on its  consolidated  financial  position  or  results  of
    operations.


7.    DERIVATIVE FINANCIAL INSTRUMENTS

    In connection with the Company's  anticipated  purchase of Eastern (See Note
    5,  "Acquisition of Eastern  Enterprises")  and the anticipated  issuance of
    long-term debt  securities to finance the  acquisition,  the Company entered
    into forward  interest  rate lock  agreements to hedge a portion of the risk
    that the cost of the future  issuance of  fixed-rate  debt may be  adversely
    affected by changes in interest  rates.  Through June 30, 2000,  the Company
    has entered into $1.25 billion of forward interest rate lock agreements. The
    interest  lock rates  range from 7.070% to 7.780% and have  maturities  that
    range  from  5 to 30  years.  The  Company  estimates  that  it  has  hedged
    approximately 76% of the estimated long-term debt financing  associated with
    the  purchase of Eastern.  However,  interest  rates  associated  with these
    forward lock  agreements  could change if the  Company's  bond rating at the
    time of the debt issuance  changes.  Under an interest rate lock  agreement,
    the  Company  agrees to pay or  receive  an amount  equal to the  difference
    between  the net  present  value of the cash flows for a notional  principal
    amount of indebtedness  based on the existing yield of a hedging  instrument
    at the date of the agreement and at the date the agreement is settled. Gains
    and losses on interest rate lock  agreements  will be deferred and amortized
    over the life of the underlying debt to be issued.  The notional  amounts of
    the agreements are not exchanged. The Company has entered into interest rate
    lock agreements  with more than one major financial  institution in order to
    minimize counter party credit risk.

    Also during the quarter,  the Company  entered  into a number of  derivative
    swap  instruments  to fix the  selling  price on a portion of its  estimated
    summer peak electric sales through the Ravenswood  Facility.  For the months
    of June through August, the Company hedged the sales price on



                                       13

<PAGE>



    approximately  30%, or 552,800 megawatt hours, of the Ravenswood  Facility's
    estimated summer peak electric sales (or approximately 10% of the Ravenswood
    Facility's  estimated  yearly electric sales) to protect against a potential
    degradation in market prices during the summer. Under these swap agreements,
    the  Company  will  receive  a fixed  price  of $109  per  megawatt  hour of
    electricity sold during summer peak hours and pay the counter party the then
    current  floating  market price for peak electric  supply.  The Company will
    receive the then current  floating market price of peak electric energy when
    the  Ravenswood   Facility  sells  electric  energy  to  the  NYISO.   These
    derivatives  have been accounted for as cash-flow  hedges.  The Company also
    has a modest  tolling  arrangement  with a counter  party under which it has
    "locked-in" approximately five percent of its estimated summer season profit
    margin. Under this arrangement, the Company has received an up-front fee and
    will pay the counter party,  on a monthly basis,  its actual realized profit
    margin from the sale of electric energy.


8.    NEW FINANCIAL ACCOUNTING STANDARDS

     In June 1999, the Financial  Accounting  Standards  Board  ("FASB")  issued
     Statement of Financial  Accounting  Standard ("SFAS") No. 137,  "Accounting
     for  Derivative  Instruments  and  Hedging  Activities  -  Deferral  of the
     Effective  Date of SFAS No. 133." SFAS No. 137 defers the effective date of
     SFAS No. 133 to fiscal years  beginning  after July 15,  2000.  The Company
     will therefore adopt SFAS No. 133 in the first quarter of fiscal year 2001.
     SFAS No. 133 establishes  accounting and reporting standards for derivative
     instruments  and  for  hedging  activities.  It  requires  that  an  entity
     recognize all  derivatives as either assets or liabilities in the statement
     of financial position and measure those instruments at fair value.

    In June  2000,  the  FASB  issued  SFAS No.  138,  "Accounting  for  Certain
    Derivative Instruments and Certain Hedging Activities - An Amendment of FASB
    Statement  No  133."  SFAS No.  138  amends  the  accounting  and  reporting
    standards of SFAS No. 133 for a number of transactions. The most significant
    amendment  to SFAS 133 as it  relates  to the  Company  is that  the  normal
    purchases and normal sales exception found in SFAS 133 may now be applied to
    contracts that implicitly or explicitly permit net settlement, and contracts
    that have a market mechanism to facilitate net settlement.  Therefore, under
    SFAS  138  the  Company's  gas  procurement  contracts  are  not  considered
    derivative financial instruments.

    All of the Company's  derivative financial  instruments,  except for certain
    interest rate swaps, are cash-flow  hedges.  As a result,  implementation of
    SFAS No.  133 and 138 when  adopted,  are not  expected  to have a  material
    effect on the Company's net income,  but could have a significant  effect on
    comprehensive  income  because of  fluctuations  in the market  value of the
    derivatives employed for hedging certain risks. Under SFAS No. 133, periodic
    changes in market value of derivatives  which meet the definition of a hedge
    are recorded as comprehensive  income,  subject to  effectiveness,  and then
    included in net income to match the underlying hedged transactions.





                                       14

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Consolidated Results

The  following  is a  summary  of items  affecting  comparative  earnings  and a
discussion of material changes in revenues and expenses during the three and six
month  periods  ended June 30, 2000  compared to the three and six month periods
ended June 30, 1999.  All per share amounts are stated on a diluted  basis.  For
all periods presented,  diluted earnings per share is the same as basic earnings
per share,  since there was no effect on earnings  per share from the  Company's
options and those of its subsidiary,  The Houston  Exploration Company ("THEC").
(Capitalized  terms used in the discussions to follow but not otherwise defined,
have  the  same  meaning  as when  used  in the  Footnotes  to the  Consolidated
Financial Statements included under Item 1.)

Earnings Summary
----------------

Consolidated  earnings (loss) by reporting segment is set forth in the following
table for the periods indicated:

<TABLE>
<CAPTION>

                                                                                                        (IN THOUSANDS OF DOLLARS)
---------------------------------------------------------------------------------------------------------------------------------
                                           Three Months             Three Months              Six Months               Six Months
                                              Ended                     Ended                    Ended                    Ended
                                          June 30, 2000            June 30, 1999            June 30, 2000            June 30, 1999
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                      <C>                     <C>                     <C>

Gas Distribution                       $      2,279  $                 1,220  $               129,058  $               121,910
Electric Services                            28,841                   15,037                   71,520                   31,622
Gas Exploration and
    Production                               10,465                    3,326                   15,963                    3,804
Energy Services                              17,155                     (851)                  15,585                   (2,500)
Energy Investments                            1,543                    2,605                    5,190                    3,116
Other                                       (13,203)                  (7,038)                 (26,683)                  (9,121)
----------------------------------------------------------------------------------------------------------------------------------
                                       $     47,080  $                14,299  $               210,633  $               148,831
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Consolidated  earnings  per  share  were  $0.35  and $1.57 for the three and six
months  ended June 30,  2000,  respectively  compared to $0.10 and $1.05 for the
corresponding periods last year. The Company's average common shares outstanding
for both periods ended June 30, 2000 were  approximately  five percent less than
the same periods last year due to a stock repurchase program in 1999.

The increase in consolidated  earnings in both periods  reflects,  primarily the
Company's  investment  in the  2,168  megawatt  Ravenswood  electric  generating
facility ("Ravenswood Facility") located in Queens, New York, which was acquired
in June 1999. Earnings from the Ravenswood Facility were



                                       15

<PAGE>



$22.8  million  and $55.6  million  for the three and six months  ended June 30,
2000,  respectively.  Since the  facility  was  acquired in June 1999,  earnings
attributable  to that  facility  for the three and six months ended June 30 1999
were  minimal.  Results of operations of the Energy  Services  segment  reflect,
primarily,  earnings from  intercompany  fuel procurement and energy  management
services  provided to the Ravenswood  Facility.  Gas  distribution  earnings for
quarters ended June 30 generally are marginally  profitable or unprofitable  due
to the seasonal  nature of gas heating sales.  The increase in earnings from the
Gas Distribution segment for the six months ended June 30, 2000, compared to the
corresponding  period last year reflects  revenue  benefits  from  continued gas
sales growth and favorable gas prices compared to oil prices.

Consolidated  earnings for the three and six months  ended June 30,  2000,  also
reflect  improved  performance from the Company's Gas Exploration and Production
segment,  which  benefitted  from  significantly  higher realized gas prices and
increased  production  volumes compared to last year. In addition,  on March 31,
2000 the Company increased its ownership in THEC from 64% to 70%.

Partially  offsetting the aforementioned  benefits to comparative earnings was a
decrease in interest income on temporary cash  investments.  Interest income has
been decreasing as the Company used cash to finance  acquisitions and repurchase
shares of its common stock in 1999.

Revenues
--------

Consolidated  revenues  were $947.6  million for the three months ended June 30,
2000,  compared to $543.5  million for the  corresponding  period last year,  an
increase  of $404.1  million  or 74%.  For the six months  ended  June 30,  2000
consolidated  revenues  were $2.3  billion,  compared  to $1.5  billion  for the
corresponding  period  last year,  an  increase  of $759.6  million or 50%.  The
increases in revenues are due primarily  to: (i) the addition of the  Ravenswood
Facility which contributed  $178.5 million and $326.7 million in revenues during
the three and six months ended June 30, 2000,  respectively;  (ii)  increases in
Gas Distribution  revenues of $80.2 million and $166.6 million for the three and
six months  ended June 30,  2000,  respectively;  and (iii)  increases of $101.8
million and $187.6  million in revenues  for the three and six months ended June
30, 2000,  respectively from the Energy Services segment.  Revenues from the Gas
Distribution  segment  benefitted  from continued gas sales growth and favorable
gas prices as compared to oil prices. Revenues from the Gas Distribution segment
also include  recovery of gas costs,  which have been higher in 2000 compared to
1999. The increase in revenues from the Energy  Services  segment  resulted from
recent  acquisitions  of companies  providing  various  energy-related  services
throughout the New York City tri-state  metropolitan area and Rhode Island,  and
sales growth related to the Company's gas marketing subsidiary.

Operating Expenses
------------------

Consolidated  operating  expenses were $814.1  million for the second quarter of
2000  compared to $482.3  million  for the  corresponding  period last year,  an
increase  of $331.7  million,  or 69%.  For the six months  ended June 30,  2000
consolidated  operating  expenses were $1.8 billion compared to $1.2 billion for
the corresponding  period last year, an increase of $633.0 million,  or 53%. The
increases in operating  expenses were  primarily the result of higher  purchased
fuel and gas costs, and higher



                                       16

<PAGE>



operations and maintenance expenses. Purchased fuel expense for the operation of
the Ravenswood Facility was $72.8 million and $140.6 million for the quarter and
period  ended June 30,  2000,  respectively.  The Company did not incur any fuel
costs for the Ravenswood  Facility for the corresponding  periods last year. The
prior owner of the Ravenswood Facility,  Consolidated Edison Company of New York
("Con Ed") owned and  supplied  the fuel  necessary  to operate  the  Ravenswood
Facility from June 19, 1999 until the start of the New York  Independent  System
Operator  ("NYISO") on November 19,  1999.  During this time,  all of the energy
generated by the Ravenswood Facility was supplied to Con Ed.

The  increase in gas costs for both periods of 2000  compared to the  comparable
periods last year,  resulted from gas sales growth associated with the Company's
two gas distribution  subsidiaries and its gas marketing subsidiary,  as well as
higher gas  prices.  Variations  in  utility  gas costs  have  little  impact on
operating results as the current gas rate structure of each of the Company's gas
distribution  utilities  includes a gas  adjustment  clause,  pursuant  to which
variations  between  actual gas costs and gas cost  recoveries  are deferred and
subsequently refunded to or collected from customers.

Operations and maintenance  expenses have increased by $139.3 million or 58% for
the three  months  ended June 30, 2000 and by $262.3  million or 56% for the six
months  ended June 30, 2000  compared  to the  corresponding  periods  last year
primarily  as a result of recent  acquisitions  of companies  providing  various
energy-related  services,  the  operations  of the  Ravenswood  Facility and the
installation  of an  underground  transmission  line to  reinforce  the electric
system  capacity  on the  southfork  of Long Island on behalf of the Long Island
Power Authority ("LIPA"). Costs to install the underground transmission line are
currently  being  recovered  from  LIPA  as  part  of  the  Management  Services
Agreement.

Other Income and (Deductions)
-----------------------------

Other income  includes  equity income from  subsidiaries  comprising  the Energy
Investments segment, primarily the Company's investments in Canada. In addition,
other income also includes  interest income from temporary cash  investments and
the effect on net income from the minority  interest  associated  primarily with
THEC.  During the second quarter of 2000, the Company  recognized  equity income
from its Canadian  investments of $4.5 million,  compared to $2.5 million during
the second quarter of 1999. The Company's Canadian investments contributed $10.8
million of equity income for the six months ended June 30, 2000 compared to $5.2
million  for the  corresponding  period  last  year.  As  previously  mentioned,
interest  income  has  been  decreasing  as the  Company  used  cash to  finance
acquisitions  and repurchase  shares of its common stock.  Further,  for the six
months ended June 30, 2000, other income includes a charge of $9 million related
to certain rate settlement  issues,  compared to a charge of $6 million recorded
in the three and six months ended June 30, 1999.

Other Expenses
--------------

Interest  expense for the second  quarter of 2000 was $42.3 million  compared to
$34.9  million  for the  corresponding  period  last year,  an  increase of $7.4
million or 21%.  Interest  expense  for the six months  ended June 30,  2000 was
$77.3 million compared to $70.8 million for the corresponding



                                       17

<PAGE>



period last year, an increase of $6.5 million or 9%.  Interest  expense for both
periods  ended  June  30,  2000  reflects  higher  levels  of debt  outstanding,
primarily  related  to the Medium  Terms  Notes  issued in  February  2000,  the
Company's Canadian investments and higher commercial paper borrowings.

Income tax expense  reflects the higher level of pre-tax  income for the quarter
and six months ended June 30, 2000,  compared to the corresponding  periods last
year.  Income tax expense  for the  quarter  and six months  ended June 30, 1999
reflects an  adjustment  to deferred tax expense and current tax expense for the
utilization  of  previously  deferred net operating  loss ("NOL")  carryforwards
recorded in 1998.  In 1998,  the Company  recorded  as a deferred  tax asset,  a
benefit of $71.1 million for NOL carryforwards. The Company estimated that $57.4
million of the benefits from the NOL  carryforwards  from 1998 would be realized
in its consolidated 1999 federal and state income tax returns,  and accordingly,
applied the NOL benefits in its 1999 federal and state tax provisions.


ANTICIPATED FUTURE DEVELOPMENTS

Acquisition of Eastern Enterprises
----------------------------------

On November 4, 1999, the Company and Eastern Enterprises  ("Eastern")  announced
that the  companies  had signed a definitive  merger  agreement  under which the
Company will acquire all of the common stock of Eastern.  Further, in connection
with the merger, Eastern has amended its merger agreement with EnergyNorth, Inc.
("EnergyNorth")   to  provide  for  an  all  cash   acquisition  by  Eastern  of
EnergyNorth.  The proposed transactions are expected to close  contemporaneously
in the fourth  quarter of  calendar  year 2000.  See Note 5 to the  Consolidated
Financial  Statements,  "Acquisition  of  Eastern  Enterprises"  for  a  further
explanation of the proposed transactions.

The  Company  expects to raise  approximately  $2 billion in  financing  for the
transactions  and the goodwill  associated  with the  transactions  is currently
estimated to be  approximately  $1 billion.  Consolidated  twelve month proforma
statements,  including future interest expense and the amortization of goodwill,
indicate  that the  transactions  will have a  dilutive  effect  on net  income.
However, the consolidated  proforma  statements,  which have been included as an
exhibit  to this  Form 10Q,  do not  include:  i)  continued  gas  sales  growth
throughout  the Company's  current and future service  territory,  especially on
Long  Island  and New  England;  ii)  earnings  enhancement  from the  Company's
investment in the Ravenswood Facility; iii) the continued successful integration
of acquired  companies  providing  energy-related  services within the Company's
Energy Services segment;  and iv) anticipated  before-tax synergy savings of $40
million  annually  starting in 2001.  The Company  currently  expects that these
earnings  enhancements  will  offset the  dilutive  effects of the  Eastern  and
EnergyNorth transactions. Further, the Company anticipates that the transactions
will  be  accretive  to cash  flow  immediately  following  the  closing  of the
transactions.

In line with the Company's  objective to realize  synergy  savings,  the Company
intends to  implement  an early  retirement  program  and a  targeted  voluntary
severance  program  in the third and fourth  quarters  of 2000.  The  Company is
currently  in the  process of  finalizing  these  programs  and will  report the
potential effect of these  initiatives on earnings and cash flow from operations
when job positions and cost estimates have been finalized.



                                       18

<PAGE>



Following  the  announcement  that the Company had entered  into an agreement to
purchase  Eastern,  Standard & Poor's Rating  Services  placed the Company's and
certain of its  subsidiaries',  as well as Eastern's  corporate  credit,  senior
unsecured debt, and preferred stock on Credit Watch with negative  implications.
Similarly,  Moody's  Investors  Service also placed the Company's and certain of
its subsidiaries', as well as Eastern's corporate credit, senior unsecured debt,
commercial  paper and  preferred  stock on review for  possible  downgrade.  The
Company  anticipates that both Standard & Poor's and Moody's will finalize their
review process by the Company's fourth calender quarter.  At this point in time,
the Company can not predict the outcome of these  evaluations.  However,  if the
rating of the Company's  long-term  debt were to decrease below the "A" range by
at least two credit  rating  agencies,  the Company would be required to post an
approximately $600 million letter of credit to service the Company's obligations
under existing  promissory notes issued to LIPA. In August,  Standard and Poor's
announced  that the Company will be added to the natural gas  industry  group of
the Standard and Poor's 500 Index.  The Company had previously  been included in
the Standard and Poor's MidCap 400 Index.
<PAGE>
Segment Results

Gas Distribution
----------------

KeySpan Energy Delivery New York provides gas distribution services to customers
in the New York City Boroughs of Brooklyn, Queens and Staten Island, and KeySpan
Energy Delivery Long Island provides gas  distribution  services to customers in
the Long Island counties of Nassau and Suffolk and the Rockaway Peninsula of the
Borough of Queens.

The table below  highlights  certain  significant  financial  data and operating
statistics for the Gas Distribution segment for the periods indicated.
<TABLE>
<CAPTION>
                                                                                                           (IN THOUSANDS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
                                          Three Months            Three Months             Six Months              Six Months
                                              Ended                  Ended                   Ended                    Ended
                                          June 30, 2000          June 30, 1999           June 30, 2000            June 30, 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                     <C>                  <C>                          <C>
Revenues                              $       361,540  $              281,384  $            1,166,243 $                 999,682
Purchased gas for resale                      155,997                  96,819                 530,629                   408,073
Revenue taxes                                  19,538                  18,596                  64,079                    62,903
-------------------------------------------------------------------------------------------------------------------------------
Net Revenues                                  186,005                 165,969                 571,535                   528,706
-------------------------------------------------------------------------------------------------------------------------------
Operations and maintenance                    104,708                  92,917                 219,526                   197,515
Depreciation and amortization                  30,072                  24,351                  57,368                    48,605
Operating taxes                                29,456                  27,240                  60,411                    55,386
-------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses                      164,236                 144,508                 337,305                   301,506
-------------------------------------------------------------------------------------------------------------------------------
Operating Income                      $        21,769  $               21,461  $              234,230 $                 227,200
-------------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock             $         2,279  $                1,220  $              129,058 $                 121,910
-------------------------------------------------------------------------------------------------------------------------------
Firm gas sales (MDTH)                          29,037                  25,735                 107,771                   104,048
Firm transportation (MDTH)                      5,144                   3,915                  15,627                    12,141
Transportation - Electric
  Generation (MDTH)                            17,845                  20,923                  30,631                    29,411
Other sales (MDTH)                             22,326                   8,998                  42,493                    25,838
Warmer than normal                             8.7%                    14.2%                   5.9%                      9.1%
------------------------------------  -----------------  ----------------------  ---------------------- -------------------------
</TABLE>
An MDTH is 10,000  therms  (British  Thermal  Units) and  reflects  the  heating
content of  approximately  one million  cubic feet of gas. A therm  reflects the
heating content of  approximately  100 cubic feet of gas. One billion cubic feet
(BCF) of gas equals approximately 1,000 MDTH.


NET REVENUES

Net gas revenues  increased  during the second quarter of 2000,  compared to the
second  quarter of last year,  by $20.0 million or 12%. For the six months ended
June 30, 2000, net gas revenues increased by $42.8 million or 8% compared to the
corresponding  period of last year.  The  increase in net gas  revenues for both
periods was due to continued gas sales growth and favorable gas prices  compared
to oil  prices.  Firm net gas  revenues  grew  approximately  $9 million and $19
million for the three and six months ended June 30, 2000,  respectively over the
corresponding periods in 1999, through the addition of new gas customers and oil
to gas conversions,  primarily in the Long Island market.  Long Island has a low
natural gas saturation rate and significant gas sales growth  opportunities  are
believed to be available.  The Company  estimates  that on Long Island less than
30% of the residential and multi-family  markets,  and  approximately 70% of the
commercial  market  currently  use  natural gas for space  heating.  In the Long
Island  service  area,  the Company  will  continue  to seek growth  through the
expansion  of its  distribution  system,  as well as through the  conversion  of
residential  homes from oil-to-gas for space heating purposes and the pursuit of
opportunities to grow multi- family, industrial and commercial markets.

In the large  volume  heating  markets and other  interruptible  markets,  which
include large apartment houses, government buildings and schools, gas service is
provided  under rates that are set to compete with prices of  alternative  fuel,
including No. 2 and No. 6 grade heating oil. Due to the increase in the price of
heating  grade fuel oil, gas is currently  selling at a discount to heating oil.
The Company  increased sales in these markets by  approximately  $11 million and
$20  million  for the three and six  months  ended June 30,  2000,  respectively
compared to the same periods last year,  through aggressive unit pricing and the
addition of two large commercial and industrial customers.

The Gas  Distribution  segment is  influenced  by seasonal  weather  conditions.
Annual  gas  revenues  are  substantially  realized  during the  heating  season
(November 1 to April 30) as a result of the large  proportion of heating  sales,
primarily  residential,  compared  with  total  sales.  Accordingly,  results of
operations for gas  distribution  operations  historically are most favorable in
the three  months  ended March 31, with  results of  operations  being next most
favorable in the three months ended  December 31.  Results for the quarter ended
June 30 are  marginally  profitable  or  unprofitable,  and losses are generally
incurred in the quarter ended September 30.

The Company's gas distribution  subsidiaries  operate under utility tariffs that
each contain a weather normalization  adjustment that largely offsets shortfalls
or  excesses of firm net  revenues  (i.e.,  revenues  less gas costs and revenue
taxes) during a heating season due to variations from normal weather.




                                       20

<PAGE>



SALES, TRANSPORTATION AND OTHER QUANTITIES

Comparative firm gas sales and  transportation  quantities for the three and six
months  ended June 30, 2000  reflect the  increase in firm sales,  as  discussed
above. Firm gas  transportation  quantities  increased in both the three and six
months  ended  June  30,  2000,  as  the  Company   continues  its  natural  gas
deregulation  initiatives.  The Company's net margins are currently not affected
by customers  opting to purchase  their gas supply from  sources  other than the
Company,  since distribution  rates charged to transportation  customers are the
same as those charged to full sales service customers.

Transportation   quantities   related  to   electric   generation   reflect  the
transportation of gas to the Company's electric generating facilities located on
Long Island. Net revenues from these services are minimal.

Other sales quantities include on-system  interruptible  quantities,  off-system
sales  quantities  (sales made to  customers  outside of the  Company's  service
territories)  and related  transportation.  Effective April 1, 2000, the Company
entered  into an  agreement  with Coral  Energy  Resources,  L.P.,  ("Coral")  a
subsidiary of Shell Oil Company. Coral assists in the origination,  structuring,
valuation and execution of energy-related transactions. A sharing exists between
gas ratepayers and the Company's two gas distribution subsidiaries (collectively
referred to as the "Gas  Companies")  for off-system gas  transactions.  The Gas
Companies' share of the profits on such  transactions is then shared with Coral.
The Gas  Companies  also share in revenues  arising  from  certain  transactions
initiated by Coral. Prior to this agreement with Coral,  KeySpan Energy Delivery
New  York had an  agreement  with  Enron  Capital  and  Trade  Resources  Corp.,
("Enron") a subsidiary of Enron Corp., which expired on March 30, 2000. Pursuant
to this agreement,  Enron provided gas supply and asset  management  services to
KeySpan  Energy  Delivery  New York for a fee,  and  obtained  the right to earn
revenues  based upon its  management of KeySpan  Energy  Delivery New York's gas
supply requirements,  storage arrangements and off-system capacity.  As a result
of  this  agreement,  KeySpan  Energy  Delivery  New  York  did not  report  any
off-system sales quantities in 1999.

OPERATING EXPENSES

Operating expenses increased by $19.7 million,  or 14%, in the second quarter of
2000 compared to the corresponding  quarter last year, and by $35.8 million,  or
12% for the six months ended June 30, 2000 compared to the six months ended June
30, 1999. Operations and maintenance expense in both periods reflects, generally
higher labor costs and associated employee benefit expenses, higher accruals for
uncollectible  accounts and higher marketing costs and incentives related to the
Company's gas expansion initiatives on Long Island. The increase in depreciation
and amortization  expense generally reflects continued property  additions,  and
the amortization of certain  regulatory items previously  deferred and now being
recovered through revenue recovery  mechanisms.  Further,  operating taxes which
include  state and local  taxes on property  have  increased  as the  applicable
property base and tax rates generally have increased.






                                       21

<PAGE>



Electric Services

The Electric Services segment primarily consists of subsidiaries that own, lease
and operate oil and gas fired generating  plants in Queens and Long Island,  and
through  long-term  contracts,  manage the  electric  T&D  system,  the fuel and
electric purchases, and the off-system electric sales for LIPA.

Selected  financial data for the Electric  Services  segment is set forth in the
table below for the periods indicated.


<TABLE>
<CAPTION>

                                                                                                    (IN THOUSANDS OF DOLLARS)
----------------------------------------------------------------------------------------------------------------------------------
                                           Three Months            Three Months              Six Months               Six Months
                                              Ended                    Ended                    Ended                   Ended
                                           June 30, 2000           June 30, 1999            June 30, 2000            June 30, 1999
----------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                      <C>                      <C>                      <C>
Revenues
  LIPA service agreements             $       210,150  $               181,734  $               395,560 $                356,592
  Ravenswood Facility                         178,545                    8,701                  326,685                    8,701
  Other                                             -                        -                      854                        -
----------------------------------------------------------------------------------------------------------------------------------
Total Revenues                                388,695                  190,435                  723,099                  365,293
Purchased fuel                                 72,772                        -                  140,649                        -
----------------------------------------------------------------------------------------------------------------------------------
Net Revenues                                  315,923                  190,435                  582,450                  365,293
----------------------------------------------------------------------------------------------------------------------------------
  Operations and
   maintenance                                203,717                  121,518                  348,877                  224,330
  Depreciation                                 12,296                   10,337                   24,561                   20,265
  Operating taxes                              37,695                   28,447                   77,185                   57,438
----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses                      253,708                  160,302                  450,623                  302,033
----------------------------------------------------------------------------------------------------------------------------------
Operating Income                      $        62,215  $                30,133  $               131,827 $                 63,260
----------------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock             $        28,841  $                15,037  $                71,520 $                 31,622
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NET REVENUES

Electric  net  revenues  increased  by  $125.5  million,  or 66%,  and by $217.2
million,  or 59% in the three and six months ended June 30,  2000,  respectively
compared to the  comparable  periods  last year.  The  increase in electric  net
revenues is due primarily to the Ravenswood Facility.  As previously  mentioned,
the Company acquired its interest in the Ravenswood Facility in June 1999 and as
a result  revenues  attributable to that facility for the second quarter of 1999
were  minimal.  Purchased  fuel  expense  for the  operation  of the  Ravenswood
Facility was $72.8  million and $140.6  million for the quarter and period ended
June 30,  2000,  respectively.  The Company did not incur any fuel costs for the
Ravenswood  Facility for the corresponding  period last year. The prior owner of
the  Ravenswood  Facility,  Consolidated  Edison Company of New York ("Con Ed"),
owned and supplied the fuel  necessary to operate the  Ravenswood  Facility from
June 19, 1999 until the start of the NYISO on  November  18,  1999.  During this
time, all of the energy generated by the Ravenswood Facility was supplied to Con
Ed.



                                       22

<PAGE>



Net revenues from the Company's service  agreements with LIPA were $28.4 million
higher in the second quarter of 2000 compared to the second quarter of 1999, and
$39.0  million  higher for the six months  ended June 30,  2000  compared to the
comparable  period last year. The increase in comparative  revenues is primarily
the result of a major  construction  project  being  performed by the Company on
behalf of LIPA.  In June 2000,  the Company  completed  the  installation  of an
underground  transmission  line to reinforce the electric system capacity on the
southfork of Long Island.  The project was performed  under a fixed fee contract
with LIPA as part of the Management Services Agreement ("MSA").  The Company can
earn incentives from this project if its actual cost to install the transmission
line is less than the budgeted cost under the contract.

Further,  revenues  for both the  quarter  and six months  ended  June 30,  2000
include $10 million of off-system  sales from the Company's Long Island electric
generation units. Under the terms of Energy Management  Agreement  ("EMA"),  the
Company is entitled to one-third of the profit from any  off-system  electricity
sales arranged by the Company on LIPA's  behalf.  (For a description of the LIPA
service  agreements,  see the  Company's  Annual Report on Form 10K for the year
ended December 31, 1999.)

The Company  has  realized  significant  revenues  and profits  from the sale of
energy, capacity and ancillary services from the Ravenswood Facility and through
the  EMA.   (Ancillary   services  include   primarily   spinning  reserves  and
non-spinning  reserves.) Due to the significant  increase in the market-clearing
price for electricity and certain ancillary services, the NYISO and other market
participants have requested that FERC cap the sales prices for both energy sales
and the sale of ancillary  services.  See Note 6 to the  Consolidated  Financial
Statements, "New York State Independent System Operator ("NYISO") Matters" for a
further discussion of these matters.

OPERATING EXPENSES

Operating  expenses for the second quarter of 2000 increased by $93.4 million or
58%  compared  to the second  quarter of 1999.  Operating  expenses  for the six
months ended June 30, 2000,  increased by $148.6 million or 49%, compared to the
comparable  period in 1999. The increase in operating  expenses for both periods
in 2000 reflects primarily the operations of the Ravenswood Facility.  Operating
expenses  associated with the Ravenswood Facility increased by $59.8 million and
$90.7  million for the three and six months ended June 30,  2000,  respectively,
compared to the corresponding  periods of 1999.  Included in operating  expenses
for the  Ravenswood  Facility are charges of $32.2 million and $32.8 million for
the quarter and six months ended June 30, 2000, respectively for fuel management
services  provided by a Company  subsidiary  within the Energy Services segment.
There were no comparable  charges in 1999.  Operating  expenses  incurred by the
Company under the LIPA Service  Agreements  increased by $33.6 million and $57.9
million  for the  three  and six  months  ended  June  30,  2000,  respectively,
primarily  reflecting  costs  incurred to install the new electric  transmission
line discussed above.

EARNINGS
In addition to the  aforementioned,  earnings  available  for common  stock also
reflect  an  allocation  for  interest  expense,  state and  federal  income tax
provisions, and, for the three and six months ended June 30, 2000, a charge, net
of tax, of $2.2 million for the loss on the sale of certain assets.



                                       23

<PAGE>



OTHER ISSUES

The  Company  has  filed an  application  with  the  NYPSC to build a new 250 MW
cogeneration  facility at the  Ravenswood  Facility.  The  facility,  which will
generate  electricity and steam, is expected to be in service in 2003.  Further,
the Company  continues to evaluate the electric needs on Long Island and may, if
economic  circumstances and energy needs so warrant,  proceed with strategies to
add additional electric capacity on Long Island.


Gas Exploration and Production
------------------------------

The Gas Exploration and Production segment is engaged in gas and oil exploration
and production,  and the development and acquisition of domestic natural gas and
oil  properties.  This segment  consists of the Company's 70% equity interest in
THEC, as well as KeySpan  Exploration and Production  LLC, the Company's  wholly
owned subsidiary  engaged in a joint venture with THEC. On March 31, 2000, under
a pre-existing  credit  arrangement,  approximately  $80 million in debt owed by
THEC to the Company was converted into THEC common equity. Upon such conversion,
the Company's  common equity  ownership  interest in THEC  increased from 64% to
approximately 70%.

Selected  financial data and operating  statistics for the Gas  Exploration  and
Production  segment  are set  forth  in the  following  table  for  the  periods
indicated.
<TABLE>
<CAPTION>

                                                                                                           (IN THOUSANDS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
                                                Three Months           Three Months             Six Months             Six Months
                                                   Ended                  Ended                   Ended                   Ended
                                                June 30, 2000          June 30, 1999           June 30, 2000          June 30, 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                    <C>                    <C>                     <C>
Revenues                                   $      57,842   $             35,021  $              107,218  $              61,541
Depreciation and amortization                     22,246                 17,972                  43,249                 35,029
Other operating expenses                          10,423                  6,439                  22,440                 12,431
-----------------------------------------------------------------------------------------------------------------------------------
Operating Income                           $      25,173   $             10,610  $               41,529  $              14,081
-----------------------------------------------------------------------------------------------------------------------------------
Earnings for Common Stock                  $      10,465   $              3,326  $               15,963  $               3,804
-----------------------------------------------------------------------------------------------------------------------------------
Natural gas production (Mmcfe)                    19,151                 17,185                  39,068                 33,650
Natural gas (per Mcf) realized             $        2.98   $               2.03  $                 2.70  $                1.82
Natural gas (per Mcf) unhedged             $        3.37   $               2.03  $                 2.88  $                1.82
Proved reserves (BCFe)                               569                    480                     569                    480
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
       Operating  income above  represents 100% of the Company's gas exploration
       and production subsidiaries' results for the periods indicated. Earnings,
       however,  are adjusted to reflect the  Company's  minority  interest and,
       accordingly,  include 70% of THEC's  results for the quarter  ending June
       30, 2000 and 64% of THEC's  results  for all  periods  prior to March 31,
       2000.  Gas reserves and  production  are stated in BCFe and Mmcfe,  which
       includes equivalent oil reserves.









                                       24

<PAGE>



OPERATING INCOME

Operating  income increased by $14.6 million and $27.4 million for the three and
six months ended June 30, 2000,  respectively  compared to corresponding periods
in 1999.  The  increase  in  operating  income  for the  second  quarter of 2000
compared to the second quarter of 1999 reflects the benefits derived from an 11%
increase in production volumes, combined with a 47% increase in average realized
gas prices  (average  wellhead price received for production  plus hedging gains
and losses).  For the six months ended June 30, 2000,  operating income reflects
the benefits derived from a 16% increase in production volumes,  combined with a
48%  increase in average  realized  gas prices over  comparable  amounts for the
corresponding period in 1999. At June 30, 2000 the Company's gas exploration and
production  subsidiaries  had 569 BCFe of net proved reserves of natural gas, of
which approximately 75% are classified as proved developed.


Energy Services
---------------

The Company's Energy Services segment primarily  includes companies that provide
services  through four lines of business to clients  located within the New York
tri-state  metropolitan area and in Rhode Island. The lines of business include:
home  energy  services;   business   solutions;   commodity   procurement;   and
telecommunications services.

In February 2000, the Company acquired three  additional  companies that provide
energy-related services within these lines of business. In addition, the Company
is also involved,  through a joint venture, in providing energy-related services
to consumers  through the  MyHomeKey.com  website.  MyHomeKey is a personalized,
Internet-based  home management system that puts service providers at customers'
fingertips,  delivers  advice and one-stop  shopping for most home  products and
services.  MyHomeKey.com is currently under development and is anticipated to be
launched in the summer of 2000.

Selected  financial  data for the  Energy  Services  segment is set forth in the
following table for the periods indicated.
<TABLE>
<CAPTION>

                                                                                                           (IN THOUSANDS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
                                                     Three Months          Three Months           Six Months            Six Months
                                                        Ended                 Ended                  Ended                Ended
                                                     June 30, 2000        June 30, 1999          June 30, 2000         June 30, 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                   <C>                    <C>                    <C>
 Unaffiliated revenues                           $    138,021  $             36,235  $             264,640 $               77,069
 Intersegment revenues                                 32,158                     -                 32,774                      -
 Cost of goods sold                                   116,240                29,669                222,593                 64,047
------------------------------------------------------------------------------------------------------------------------------------
 Gross Profit Margin                                   53,939                 6,566                 74,821                 13,022
 Depreciation and amortization                          2,399                   653                  4,585                  1,370
 Other operating expenses                              17,828                 7,474                 37,931                 16,144
-----------------------------------------------------------------------------------------------------------------------------------
 Operating Income (Loss)                         $     33,712  $             (1,561) $              32,305 $               (4,492)
-----------------------------------------------  ------------  --------------------  --------------------- ------------------------
 Earnings (Loss) for Common Stock                $     17,155  $               (851) $              15,585 $               (2,500)
-----------------------------------------------  ------------  --------------------  --------------------- ------------------------
</TABLE>
The increase in results of  operations of the Energy  Services  segment for both
the three and six  months  ended June 30,  2000  compared  to the  corresponding
periods in 1999,  reflects  primarily fuel- management  services provided to the
Ravenswood  Facility.  For the three and six months ended June 30,  2000,  these
services provided this segment with earnings of $17.0 million and $17.4 million,
respectively.  A  subsidiary  within this segment  (KeySpan  Energy  Supply,  or
"KESp")  provides  the  Ravenswood  Facility  with energy  procurement  advisory
services and acts as an energy broker for the sale of electricity  and ancillary
services.  For these services,  KESp receives a management fee and shares in the
operating profit generated by the Ravenswood Facility on the sale of electricity
and ancillary  services.  There was no energy  procurement  and  fuel-management
advisory services agreement between KESp and the Ravenswood Facility in 1999.

This segment also realized  significantly  greater gross profit margins for both
the three and six months  ended June 30,  2000,  compared  to the  corresponding
periods last year,  for each of its other lines of business.  These gross margin
enhancements   resulted  from  recent   acquisitions   of  companies   providing
energy-related  services and through customer additions related to energy sales.
These  benefits to gross profit  margins,  however,  were offset by increases in
general and  administrative  expenses.  This  segment is expected to continue to
realize  earnings  from its  energy  procurement  and  fuel-management  advisory
services for the remainder of 2000 and the other business lines are projected to
be profitable in 2000.

<PAGE>
Energy Investments
------------------

Earnings  for this  segment  are  derived,  primarily,  from the  Company's  20%
interest  in the  Iroquois  Gas  Transmission  System LP  ("Iroquois");  its 50%
ownership interest in Gulf Midstream Services Partnership ("GMS"); its ownership
interest in certain oil  producing  properties in Alberta,  Canada;  and its 50%
interest in the Premier  Transmission  Pipeline and a 24.5%  interest in Phoenix
Natural Gas, both in Northern Ireland.

Earnings  for this  segment  decreased  slightly  in the second  quarter of 2000
compared  to  the  corresponding  quarter  last  year,  due  to a  write-off  of
approximately  $1 million,  after-tax,  of certain projects that the Company has
decided were no longer feasible. Earnings for the six months ended June 30, 2000
increased  by $2.1  million  over the  comparable  period  last year  reflecting
earnings growth from the Company's Canadian  investments.  Results of operations
from Canadian gas and oil operations were enhanced through the  acquisition,  in
the fourth quarter 1999, of the Paddle River Gas Plant and certain oil producing
properties  in  Alberta,  Canada,  and  more  efficient  operations  of GMS.  In
addition,  Iroquois realized higher transportation sales quantities and revenues
from its  interruptible  customers  during  this period  compared  with the same
period last year. Earnings from the Company's investments in Northern Ireland in
2000 are  essentially  the same as earnings for last year. The  subsidiaries  in
this  segment are  primarily  accounted  for under the equity  method  since the
Company's  ownership interests are 50% or less.  Accordingly,  income from these
investments  is  reflected,  primarily in other income and  (deductions)  in the
Consolidated Statement of Income.

<PAGE>
Other
-----

The Other  segment  incurred  losses of $13.2  million and $26.7 million for the
three and six months  ended June 30,  2000,  respectively  compared to losses of
$7.0  million and $9.1 million for the three and six months ended June 30, 1999,
respectively.  Results for the Other segment  generally  reflect preferred stock
dividends and charges incurred by the corporate and administrative  areas of the
Company that have not been allocated to the various business  segments,  offset,
in part,  by interest  income  earned on temporary  cash  investments.  Interest
income  has  decreased  as  the  Company   utilized  cash  to  finance   certain
acquisitions and repurchase shares of its common stock. Further,  during the six
months  ended  June  30,  2000,  the  Company  recorded  charges  of $9  million
associated with certain  outstanding  regulatory  issues,  compared to a similar
charge of $6 million in three and six months ended June 30, 1999. Moreover,  the
Company recorded an after-tax charge of $3.6 million in June 2000 to write-off a
computer  system that will not be utilized as a result of the  proposed  Eastern
acquisition.


LIQUIDITY, CAPITAL EXPENDITURES AND FINANCING

LIQUIDITY
Cash flow  provided by operating  activities  for the three and six months ended
June 30,  2000  reflects  stable  growth  from the  Company's  gas  distribution
operations,  as well as positive contributions from the Ravenswood Facility. The
decrease in cash flow  provided by operating  activities  for both periods ended
June 30, 2000 compared to the corresponding periods last year, however, reflects
a decrease in interest income,  negative  operating cash flow from the Company's
Energy Services  segment,  and an increase in the cost of gas in storage,  which
will be recovered  from  customers  in later  periods.  Further,  cash flow from
operations in 1999  reflects the cash  utilization  of a $57.4  million  federal
income tax net  operating  loss on income tax payments for 1999,  as  previously
discussed.

At June 30, 2000, the Company had cash and temporary  cash  investments of $92.1
million. In addition, the Company has a $700 million revolving credit agreement,
with a one-year term and one- year renewal option,  with a commercial bank. This
credit facility is used to support the Company's $700 million  commercial  paper
program.  During the six months  ended June 30,  2000,  the  Company  repaid its
$208.3 million  commercial  paper balance  outstanding at December 31, 1999, and
during the quarter ended June 30, 2000 issued $319.0 million of commercial paper
and repaid  $56.5  million.  Commercial  paper was issued  during the six months
ended June 30, 2000 to support  ongoing  working capital needs and the mandatory
redemption of the Company's  preferred  stock 7.95% Series AA. At June 30, 2000,
$262.5 million of commercial  paper remained  outstanding at a weighted  average
annualized interest rate of 6.91%. The Company had available borrowing of $437.5
million at June 30, 2000.

THEC has an  unsecured  available  line of credit  with a  commercial  bank that
provides  for  a  maximum  commitment  of  $250  million,   subject  to  certain
conditions.  During the three  months  ended June 30,  2000,  THEC  borrowed  an
additional $14.0 million under its credit facility and then repaid $16.0 million
of outstanding borrowings; at June 30, 2000, $177.0 million remained outstanding
at a weighted average annualized  interest rate of 7.71%. At June 30, 2000, THEC
had available  borrowing of $32.6  million.  Also, a subsidiary  included in the
Energy Investments



                                       26

<PAGE>



segment has a revolving loan  agreement with a financial  institution in Canada.
Borrowings under this agreement during the three months ended June 30, 2000 were
$5.2 million U.S. and, at June 30, 2000,  $120.0 million U.S. was outstanding at
a weighted  average  annualized  interest rate of 6.51%.  At June 30, 2000,  the
Energy Investments segment had available borrowing of $15.5 million U.S.

The Company  satisfies  its  seasonal  working  capital  requirements  primarily
through  internally  generated  funds and the issuance of commercial  paper.  In
addition,  beginning in the third quarter of 2000, the Company  intends to issue
shares of its common  stock out of treasury to satisfy the  requirements  of its
common  stock  plans.  The  Company  believes  that its  sources  of  funds  are
sufficient to meet its seasonal working capital needs.


CAPITAL EXPENDITURES

Construction Expenditures
The table below sets forth the Company's  construction  expenditures  by segment
for the periods indicated:
<TABLE>
<CAPTION>
                                                                                                           (IN THOUSANDS OF DOLLARS)
-----------------------------------------------------------------------------------------------------------------------------------
                                               Three Months              Three Months              Six Months            Six Months
                                                  Ended                     Ended                    Ended                 Ended
                                              June 30, 2000             June 30, 1999            June 30, 2000         June 30, 1999
---------------------------------------- ------------------------  ------------------------  ----------------------  ---------------
<S>                                              <C>                       <C>                     <C>                     <C>
Gas Distribution                         $         53,474  $                 47,924  $               92,636  $               82,514
Electric Services                                  13,411                   206,854                  23,646                 213,243
Gas Exploration and Production                     40,576                    32,377                  94,530                  67,776
Energy  Services                                    5,199                       586                   8,332                     747
Energy Investments and Other                       12,917                       612                  18,007                  10,404
-----------------------------------------------------------------------------------------------------------------------------------
                                         $        125,577  $                288,353  $              237,151  $              374,684
---------------------------------------- ------------------------  ------------------------  ----------------------  ---------------
</TABLE>
Construction  expenditures  related to Gas  Distribution  were primarily for the
renewal and  replacement  of mains and services and for the expansion of the gas
distribution system on Long Island. Electric Service's construction expenditures
reflect primarily costs to maintain the Company's electric generating facilities
and, for 1999, reflect the acquisition of the Ravenswood Facility.  Construction
expenditures  related to Gas Exploration and Production  reflect, in part, costs
related to the development of properties  acquired in Southern  Louisiana and in
the Gulf of Mexico in 1999 and costs  related to the  continued  development  of
other properties  previously  acquired.  Expenditures also include the Company's
joint venture with THEC to explore for natural gas and oil.  Energy  Investments
and Other construction expenditures reflect, primarily costs related to Canadian
affiliates.

Equity Investments

During the first quarter of 2000,  the Energy  Services  segment  acquired three
additional  companies located in the New York tri-state  metropolitan  area. The
newly acquired companies included,  an  engineering-consulting  firm, a plumbing
and  mechanical   contracting  firm,  and  a  firm  specializing  in  mechanical
contracting and heating, ventilation and air conditioning contracting. Combined,



                                       27

<PAGE>



these  companies  have over 900  employees  and revenues of  approximately  $170
million. There were no additional acquisitions made during the second quarter of
2000.

In addition,  in March 2000, the Company and TXU Energy  Services formed a joint
venture with  MyHomeKey.com,  Inc. The Company and TXU Energy Services have each
invested $12.5 million in the project;  Bechtel Enterprises has also invested $5
million. TXU Energy Services is a unit of TXU - an investor-owned energy service
company and Bechtel Enterprises is an affiliate of Bechtel.


FINANCING

In June 2000, the Company redeemed, at maturity, preferred stock 7.95% Series AA
through the utilization of internally  generated funds and the proceeds from the
issuance  of  commercial  paper.  The  Company's  obligation  of $370.2  million
included the mandatory redemption price of $25 per share totaling $363.0 million
and a dividend payable totaling $7.2 million. The Company anticipates issuing up
to $400 million in preferred stock during 2001 to replace outstanding commercial
paper.

KeySpan  Energy  Delivery  Long  Island  has  an  effective  shelf  registration
statement  on file with the SEC for the issuance of up to $600 million of Medium
Term Notes. On February 1, 2000, KeySpan Energy Delivery Long Island issued $400
million  7.875% Notes due February 1, 2010.  The net proceeds from this issuance
were used to repay the Company for its costs in  extinguishing  $397  million of
promissory  notes to LIPA that matured in June 1999.  The notes issued are fully
and unconditionally guaranteed by the Company. At June 30, 2000, $200 million of
Medium Term Notes remain  available  for issuance  under the shelf  registration
statement.

As  previously  indicated,  on November  4, 1999,  the  Company  entered  into a
definitive  agreement  with Eastern,  pursuant to which the Company will acquire
all of the outstanding common stock of Eastern.  In connection with this merger,
Eastern has amended its merger  agreement with EnergyNorth to provide for an all
cash  acquisition  by Eastern of  EnergyNorth  common  stock.  The  restructured
EnergyNorth   merger   is   expected   to  close   contemporaneously   with  the
KeySpan/Eastern   transaction.   (See  Note  5  to  the  Consolidated  Financial
Statements "Acquisition of Eastern Enterprises".)

The Company  intends to access the  financial  markets in the fourth  quarter of
2000 to  finance  approximately  $2  billion  for the  Eastern  and  EnergyNorth
transactions.  The  Company  intends  to use  bridge  financing  to  fund  these
transactions  initially and then replace the bridge financing with $1.65 billion
of long-term debt  securities as soon as practicable  thereafter.  The remaining
balance will be financed  through the issuance of commercial  paper. The Company
anticipates  issuing several  different  maturities of long-term debt to balance
its future capital maturity structure.

In  connection   with  the  Company's   anticipated   Eastern  and   EnergyNorth
transactions,  and the anticipated  issuance of long-term debt  securities,  the
Company  has entered  into  forward  interest  rate lock  agreements  to hedge a
portion of the risk that the cost of the future  issuance of fixed-rate debt may
be adversely  affected by changes in interest rates. The agreements have a total
notional



                                       28

<PAGE>



principal  amount of $1.25 billion.  (See Note 4 to the  Consolidated  Financial
Statements, "Liquidity and Financings" for additional details.)

In addition to the  Company's  strategies  associated  with its financing of the
Eastern and EnergyNorth  transactions and its intention to issue preferred stock
during 2001, the Company also intends to increase its current  commercial  paper
facility to $1.4  billion in the last quarter of 2000.  The Company  anticipates
that it may issue  approximately  $600 million in  commercial  paper in the last
quarter  of 2000 to finance a portion of the  Eastern  acquisition  and meet the
combined seasonal working capital needs of KeySpan, Eastern and EnergyNorth. The
Company believes that its sources of funding,  i.e.  anticipated  long-term debt
and preferred stock issuances and commercial paper borrowings will be sufficient
to meet its anticipated cash needs.

GAS DISTRIBUTION - RATE MATTERS

By  orders  dated  February  5, 1998 and April  14,  1998 the NYPSC  approved  a
Stipulation  and Agreement  ("Stipulation")  among KeySpan  Energy  Delivery New
York,  LILCO,  the  Staff of the  NYPSC  and six  other  parties  that in effect
approved the merger of KeySpan Energy  Corporation and LILCO and established gas
rates for the Company's two gas distribution  subsidiaries that are currently in
effect.  (For more information on these agreements refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.)

ENVIRONMENTAL MATTERS

The Company is subject to various  federal,  state and local laws and regulatory
programs  related  to  the   environment.   Ongoing   environmental   compliance
activities,  which  have  not  been  material,  are  charged  to  operation  and
maintenance activities. The Company estimates that the remaining minimum cost of
its  MGP-related  environmental  cleanup  activities,  including  costs  of $5.0
million  associated with the Ravenswood  Facility,  will be  approximately  $125
million and has recorded a related  liability  for such amount.  Further,  as of
June 30, 2000,  the Company has expended a total of  approximately  $19 million.
(See Note 3 to the Consolidated Financial Statements "Environmental Matters".)

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 10-Q concerning expectations, beliefs,
plans,  objectives,   goals,  strategies,   future  events  or  performance  and
underlying  assumptions and other  statements which are other than statements of
historical facts, are "forward-looking statements" within the meaning of Section
21E of the  Securities  Exchange Act of 1934, as amended.  Without  limiting the
foregoing, all statements relating to the Company's future outlook,  anticipated
capital  expenditures,  future cash flows and  borrowings,  pursuit of potential
future  acquisition  opportunities  and sources of funding  are  forward-looking
statements.  Such  forward-looking  statements reflect numerous  assumptions and
involve  a number of risks and  uncertainties  and  actual  results  may  differ
materially from those discussed in such statements. Among the factors that could
cause actual results to differ  materially  are:  available  sources and cost of
fuel;  federal  and state  regulatory  initiatives  that  increase  competition,
threaten cost and investment recovery,  and impact rate structures;  the ability
of the



                                       29

<PAGE>



Company to successfully reduce its cost structure; the successful integration of
the Company's  subsidiaries,  including the Eastern Transaction  companies;  the
degree to which the Company develops unregulated business ventures;  the ability
of the Company to identify and make complementary  acquisitions,  as well as the
successful  integration of such acquisitions;  inflationary  trends and interest
rates;  and other risks  detailed  from time to time in other  reports and other
documents  filed by the Company with the SEC. For any of these  statements,  the
Company claims the protection of the safe harbor for forward-looking information
contained in the Private Securities Litigation Reform Act of 1995, as amended.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK

The  Company and its  subsidiaries  are subject to various  risk  exposures  and
uncertainties associated with their operations. The most significant contingency
involves  the  evolution  of  the  gas  distribution   industry  toward  a  more
competitive and deregulated  environment.  Most important to the Company, is the
evolution of  regulatory  policy as it pertains to the  Company's  fixed charges
associated  with its firm gas purchase  contracts  related to its historical gas
merchant  role.  In addition,  the Company is exposed to  commodity  price risk,
interest  rate risk and, to a much less  degree,  foreign  currency  translation
risk.  The Company's  exposure to the  aforementioned  market risks has remained
substantially  unchanged  from  December  31, 1999.  However,  during the second
quarter of 2000, the Company has entered into a number of additional  derivative
financial instruments to limit its exposure to interest rate fluctuations and to
lock-in the sales price on a portion of its estimated summer electric sales.

As previously  mentioned,  in anticipation of the Company's  purchase of Eastern
and the anticipated  issuance of long-term debt securities,  the Company entered
into additional  forward interest rate lock agreements  during the quarter ended
June 30, 2000 to hedge a larger  portion of the risk that the cost of the future
issuance of  fixed-rate  debt may be  adversely  affected by changes in interest
rates. The Company may, from time to time,  enter into additional  interest rate
lock  agreements to hedge this risk exposure,  if market  conditions so warrant.
The Company can not predict the timing or notional  amount of  potential  future
interest  rate  lock  agreements.  (See  Note  7 to the  Consolidated  Financial
Statements, "Derivative Financial Instruments" for a further discussion of these
agreements.)

Also during the quarter,  the Company  entered into a number of derivative  swap
instruments  to lock- in the selling price on a portion of its estimated  summer
electric sales.  These  derivatives have been accounted for as cash-flow hedges.
For the months of June through August, the Company has hedged the sales price on
approximately  30% of its estimated  summer peak electric sales or approximately
10% of its estimated  yearly  electric  sales.  (See Note 7 to the  Consolidated
Financial  Statements,   "Derivative   Financial   Instruments"  for  a  further
explanation of these instruments.)









                                       30

<PAGE>

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A meeting of the  shareholders  of the Company was held at the Tilles Center for
the Performing  Arts,  C.W. Post Campus,  Long Island  University,  720 Northern
Boulevard,  Greenvale, New York, on the 11th day of May, 2000 at 10:00 a.m., for
the election of directors and  ratification of independent  public  accountants,
and for the  transaction  of such other business as may properly come before the
meeting.

At the close of business  on March 13,  2000,  the record  date for  determining
shareholders entitled to vote at the meeting, there were outstanding 133,876,426
shares of common stock of the  Company,  of which each share was entitled to one
vote.  There were present at the  meeting,  either in person or  represented  by
valid and effective  proxies,  the holders of 117,282,142 shares of common stock
of the Company entitled to vote thereat, constituting a quorum.

Election of Directors
---------------------

The names of the  persons  who  received  a  plurality  of the votes cast by the
holders of shares  entitled to vote thereon,  and who were  accordingly  elected
Directors of the Company for one year or until their successors are duly elected
or chosen and qualified are as follows:


                              VOTES               VOTES                TOTAL
     DIRECTOR                  FOR               WITHHELD              VOTES
Lilyan H. Affinito         115,263,906          2,018,236           117,282,142
George Bugliarello         115,259,308          2,022,834           117,282,142
Robert B. Catell           115,418,359          1,863,783           117,282,142
Howard R. Curd             115,478,648          1,803,494           117,282,142
Richard N. Daniel          115,402,006          1,880,136           117,282,142
Donald H. Elliott          115,362,709          1,919,433           117,282,142
Alan H. Fishman            115,499,015          1,783,127           117,282,142
James R. Jones             115,420,271          1,861,871           117,282,142
Stephen W. McKessy         115,465,643          1,816,499           117,282,142
Edward D. Miller           115,462,631          1,819,511           117,282,142
Basil A. Paterson          115,091,594          2,190,548           117,282,142
James Q. Riordan           115,314,836          1,967,306           117,282,142
Vincent Tese               115,391,292          1,890,850           117,282,142



                                       31

<PAGE>




Ratification  of Arthur Andersen LLP as Independent  Public  Accountants for the
--------------------------------------------------------------------------------
Fiscal Year Ending December 31, 2000
------------------------------------

Arthur  Andersen  LLP  received a majority  of the votes cast by the  holders of
shares entitled to vote thereon, and was accordingly ratified Independent Public
Accounts of the Company for the fiscal year ending December 31, 2000.


              ARTHUR ANDERSEN LLP                        VOTES CAST
                              FOR                       115,658,161
                          AGAINST                           724,050
                          ABSTAIN                           899,931
                            TOTAL                       117,282,142


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)        Exhibits

           Exhibit I - Unaudited Proforma Consolidated Condensed
                          Financial Statements

(27)*      Financial Data Schedule on Schedule U-T for the quarter
           ended June 30, 2000.

(b)                  Reports on Form 8-K

                      NONE







-------------------------
*Filed Herewith



<PAGE>


                                                                       Exhibit I

         UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
           KEYSPAN ENERGY / EASTERN ENTERPRISES / ENERGYNORTH MERGERS

The unaudited pro forma consolidated condensed balance sheet as of June 30, 2000
and the unaudited pro forma consolidated condensed income statements for the six
months  ended June 30, 2000 and the year ended  December  31,  1999  combine the
historical  information of KeySpan  Corporation  d/b/a KeySpan Energy  ("KeySpan
Energy"),  Eastern Enterprises ("Eastern") and EnergyNorth Inc. ("EnergyNorth").
The unaudited pro forma consolidated  condensed  financial  statements have been
prepared to reflect the mergers under the purchase method of accounting (KeySpan
Energy will  acquire  Eastern and  EnergyNorth).  Under the  purchase  method of
accounting,  assets  acquired  and  liabilities  assumed  are  recorded at their
estimated fair values.  The excess of the purchase  price,  including  estimated
fees and expenses directly related to the merger, in excess of the fair value of
the net assets acquired is classified as goodwill on the accompanying  unaudited
pro forma  consolidated  condensed  balance sheet. The estimated fair values and
useful  lives of assets  acquired  and  liabilities  assumed  and any  resulting
goodwill,  are  subject  to  final  valuation  adjustments  in  accordance  with
generally accepted accounting principles.

The pro forma  adjustments  reflected in the  unaudited  pro forma  consolidated
condensed  balance  sheet are as if the  transactions  had  occurred on June 30,
2000. The unaudited pro forma  consolidated  condensed  income statement for the
six months ended June 30, 2000 assumes that these transactions were completed on
January 1, 2000. The unaudited pro forma consolidated condensed income statement
for the year ended  December  31,  1999  assumes  that these  transactions  were
completed on January 1, 1999.  The  unaudited pro forma  consolidated  condensed
financial  statements  assume  that  KeySpan  Energy  will  purchase  all of the
outstanding  common stock of Eastern for $64.00 in cash and will purchase all of
the  outstanding  common stock of  EnergyNorth  for $61.13 in cash. The proposed
transactions  are expected to close  contemporaneously  in the fourth quarter of
calendar year 2000.

On August 31,  1999,  Eastern  completed  a merger  with  Colonial  Gas  Company
("Colonial")  which was accounted for using the purchase  method of  accounting;
Eastern  was  the  acquiring  company  for  financial  reporting  purposes.  The
unaudited pro forma  consolidated  condensed income statement for the year ended
December 31, 1999, therefore, reflects the results of operations of Colonial for
the four month period September 1, 1999 through December 31, 1999.

The  unaudited  pro forma  consolidated  condensed  financial  statements do not
reflect the  anticipated  cost savings that may be obtained from the elimination
of  duplicate  corporate  and  administrative  programs in  connection  with the
mergers or  operating  efficiencies  that may  result.  KeySpan  has  identified
before-tax synergy savings to be approximately $40 million annually.



<PAGE>




The following unaudited pro forma consolidated  condensed  financial  statements
should  be  read in  conjunction  with  the  historical  consolidated  financial
statements and related notes thereto of KeySpan Energy, Eastern and EnergyNorth.
The  following  statements  are  not  necessarily  indicative  of the  financial
position  or  operating  results  that  would  have  occurred  had the  proposed
transactions  been  consummated  on the date, or at the beginning of the period,
for  which  the  proposed  transactions  are  being  given  effect  nor are they
necessarily indicative of future operating results or financial position.





<PAGE>
<TABLE>
                                                                           KeySpan Energy
                                                      Unaudited Pro Forma Consolidated Condensed Balance Sheet
                                                                            June 30, 2000
                                                                      (In Thousands of Dollars)
<CAPTION>
                                                                 Trans-                                    Trans-
                                                                 action                                    action
                                     KeySpan       Eastern       Adjust-                        Energy-    Adjust-
                                     Energy      Enterprises     ments         Pro Forma        North      ments        Pro Forma
                                  ------------ --------------- ------------- ---------------- ----------- ------------ -------------
<S>                              <C>              <C>        <C>               <C>             <C>          <C>        <C>
ASSETS
------
Current Assets
Cash and temporary cash
  investments                         92,127        30,898                        123,025           726                   123,751
Customer accounts receivable,
  net                                861,441       112,786                        974,227        15,886                   990,113
Other                                365,860       124,431                        490,291        11,663                   501,954
                                ------------ -------------  ------------     ------------  ------------  ---------    -----------
                                   1,319,428       268,115             -        1,587,543        28,275          -      1,615,818
                                ------------ -------------  ------------     ------------  ------------  ---------    -----------

Equity Investments and Others        428,828        14,064             -          442,892             -          -        442,892
                                ------------ -------------  ------------     ------------  ------------  ---------    -----------
Property
Electric                           1,367,512             -                      1,367,512             -                 1,367,512
Gas                                3,522,284     1,523,747                      5,046,031       177,753                 5,223,784
Other                                387,523       691,209                      1,078,732         8,349                 1,087,081
Accumulated depreciation          (1,655,540)     (936,958)                    (2,592,498)      (59,481)               (2,651,979)
Gas exploration and production     1,278,786             -                      1,278,786             -                 1,278,786
Accumulated depletion               (561,966)            -                       (561,966)            -                  (561,966)
                                ------------ -------------  ------------     ------------  ------------  ---------    -----------
                                   4,338,599     1,277,998             -        5,616,597       126,621          -      5,743,218
                                ------------ -------------  ------------     ------------  ------------  ---------    -----------
Deferred Charges
Goodwill, net of amortization        328,510       243,960     1,067,348 (1)    1,639,818             -    166,546 (7)  1,806,364
Regulatory assets and other          704,787       141,194                        845,981        16,168                   862,149
                                ------------ ------------   ------------     ------------  ------------  ---------    -----------
                                   1,033,297       385,154     1,067,348        2,485,799        16,168    166,546      2,668,513
                                ------------ -------------  ------------     ------------  ------------  ---------    -----------
Total Assets                       7,120,152     1,945,331     1,067,348       10,132,831       171,064    166,546     10,470,441
                                ============ =============  ============     ============  ============  =========    ===========

LIABILITIES AND
CAPITALIZATION
--------------
Current Liabilities
Current maturities of long-term
  debt                                   -        6,746                           6,746          849                        7,595
Accounts payable and accrued
  expenses                         884,919      156,782                       1,041,701       25,463                    1,067,164
Commercial paper                   262,481       73,707        261,659  (1)     680,556       14,130     30,562  (7)      740,218
                                                                 8,100  (2)                               2,100  (8)
                                                                74,609  (3)                              12,870  (9)
                                ---------- ------------    -------------     ----------    -----------   ----------     ------------
                                 1,147,400      237,235        344,368       1,729,003        40,442     45,532         1,814,977
                                ---------- ------------    -------------     ----------    -----------   ----------     ------------

Deferred Credits and Other
Liabilities
Deferred income taxes              223,551      179,591                        403,142       21,126                       424,268
Reserves and other liabilities     666,897      199,491                        866,388        5,738                       872,126
                                ---------- ------------    -------------     ----------    -----------   ----------     ------------
                                   890,448      379,082              -       1,269,530       26,864           -         1,296,394
                                ---------- ------------    -------------     ----------    -----------   ----------     ------------

Gas Inventory Financing                  -       33,567              -          33,567        4,413           -            37,980
                                ---------- ------------    ------------     ----------    -----------    ----------     ------------
Capitalization
Common stock                     2,985,936      273,555       (273,555) (1)  3,002,324       35,966     (35,966) (7)   3,004,842
                                                                16,388  (3)                               2,518  (9)
Retained earnings                  528,082      497,942       (497,942) (1)    528,082       18,105     (18,105) (7)     528,082
Accumulated comprehensive
  income                            (1,716)         (73)            73  (1)     (1,716)           -                        (1,716)
Treasury stock purchased          (722,080)        (583)           583  (1)   (722,080)           -                      (722,080)
                                ---------- ------------    -------------     ----------    -----------   ----------     ------------
Total common shareholders
  equity                         2,790,222      770,841       (754,453)      2,806,610       54,071     (51,553)       2,809,128
Preferred stock                     84,339       21,438                        105,777            -                      105,777
Long-term debt                   2,112,377      503,168      1,477,433  (1)  4,092,978       45,274     172,567  (7)   4,310,819
                                ---------- ------------    -------------     ----------    -----------  ----------     ------------
Total Capitalization             4,986,938    1,295,447        722,980       7,005,365       99,345     121,014        7,225,724
                                ---------- ------------    -------------     ----------    -----------  ----------     ------------
Minority Interest                   95,366            -              -          95,366            -           -           95,366
                                ---------- ------------    -------------     ----------    -----------  ----------     ------------
Total Liabilities and
  Capitalization                 7,120,152    1,945,331      1,067,348      10,132,831      171,064     166,546       10,470,441
                                ========== ============    =============     ==========    ===========  ==========     ============
</TABLE>
<PAGE>

<TABLE>

                                                                           KeySpan Energy
                                                     Unaudited Pro Forma Consolidated Condensed Income Statement
                                                                   Six Months Ended June 30, 2000
                                                                      (In Thousands of Dollars)
<CAPTION>


                                                              Trans-                                       Trans-
                                              Eastern         action                                       action
                                              Enter-         Adjust-          Pro           Energy-        Adjust-
                                  KeySpan     prises          ments          Forma           North          ments         Pro Forma
                          ---------------  -------------  --------------    ------------  ------------  -------------    ----------
<S>                           <C>               <C>          <C>           <C>            <C>            <C>             <C>
Revenues
Gas Distribution                1,166,243        483,658                    1,649,901      91,401                         1,741,302
Marine Services                         -        141,675                      141,675             -                         141,675
Electric Services                 723,099              -                      723,099             -                         723,099
Gas Exploration and
  Production                      107,218              -                      107,218             -                         107,218
Energy Related Services
  and Other                       267,641         13,150                      280,791             -                         280,791
                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------
Total Revenues                  2,264,201        638,483            -       2,902,684        91,401              -        2,994,085
                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------

Operating Expenses
Purchased gas                     609,125        236,154                      845,279        59,531                         904,810
Purchased fuel                    140,649              -                      140,649             -                         140,649
Operations and
  maintenance                     734,465        236,148                      970,613        14,955                         985,568
Depreciation, depletion
  and amortization                143,391         54,809       13,342  (5)    211,542         4,462          2,082  (11)    218,086
Operating taxes                   206,541         25,725                      232,266         2,022                         234,288
                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------
Total Operating                 1,834,171        552,836       13,342       2,400,349        80,970          2,082        2,483,401
Expenses
                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------

Operating Income                  430,030         85,647     (13,342)         502,335        10,431        (2,082)          510,684
                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------

Other Income and
(Deductions)
Income from equity
  investments                      11,928              -                       11,928             -                          11,928
Interest income                     6,881          2,423                        9,304             -                           9,304
Minority interest                 (7,795)              -                      (7,795)             -                         (7,795)
Other                               (112)          2,256                        2,144            54                           2,198
                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------
Total Other Income                 10,902          4,679            -          15,581            54              -           15,635
                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------

Income Before Interest
Charges and Income
  Taxes                           440,932         90,326     (13,342)         517,916        10,485        (2,082)          526,319

Interest Charges                   77,325         23,930       71,150  (4)    172,405         2,561         8,496   (10)    183,462
Income Taxes                      137,997         28,061     (24,903)  (6)    141,155         3,771        (2,974)  (12)    141,952

                          ---------------  -------------  -----------      ----------  ------------  -------------      -----------
Net Income                        225,610         38,335     (59,589)         204,356         4,153        (7,604)          200,905

Preferred stock dividend
  requirements                     14,977            757            -          15,734             -              -           15,734
                          ---------------  -------------  -----------      ----------  -----------   -------------     ------------
Earnings for Common
  Stock                           210,633         37,578     (59,589)         188,622         4,153        (7,604)          185,171
                          ===============  =============  ===========      ==========  ============  =============      ===========

Average shares
  outstanding (000)               133,881                                     133,881                                       133,881

Basic and Diluted
  Earnings Per Common
  Share                              1.57                                        1.41                                          1.38
                          ===============                                     ============                               ===========
</TABLE>





<PAGE>

<TABLE>
                                                                           KeySpan Energy
                                                     Unaudited Pro Forma Consolidated Condensed Income Statement
                                                                    Year Ended December 31, 1999
                                                                      (In Thousands of Dollars)
<CAPTION>


                                                           Trans-                                         Trans-
                                             Eastern       action                                         action
                                             Enter-        Adjust-              Pro           Energy-     Adjust-
                                  KeySpan    prises         ments              Forma           North      ments            Pro Forma
                              ----------- -------------  -------------      -------------  ------------ ------------      ----------
<S>                           <C>              <C>          <C>               <C>          <C>             <C>            <C>
Revenues
Gas Distribution                1,753,132       690,809                         2,443,941    124,863                       2,568,804
Marine Services                         -       267,269                           267,269          -                         267,269
Electric Services                 861,582             -                           861,582          -                         861,582
Gas Exploration and
  Production                      150,581             -                           150,581          -                         150,581
Energy Related Services
  and Other                       189,318        20,624                           209,942          -                         209,942
                              ----------- -------------  -------------      -------------  ---------  -------------        ---------
Total Revenues                  2,954,613       978,702              -          3,933,315    124,863              -        4,058,178
                              ----------- -------------  -------------      -------------  ---------  -------------        ---------

Operating Expenses
Purchased gas                     744,432       339,274                         1,083,706     73,961                       1,157,667
Purchased fuel                     17,252             -                            17,252          -                          17,252
Operations and
  maintenance                   1,091,166       403,465                         1,494,631     27,086                       1,521,717
Depreciation, depletion and
  amortization                    253,440        81,373         26,684  (5)       361,497      7,845          4,164   (11)   373,506
Operating taxes                   366,154        41,151                           407,305      3,812                         411,117
                              ----------- -------------  -------------      -------------  ---------  -------------        ---------
Total Operating Expenses        2,472,444       865,263         26,684          3,364,391    112,704          4,164        3,481,259
                              ----------- -------------  -------------      -------------  ---------  -------------        ---------

Operating Income                  482,169       113,439       (26,684)            568,924     12,159        (4,164)          576,919
                              ----------- -------------  -------------      -------------  ---------  -------------        ---------

Other Income and
(Deductions)
Income from equity
  investments                      15,347             -                            15,347          -                          15,347
Interest income                    26,993         7,964                            34,957          -                          34,957
Minority interest                (11,141)             -                          (11,141)          -                        (11,141)
Other                               6,297         8,980                            15,277        525                          15,802
                              ----------- -------------  -------------      -------------  ---------  -------------        ---------
Total Other Income                 37,496        16,944              -             54,440        525              -           54,965
                              ----------- -------------  -------------      -------------  ---------  -------------        ---------

Income Before Interest
Charges and Income
  Taxes                           519,665       130,383       (26,684)            623,364     12,684        (4,164)          631,884

Interest Charges                  124,692        37,274        142,300  (4)       304,266      4,915         16,993   (10)   326,174
Income Taxes                      136,362        36,154       (49,805)  (6)       122,711      3,740        (5,947)   (12)   120,504

                              ----------- -------------  -------------      -------------  ---------  -------------        ---------
NET INCOME                        258,611        56,955      (119,179)            196,387      4,029       (15,210)          185,206

Preferred stock dividend
  requirements                     34,752         1,862              -             36,614          -              -           36,614
                              ----------- ------------   ------------       -------------  --------   ------------         ---------
Earnings for Common
  Stock                           223,859        55,093      (119,179)            159,773      4,029       (15,210)          148,592
                              =========== =============  =============      =============  =========  =============        =========

Average shares
  outstanding (000)               138,526                                         138,526                                    138,526

Basic and Diluted Earnings
  Per Common Share                   1.62                                            1.15                                       1.07
                              ===========                                   ===============                                =========
</TABLE>

<PAGE>



                        NOTES TO THE UNAUDITED PRO FORMA
                   CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


Note 1.  Cash Consideration and Estimated Goodwill Related to the
         Eastern Enterprises Merger

Cash  consideration  to be paid to  Eastern  shareholders  will be paid from the
proceeds of long-term debt and commercial paper  issuances.  KeySpan Energy will
issue  approximately  $1.477  billion of long-term  debt at an estimated  annual
interest rate of 8.0% and  approximately  $262 million of commercial paper at an
estimated  annual  interest rate of 7.0% to finance the merger.  KeySpan  Energy
will  acquire  all of the  outstanding  common  stock of Eastern  for $64.00 per
share, subject to adjustment. The cash consideration of $64.00 per share will be
increased  by $0.006 per share for each day after August 6, 2000 through the day
prior to the closing date. This aggregate  additional  amount will be reduced by
the  aggregate  amount of any per share  increase in any dividend  actually paid
that is attributable to any period in which the additional amount accrues.

The  estimated  goodwill  reflects the  recognition  of the excess amount of the
purchase  price over the fair value of the net assets to be  acquired  including
costs  to be  incurred  directly  related  to the  consummation.  The  following
represents the estimated goodwill calculation:


Common shares outstanding
       at June 30, 2000                                        27,173,322
Share price                                             $             64.00
                                                        -------------------
Purchase price                                          $   1,739,092,608
Common equity of Eastern                                      (770,841,000)
                                                        -------------------
                                                        $      968,251,608

Estimated transaction costs (See Note 2)                         8,100,000

Estimated restructuring and other
        costs (See Note 3)                                      90,996,000
                        -                               -------------------
Estimated Goodwill                                      $    1,067,347,608
                                                        ===================
Amortization period                                                     40
Estimated yearly amortization                           $       26,683,690
                                                        ===================
Estimated six months amortization                       $       13,341,845
                                                        ===================


A final  determination  of goodwill  may  reflect  certain  purchase  accounting
adjustments  based on actuarial  valuations  related to employee  benefit plans,
estimates with respect to the effect of consolidation  of certain  corporate and
administrative functions, completion of studies related to



<PAGE>



environmental issues,  possible contract and asset impairment charges,  possible
asset sales, and other adjustments.



Note 2. Estimated  Transaction  Costs  Associated  with the Eastern  Enterprises
Merger

KeySpan  Energy will incur  direct  expenses  related to the  merger,  including
accounting,  investment  banking,  legal  and  consulting  fees.  The pro  forma
adjustments  include an  estimate  for  KeySpan's  merger-related  costs of $8.1
million, which is included in goodwill. These costs will be financed through the
issuance of commercial paper.

Note 3.  Estimated Restructuring and Other Costs

Eastern  expects  to incur  direct  expenses  related to the  merger,  including
accounting, investment banking, legal and consulting fees of approximately $13.9
million.  In addition,  Eastern expects to incur expenses of approximately $60.7
million for certain contractual  obligations (e.g. "change in control" payments)
and  nonqualified  stock options that will be "cashed out".  These costs will be
expensed as incurred by Eastern  and have been  included in the  calculation  of
estimated  goodwill.  These  costs will be  financed  through  the  issuance  of
commercial paper. Further,  certain Eastern options will be converted to options
to purchase KeySpan Energy stock. The estimated value of such options, which are
primarily  fully  vested,  approximate  $16.4  million  and will be  recorded as
additional  purchase  price  consideration  by KeySpan Energy at the time of the
merger.

Note 4. Interest Expense

Interest  expense  reflects  the  issuance of  approximately  $1.477  billion of
long-term debt and approximately $262 million of commercial paper to finance the
acquisition  of Eastern at  estimated  annual  interest  rates of 8.0% and 7.0%,
respectively. Interest expense also reflects the issuance of commercial paper to
finance transaction costs at an estimated annual interest rate of 7.0%. A change
in the actual  interest  rate of .125%,  as compared to the  estimated  interest
rates, will change net income by approximately $1.5 million annually and by $0.7
million for six months.

Note 5. Amortization of Goodwill Associated with the Eastern Enterprises Merger

Goodwill, which is not tax deductible, will be amortized over a 40 year period.

Note 6. Income Taxes

Income taxes on the unaudited pro forma consolidated  condensed income statement
have been adjusted to reflect the tax deduction of interest expense at a rate of
35%.  A tax  benefit  has not been  provided  for  goodwill  since it is not tax
deductible.




<PAGE>



Note 7. Cash  Consideration  and Estimated  Goodwill  Related to the EnergyNorth
Merger

Cash consideration to be paid to EnergyNorth  shareholders will be paid from the
proceeds of long- term debt and commercial paper issuances.  KeySpan Energy will
issue  approximately  $173  million in  long-term  debt at an  estimated  annual
interest rate of 8.0% and  approximately  $30 million of commercial  paper at an
estimated  annual  interest rate of 7.0% to finance the merger.  KeySpan  Energy
will acquire all of the  outstanding  common stock of EnergyNorth for $61.13 per
share,  subject to adjustment.  The cash consideration to be paid to EnergyNorth
shareholders  is  subject  to a per share  increase  of .589 times the per share
increase  amount  above  $64.00  per share  paid to  Eastern  shareholders.  The
estimated goodwill reflects the recognition of the excess amount of the purchase
price over the fair value of the net assets acquired  including  adjustments for
costs  to be  incurred  directly  related  to the  consummation.  The  following
represents the estimated goodwill calculation:



Common shares outstanding
       at June 30, 2000                                            3,322,903
Share price                                            $                 61.13
                                                       -----------------------
Purchase price                                         $         203,129,060
Common equity of EnergyNorth                                     (54,071,000)
                                                       -----------------------
                                                       $         149,058,060

Estimated transaction costs (See Note 8)                           2,100,000

Estimated restructuring and other
       costs (See Note 9)                                         15,388,000
                       -                               -----------------------
Estimated Goodwill                                     $         166,546,060
                                                        ======================
Amortization period                                                       40
Estimated yearly amortization                          $           4,163,652
                                                        ======================
Estimated six month amortization                       $           2,081,826
                                                        ======================


A final  determination  of goodwill  may  reflect  certain  purchase  accounting
adjustments  based on actuarial  valuations  related to employee  benefit plans,
estimates with respect to the effect of consolidation  of certain  corporate and
administrative functions, completion of studies related to environmental issues,
possible contract and asset impairment charges,  possible asset sales, and other
adjustments.

Note 8. Estimated Transaction Costs Associated with the EnergyNorth Merger

KeySpan  Energy and Eastern  will incur direct  expenses  related to the merger,
including  accounting,  investment  banking,  legal and consulting fees. The pro
forma adjustments include an estimate for these costs of $2.1 million,  which is
included  in  goodwill.  These costs will be  financed  through the  issuance of
commercial paper.


<PAGE>




Note 9.  Estimated Restructuring and Other Costs

EnergyNorth  expects to incur direct expenses  related to the merger,  including
accounting,  investment banking, legal and consulting fees of approximately $4.7
million.  In addition,  EnergyNorth  expects to incur expenses of  approximately
$8.2  million  for certain  contractual  obligations  (e.g.  "change in control"
payments). These costs will be expensed as incurred by EnergyNorth and have been
included in the calculation of estimated goodwill.  These costs will be financed
through the issuance of commercial paper.  Further,  EnergyNorth options will be
converted to options to purchase  KeySpan Energy stock.  The estimated  value of
such options,  which are primarily fully vested,  approximates  $2.5 million and
will be recorded as additional purchase price consideration by KeySpan Energy at
the time of the merger.

Note 10. Interest Expense

Interest  expense  reflects  the  issuance  of  approximately  $173  million  of
long-term debt and  approximately $30 million of commercial paper to finance the
acquisition of EnergyNorth at estimated  annual interest rates of 8.0% and 7.0%,
respectively. Interest expense also reflects the issuance of commercial paper to
finance transaction costs at an estimated annual interest rate of 7.0%. A change
in the actual  interest  rate of .125%,  as compared to the  estimated  interest
rates, will have approximately a $0.2 million annual and an immaterial six month
effect on net income.

Note 11. Amortization of Goodwill Associated with the EnergyNorth Merger

Goodwill, which is not tax deductible, will be amortized over a 40 year period.

Note 12. Income Taxes

Income taxes on the unaudited pro forma consolidated  condensed income statement
have been adjusted to reflect the tax deduction of interest expense at a rate of
35%.  A tax  benefit  has not been  provided  for  goodwill  since it is not tax
deductible.





<PAGE>


                      KEYSPAN CORPORATION AND SUBSIDIARIES

                                    SIGNATURE



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant has duly caused this report to be signed on behalf of the undersigned
there unto duly authorized.



                                                            KEYSPAN CORPORATION
                                                            -------------------
                                                               (Registrant)



Date: August 10, 2000                               /s/ Gerald Luterman
                                                 ----------------------------
                                                        Gerald Luterman

                                                   Senior Vice President and
                                                   Chief Financial Officer



Date: August 10, 2000                              /s/ Ronald S. Jendras
                                                 ----------------------------
                                                       Ronald S. Jendras

                                                   Vice President, Controller
                                                   and Chief Accounting Officer