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       September 30, 1998

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

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

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

                           (516) 755-6650 (Hicksville)
                            (718) 403-1000 (Brooklyn)
              (Registrant's telephone number, including area code)

                                      NONE
        (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 November 9, 1998
      $.01 par value                146,693,554


<PAGE>



                    MARKETSPAN CORPORATION AND SUBSIDIARIES

                                      INDEX

Part I.     FINANCIAL INFORMATION                           Page No.

            Condensed Consolidated Balance Sheet                  -
            September 30, 1998 and March 31, 1998                 3

            Condensed Consolidated Statement of Income            -
            Three and Six Months Ended September 30,
            1998 and 1997                                         5

            Condensed Consolidated Statement of Cash Flows        -
            Six Months Ended September 30,1998 and 1997           6

            Notes to Condensed Consolidated Financial
            Statements                                            7

            Management's Discussion and Analysis of Results
            of Operations and Financial Condition                14

            Risk Management                                      30

Part II. OTHER INFORMATION

            Item 1 - Legal Proceedings                           33

            Item 5 - Other Information                           34

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


Signature                                                        37




                                      2

<PAGE>
<TABLE>
                                           MARKETSPAN CORPORATION AND SUBSIDIARIES
                                            CONDENSED CONSOLIDATED BALANCE SHEET
                                                  (IN THOUSANDS OF DOLLARS)
<CAPTION>




                                                                               SEPTEMBER 30, 1998               MARCH 31, 1998
                                                                             ----------------------        -----------------------
                                                                                   (UNAUDITED)                      (AUDITED)
ASSETS
<S>                                                                    <C>                         <C>                       
PROPERTY
  Electric -utility                                                    $               1,096,773   $                4,049,629
  Gas-utility                                                                          3,185,575                    1,233,281
  Common and other                                                                       425,670                      409,029
  Accumulated depreciation                                                            (1,456,073)                  (1,877,858)
  Gas exploration and production, at cost                                                853,762                            -
  Accumulated depletion                                                                 (296,850)                           -
                                                                           ----------------------      -----------------------
                                                                                       3,808,857                    3,814,081
                                                                           ----------------------      -----------------------

OTHER PROPERTY & INVESTMENTS                                                             118,848                       50,816
                                                                           ----------------------      -----------------------

REGULATORY ASSETS
  Base financial component, net                                                                -                    3,155,334
  Rate moderation component                                                                    -                      434,004
  Shoreham post-settlement costs                                                               -                    1,005,316
  Shoreham nuclear fuel                                                                        -                       66,455
  Unamortized cost of issuing securities                                                   5,830                      159,941
  Postretirement benefits other than pensions                                             50,772                      340,109
  Regulatory tax asset                                                                    65,484                    1,737,932
  Other                                                                                  175,462                      192,763
                                                                           ----------------------      -----------------------
                                                                                         297,548                    7,091,854
                                                                           ----------------------      -----------------------

CURRENT ASSETS
  Cash and temporary cash investments                                                  1,756,876                      180,919
  Customer accounts receivable                                                           111,061                      321,372
  Other accounts receivable                                                              292,755                       43,744
  Allowance for uncollectible accounts                                                   (25,115)                     (23,483)
  Special deposits                                                                       131,154                       95,790
  Accrued revenues                                                                        42,839                      124,464
  Gas and fuel oil in storage, at average cost                                           149,797                       46,776
  Materials and supplies, at average cost                                                 62,150                       54,883
  Other                                                                                  184,040                       13,807
                                                                           ----------------------      -----------------------
                                                                                       2,705,557                      858,272
                                                                           ----------------------      -----------------------
DEFERRED CHARGES
  Goodwill                                                                               175,030                            -
  Other                                                                                  418,787                       85,702
                                                                           ----------------------      -----------------------
                                                                                         593,817                       85,702
                                                                           ----------------------      -----------------------

                                                                           ----------------------      -----------------------
TOTAL ASSETS                                                           $               7,524,627   $               11,900,725
                                                                           ======================      =======================

</TABLE>


See accompanying Notes to the Condensed Consolidated Financial Statements.



                                        3
<PAGE>

<TABLE>


                                           MARKETSPAN CORPORATION AND SUBSIDIARIES
                                            CONDENSED CONSOLIDATED BALANCE SHEET
                                                  (IN THOUSANDS OF DOLLARS)


<CAPTION>


                                                                            SEPTEMBER 30, 1998             MARCH 31, 1998
                                                                           ----------------------      -----------------------
                                                                                (UNAUDITED)                  (AUDITED)


CAPITALIZATION AND LIABILITIES

<S>                                                                    <C>                         <C>                       
CAPITALIZATION
  Common stock , authorized 450,000,000 shares
  outstanding 155,227,254 and 121,680,759 shares,
  respectively stated at                                               $               2,973,704   $                1,707,559
  Retained earnings                                                                      722,293                      956,092
 Treasury stock purchased                                                               (101,483)                      (1,204)
  Foreign currency translation adjustment                                                   (569)                           -
                                                                           ----------------------      -----------------------
     Total common equity                                                               3,593,945                    2,662,447
  Preferred stock                                                                        448,000                      562,600
  Long-term debt                                                                       1,544,065                    4,381,949
                                                                           ----------------------      -----------------------
TOTAL CAPITALIZATION                                                                   5,586,010                    7,606,996
                                                                           ----------------------      -----------------------

REGULATORY LIABILITIES                                                                    49,373                      389,431
                                                                           ----------------------      -----------------------

CURRENT LIABILITIES
  Current maturities of long-term debt                                                   397,000                      101,000
  Current redemption requirements of preferred stock                                           -                      139,374
  Accounts payable and accrued expenses                                                  548,734                      258,701
  Dividends payable                                                                       71,866                       58,748
  Taxes accrued                                                                            1,922                       34,753
  Customer deposits                                                                       29,150                       28,627
  Class Settlement                                                                        60,000                       60,000
  Interest accrued                                                                        17,527                      146,607
                                                                                                       -----------------------
                                                                           ----------------------      -----------------------
                                                                                       1,126,199                      827,810
                                                                           ----------------------      -----------------------

DEFERRED CREDITS AND OTHER LIABILITIES
  Deferred federal income tax                                                            341,428                    2,539,364
  Class Settlement                                                                        31,037                       46,940
  Pensions and other postretirement benefits                                             140,833                      401,401
  Claims, damages & other reserves                                                       138,085                       66,254
  Other                                                                                   12,005                       22,529
                                                                           ----------------------      -----------------------
                                                                                         663,388                    3,076,488
                                                                           ----------------------      -----------------------
MINORITY INTEREST IN SUBSIDIARY COMPANY                                                   99,657                            -
                                                                           ----------------------      -----------------------
TOTAL CAPITALIZATION AND LIABILITIES                                   $               7,524,627   $               11,900,725
                                                                           ======================      =======================
</TABLE>

See accompanying Notes to the Condensed Consolidated Financial Statements.



                                        4
<PAGE>

<TABLE>

                     MARKETSPAN CORPORATION AND SUBSIDIARIES
              UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
               (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)


<CAPTION>

                                                                    THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                               -----------------------------    ----------------------------------

                                                                SEPTEMBER 30,   September 30,     SEPTEMBER 30,        September 30,
                                                                    1998            1997             1998                  1997
                                                               -------------  --------------    --------------      --------------


      <S>                                                     <C>              <C>             <C>                 <C>
      REVENUES
      Electric distribution                                   $            -   $    790,331    $   330,080         $     1,350,417
      Electric generation and services                               171,621              -        239,593                  -
      Gas distribution                                               200,595         62,078        353,121                 166,480
      Gas production                                                  30,545              -         42,258                       -
      Other                                                           23,497              -         30,192                       -
                                                                  -----------    -----------     ----------          -------------
      Total Revenues                                                 426,258        852,409        995,244               1,516,897

      OPERATING EXPENSES
      Fuel and purchased power                                             -        180,926         91,796                 329,512
      Purchased gas                                                   59,994         25,740        124,384                  68,931
      Operations                                                     215,936         87,502        365,352                 181,808
      Maintenance                                                     37,152         26,885         70,791                  54,667
      Depreciation, depletion and amortization                        60,090         39,268        107,645                  78,162
      Regulatory and other amortizations                                   -         40,785        (39,343)                 6,134
      Operating taxes                                                 77,807        122,337        175,565                 231,660
      Federal income taxes (credit)                                  (16,191)        86,354        (76,652)                119,332
                                                                  -----------    -----------     ----------          -------------
      Total Operating Expenses                                       434,788        609,797        819,538               1,130,206
                                                                  -----------    -----------     ----------          -------------
      OPERATING INCOME                                                (8,530)       242,612        175,706                 386,691

      OTHER INCOME AND (DEDUCTIONS)
      Transaction related expenses                                         -              -        (63,651)                      -
      Interest and other                                              30,650          2,261         24,140                   6,483
                                                                  -----------    -----------     ----------             ----------
      INCOME BEFORE INTEREST CHARGES                                  22,120        244,873        136,195                 393,174

      INTEREST CHARGES                                                39,776        100,489        116,601                 203,628
                                                                  -----------    -----------     ----------          -------------

      NET INCOME (LOSS)                                              (17,656)       144,384         19,594                 189,546
      Preferred stock dividend requirements                            8,694         12,948         19,910                  25,917
                                                                  -----------    -----------     ----------          -------------
      EARNINGS (LOSS) FOR COMMON STOCK                        $      (26,350)  $    131,436    $      (316)        $       163,629
                                                                  ===========    ===========     ==========          =============


      AVERAGE COMMON SHARES OUTSTANDING(000)                         157,328        121,341        145,747                 121,244

      BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE      $        (0.17)  $       1.09    $     (0.00)        $          1.35
                                                                  ===========    ===========     ==========          =============


</TABLE>

      See accompanying Notes to the Condensed Consolidated Financial Statements.



                                        5
<PAGE>

<TABLE>


                                           MARKETSPAN CORPORATION AND SUBSIDIARIES
                                       CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                                         (UNAUDITED)
                                                  (IN THOUSANDS OF DOLLARS)

<CAPTION>

                                                                                                  Six Months Ended
                                                                                       September 30              September 30
                                                                                            1998,                    1997,
                                                                                 ------------------------------------------------
OPERATING ACTIVITIES

<S>                                                                     <C>                        <C>                    
Net Income                                                              $                  19,594  $               189,546
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
  Depreciation and amortization                                                           107,645                   78,162
  Regulatory and other amortizations                                                      (45,726)                  66,134
  Rate moderation component carrying charges                                               (6,411)                 (11,914)
  Amortization of cost of issuing and redeeming securities                                  5,584                   14,948
  Deferred Federal income tax                                                            (167,814)                  76,052
  Pensions and other postretirement benefits                                               11,269                   13,265
  Income from equity investments                                                           (4,049)                       -
  Dividends from equity investments                                                         2,078                        -
CHANGES IN CURRENT ASSETS AND LIABILITIES
  Accounts receivable and accrued revenues                                                 29,086                   12,934
  Pensions and other postretirement benefits                                             (283,774)                       -
  Materials and supplies, fuel oil and gas in storage                                     (56,010)                 (55,590)
  Accounts payable and accrued expenses                                                   234,823                   12,695
  Taxes accrued                                                                           (90,671)                   5,983
  Interest accrued                                                                       (153,706)                 (42,273)
  Class Settlement                                                                        (15,904)                 (22,090)
  Special deposits                                                                        (35,364)                 (28,683)
  Other                                                                                   (27,113)                  43,978
                                                                           -----------------------     --------------------
Net Cash Provided by (Used in) Operating Activities                                      (476,463)                 353,147
                                                                           -----------------------     --------------------

INVESTING ACTIVITIES

Capital expenditures                                                                     (214,352)                (117,468)
Net cash from KeySpan and LILCO transactions                                               90,168                        -
Proceeds from LIPA transaction                                                          2,497,500                        -
Shoreham post-settlement costs                                                             (6,650)                 (20,936)
Miscellaneous investment                                                                   (5,838)                 (31,293)
                                                                           -----------------------     --------------------
Net Cash Provided by (Used in) Investing Activities                                     2,360,828                 (169,697)
                                                                           -----------------------     --------------------

FINANCING ACTIVITIES

Proceeds from sale of common stock                                                         13,050                    9,034
Treasury stock purchased                                                                 (101,483)                       -
Issuance (redemption) of preferred stock                                                   75,000                   (1,050)
Issuance of long-term debt                                                                  3,000                        -
Redemption of long-term debt                                                             (100,000)                       -
Preferred stock dividends paid                                                            (21,608)                 (25,937)
Common stock dividends paid                                                              (159,434)                (107,754)
Other                                                                                     (16,933)                    (797)
                                                                           -----------------------     --------------------
Net Cash Used in Financing Activities                                                    (308,408)                (126,504)
                                                                           -----------------------     --------------------
Net Increase in Cash and Cash Equivalents                                               1,575,957                   56,946
                                                                           =======================     ====================
Cash and cash equivalents at beginning of period                        $                 180,919  $                64,539
Net Increase in cash and cash equivalents                                               1,575,957                   56,946
                                                                           =======================     ====================
Cash and cash equivalents at end of period                              $               1,756,876  $               121,485
                                                                           =======================     ====================

</TABLE>

See accompanying Notes to the Condensed Consolidated Financial Statements.
                                        6
<PAGE>





                    MARKETSPAN CORPORATION AND SUBSIDIARIES
             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



      1.    ORGANIZATION OF THE COMPANY

      MarketSpan  Corporation,  d/b/a KeySpan Energy(the "Company"),  a New York
      corporation,  is the successor to Long Island Lighting Company  ("LILCO"),
      as a  result  of the  transaction  with the Long  Island  Power  Authority
      ("LIPA")  discussed  below  (the "LIPA  Transaction")  and  following  the
      acquisition   ("KeySpan   Acquisition")  of  KeySpan  Energy   Corporation
      ("KeySpan").  The  Company  is a  utility  holding  company  that has been
      granted an exemption under the Public Utility Holding Company Act of 1935,
      as  amended.  As a result of the  transaction  with LIPA,  LILCO  became a
      wholly owned subsidiary of LIPA, a corporate  municipality and a political
      subdivision of New York State.

      On September 10, 1998, the Company's Board of Directors authorized filings
      to permit the  Company  to conduct  its  business  under the name  KeySpan
      Energy.   The  Company  intends  to  propose  a  formal  name  change  for
      shareholder  approval  at its 1999  Annual  Meeting  of  Shareholders.  On
      October 20, 1998 the  Company's  symbol for its common stock and preferred
      stock  Series AA listed on the New York and Pacific  Stock  Exchanges  was
      changed to "KSE". KeySpan and LILCO common stock are no longer traded.

      With the  exception of a small  portion of Queens  County,  the  Company's
      subsidiaries are the only providers of gas  distribution  services on Long
      Island, N.Y.- Nassau, Suffolk, Queens and Kings Counties. In addition, the
      Company's  subsidiaries  provide  gas  distribution  services  to Richmond
      County, a part of New York City. The Brooklyn Union Gas Company ("Brooklyn
      Union"), a subsidiary of the Company,  provides gas distribution  services
      to Kings and Richmond Counties and parts of Queens County, all in New York
      City,  and  KeySpan  Gas  East  Corporation,  also a  Company  subsidiary,
      provides gas distribution  services to Nassau and Suffolk Counties and the
      Rockaway Peninsula in Queens County.

      As  a  result  of  the  LIPA  Transaction  and  KeySpan  Acquisition,  the
      composition of the Company's  assets and liabilities at September 30, 1998
      reflects the monetization of substantial regulatory and other assets owned
      by its predecessor company



                                      7

<PAGE>



      and a related reduction of financial risk associated with that
      company.


2.    SALE OF LILCO ASSETS, ACQUISITION OF KEYSPAN AND TRANSFER OF
      ASSETS AND LIABILITIES TO THE COMPANY

      On May 28, 1998, pursuant to the Agreement and Plan of Merger, dated as of
      June 26, 1997, by and among the Company, LILCO, LIPA, and LIPA Acquisition
      Corp.  (the "Merger  Agreement"),  LIPA  acquired  all of the  outstanding
      common stock of LILCO for $2.4975 billion in cash and thereafter  directly
      or indirectly assumed certain  liabilities,  including  approximately $3.5
      billion  in  debt,  as well  as  approximately  $222  million  of  LILCO's
      preferred stock. In addition, LIPA reimbursed LILCO $117.5 million related
      to certain series of preferred stock which were redeemed by LILCO prior to
      May 28, 1998. Immediately prior to such acquisition, all of LILCO's assets
      employed  in  the  conduct  of  its  gas  distribution  business  and  its
      non-nuclear  electric generation  business,  and all common assets used by
      LILCO in the operation and  management  of its electric  transmission  and
      distribution ("T&D") business and its gas distribution business and/or its
      non-nuclear  electric  generation  business  were sold to the  Company and
      transferred to wholly owned subsidiaries of the Company.

      Immediately  subsequent to the LIPA  Transaction,  KeySpan was merged with
      and into a subsidiary of the Company,  pursuant to an amended and restated
      Agreement  and Plan of  Exchange  and  Merger,  dated as of June 26,  1997
      between LILCO and Brooklyn  Union.  On September 29, 1997,  KeySpan became
      the parent company of Brooklyn Union when Brooklyn Union  reorganized into
      a holding company structure.

      As a  result  of these  transactions,  holders  of  KeySpan  common  stock
      received  one share of the  Company's  common  stock,  par value  $.01 per
      share,  for each share of KeySpan  common  stock they owned and holders of
      LILCO common stock received 0.880 of a share of the Company's common stock
      for each share of LILCO common stock they owned. Upon the closing of these
      transactions,  former  holders  of  KeySpan  and LILCO  owned 32% and 68%,
      respectively, of the Company's common stock.

      The purchase  price of $1.223  billion for the  acquisition of KeySpan has
      been allocated to assets acquired and liabilities assumed based upon their
      estimated fair values.  The fair value of the utility  assets  acquired is
      represented by their book



                                      8

<PAGE>



      value  which  approximates  the value  recognized  by the New York  Public
      Service  Commission  ("PSC") in establishing  rates for regulated  utility
      services.  The  estimated  fair  value  of  KeySpan's  non-utility  assets
      approximates their carrying values.

      The  Company  has  recorded   goodwill  in  the  amount  of  $175  million
      representing the excess of the acquisition cost over the fair value of the
      net assets acquired; the goodwill is being amortized over 40 years.

      The following is the  comparative  unaudited pro forma combined  condensed
      financial  information  for the twelve months ended September 30, 1998 and
      1997.  The pro forma  disclosures  are  intended to reflect the results of
      operations  as if the LIPA  Transaction  and the  KeySpan  Acquisition  as
      discussed  above,  were  consummated  on the  first  day of the  reporting
      period.  These pro forma  disclosures are not indicative of future results
      since they include non-recurring charges and credits arising from the LIPA
      Transaction  and  KeySpan  Acquisition  and do not reflect  attainment  of
      synergy  (i.e.  efficiency)  savings.  See  Management's   Discussion  and
      Analysis of Results of Operations  and Financial  Condition  "Utility Rate
      and Regulatory  Matters." The initial benefit of these savings is expected
      to be reflected in operating results  beginning January 1, 1999.  However,
      no assurance  can be given as to what  savings  will be obtained.  Certain
      prior year amounts have been  reclassified in the financial  statements to
      conform with the current year presentation.

                                                        Twelve Months Ended
                                                            September 30, 

                                                          1998        1997
                                                          ----        ----
       Pro Forma Results (in thousands 
       of dollars, except per share
       amounts)
      Revenues                                          2,771.4    2,818.2
      Operating Income                                    335.8     323.4
      Net Income                                          195.5     190.8
      Earnings Per Share (basic and diluted)               1.04       .99

      The decrease in revenues in the twelve month  period ended  September  30,
      1998 as compared to the same period in 1997 was due to lower gas  revenues
      caused by warmer than normal weather.  This decrease was offset  primarily
      by the realization of certain  federal income tax benefits  related to the
      sale of the generation and gas assets of LILCO to the



                                      9

<PAGE>



      Company and the funding of post-employment benefits.


3.    BASIS OF PRESENTATION

      The  financial   statements  presented  herein  reflect  the  consolidated
      statements of the Company.  For financial  reporting  purposes,  LILCO, as
      acquiring  company,  is  deemed  the  predecessor  company  pursuant  to a
      purchase accounting transaction,  in which KeySpan was acquired. Since the
      acquisition  of  KeySpan  was  accounted  for  as  a  purchase,   purchase
      accounting  adjustments,  including  goodwill,  have been reflected in the
      financial  statements herein.  Further, the financial statements presented
      reflect the results of  operations of LILCO from April 1, 1998 through May
      28,  1998  and of the  consolidated  Company  from  May 29,  1998  through
      September 30, 1998. In September, the Company changed its fiscal year to a
      fiscal year  ending  December  31. As a result,  the  Company's  Form 10-K
      report will include the transition  period April 1, 1998 through  December
      31, 1998.

      In the  opinion  of the  Company,  the  accompanying  unaudited  Condensed
      Consolidated  Financial  Statements  contain all adjustments  necessary to
      present  fairly the financial  position of the Company as of September 30,
      1998, and the results of its operations for the three and six months ended
      September  30,  1998 and 1997,  and cash  flows for the six  months  ended
      September  30,  1998 and  1997.  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.

      The  weighted  average  number of common  shares  outstanding  used in the
      calculation  of earnings  per share for the  quarter and six months  ended
      September 30, 1998, reflect the issuance of common stock to consummate the
      LIPA Transaction and the KeySpan Acquisition and the reduction  associated
      with the ongoing  stock  repurchasing  policy of the Company that began on
      August 17, 1998.

      As permitted by the rules and  regulations  of the Securities and Exchange
      Commission ("SEC"), the Condensed Consolidated Financial Statements do not
      include all of the accounting information normally included with financial
      statements  prepared in  accordance  with  generally  accepted  accounting
      principles.  Accordingly,  the Condensed Consolidated Financial Statements
      should be read in conjunction with the financial



                                      10

<PAGE>



      statements  and  notes  thereto  included  in  the  Long  Island  Lighting
      Company's  Annual  Report on Form 10-K for the fiscal year ended March 31,
      1998,  the KeySpan Energy  Corporation  Annual Report on Form 10-K for the
      fiscal year ended September 30, 1997, KeySpan Energy Corporation Form 10-Q
      for the  quarters  ended  December  31, 1997 and March 31,  1998,  and the
      MarketSpan  Corporation  Form 10-Q for the  quarter  ended June 30,  1998.
      Further,  separate financial statements are prepared for subsidiaries that
      issue  private  purpose  tax exempt  bonds,  related  amounts of which are
      included in the consolidated financial statements presented herein.

      The Houston  Exploration  Company  (THEC),  a 64% owned  subsidiary of the
      Company which is engaged in oil and gas exploration  and production,  uses
      the full cost method of accounting  for its  investment in natural gas and
      oil  properties.  Under the full cost method of  accounting,  all costs of
      acquisition,  exploration  and development of natural gas and oil reserves
      are  capitalized  into a  "full  cost  pool".  To  the  extent  that  such
      capitalized  costs  (net  of  accumulated   depreciation,   depletion  and
      amortization)  less deferred taxes,  exceed the present value (using a 10%
      discount rate) of estimated  future net cash flows from proved natural gas
      and oil  reserves  plus  the  lower  of cost or  fair  value  of  unproved
      properties, such excess costs are charged to operations.

      THEC estimates  that, as of September 30, 1998,  using  September  prices,
      actual  capitalized  costs of natural gas and oil properties  exceeded the
      ceiling   limitation   imposed  under  full  cost   accounting   rules  by
      approximately $60 million after tax. However,  subsequent to September 30,
      1998,  natural  gas prices have  increased  significantly.  Using  October
      prices,  THEC  estimates that a $6 million after tax excess exists between
      the ceiling limitation and actual capitalized costs of natural gas and oil
      properties;  therefore,  a write-down of the carrying value of natural gas
      and oil  properties  as of September  30, 1998 is not  required.  However,
      natural gas prices continue to experience volatility; thus, depending upon
      the  strength  of natural  gas prices  and the  results of THEC's  current
      drilling  programs,  THEC may be required to write down the carrying value
      of its natural gas and oil properties in the next quarter.

      The  gas   distribution   business  is  influenced  by  seasonal   weather
      conditions.  Annual revenues are substantially realized during the heating
      season  (November  1 to April 30) as a result of the large  proportion  of
      heating sales, primarily



                                      11

<PAGE>



      residential, compared with total sales. Accordingly, results of 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
      unprofitable,  and  losses  are  usually  incurred  in the  quarter  ended
      September 30.

      The gas utility tariffs of Brooklyn Union and KeySpan Gas East Corporation
      each  contain a weather  normalization  adjustment  that  largely  offsets
      shortfalls  or excesses  of firm net  revenues  (revenues  less gas costs)
      during a heating season due to variations from normal weather.

      Electric  generation  revenues  can be  affected  by  weather,  if  actual
      generation varies from contractual amounts. However, the Company estimates
      that any  weather-related  effect on  revenues  under  generation  service
      contracts with LIPA will be diminimus.


4.    ENVIRONMENTAL MATTERS

      The  Company  is  subject  to  various  Federal,  State and local laws and
      regulatory  programs related to the environment.  These environmental laws
      govern both the normal,  ongoing  operations of the Company as well as the
      cleanup  of  contaminated  properties.  Ongoing  environmental  compliance
      activities, which historically have not been material, are integrated with
      the  Company's  regular  operation  and  maintenance  activities.   As  of
      September  30,  1998 the  Company had an accrued  liability  (and  related
      regulatory  asset)of   approximately   $102.6  million   representing  the
      previously  estimated  minimum costs  associated  with  investigation  and
      remediation at former manufactured gas plant sites.


5.    REGULATORY ASSETS AND LIABILITIES

      The  Company's  regulated  subsidiaries  are subject to the  provisions of
      Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for
      the Effects of Certain Types of Regulation".  Regulatory assets arise from
      the  allocation  of costs and revenues to  accounting  periods for utility
      ratemaking   purposes   differently   from  bases  generally   applied  by
      nonregulated  companies.  Regulatory assets and liabilities are recognized
      in accordance with SFAS-71.




                                      12

<PAGE>




      The Company's  regulatory assets of $297.5 million are primarily comprised
      of net regulatory tax assets,  transaction  costs associated with the LIPA
      Transaction and KeySpan Acquisition, certain environmental remediation and
      investigation  costs and postretirement  benefits other than pensions.  In
      the opinion of  management,  regulatory  assets are fully  recoverable  in
      rates.

      In the event that the provisions of SFAS-71 were no longer applicable, the
      Company  estimates that the related write-off of the net regulatory assets
      (regulatory  assets less regulatory  liabilities) could result in a charge
      to net income of approximately  $161.3 million or approximately  $1.03 per
      share of common stock, which would be classified as an extraordinary item.






                                      13

<PAGE>



                    MARKETSPAN CORPORATION AND SUBSIDIARIES
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Operating Results

The  following  is a  summary  of items  affecting  comparative  earnings  and a
discussion of the material changes in revenues and expenses during the following
periods:

(1)   Three Months ended September 30, 1998 compared to Three Months
      ended September 30, 1997.

(2)   Six Months ended September 30, 1998 compared to Six Months ended September
      30, 1997.

Additional  selected pro forma  information  is provided  for the twelve  months
ended  September  30, 1998 and  September 30, 1997 in Note 2 of the Notes to the
Condensed Consolidated Financial Statements.

Results for the three months ended September 30, 1998 include  operations of the
consolidated  entity for the entire  quarter and reflect the seasonal  nature of
gas heating  sales on the  combined  customer  base.  Results for the six months
ended  September 30, 1998 include  operations of LILCO's former gas and electric
business for the period April 1, 1998 through May 28, 1998.  Results for KeySpan
Gas East Corporation,  KeySpan and three subsidiaries providing services to LIPA
under various  services  agreements  with LIPA, are reflected for the period May
29, 1998 through  September 30, 1998.  (See below under  "Electric  Operations -
LIPA Agreements" for a description of the various agreements.) As required under
purchase accounting,  results for the quarter and six months ended September 30,
1997 reflect  results of the former  LILCO as  previously  reported,  and do not
include results of KeySpan.

Earnings   during  the  first  year  following  the  KeySpan   Acquisition   and
restructuring  of the  Company's  electric  operations  as a result  of the LIPA
Transaction are  transitional  and not comparable to prior  historical  periods.
Further,  the historical and pro forma results of operations reported herein may
not  be  indicative  of  future  results  or  operating   trends.  In  addition,
comparative  earnings  reflect  the manner in which  results of  operations  are
reported  under  purchase  accounting  rules.  Also,  due to the  change  in the
Company's  fiscal year to December 31, 1998,  year-end  results will include the
results of operations  for the  transition  period April 1 through  December 31.
Accordingly, historical consolidated



                                      14

<PAGE>



year-end results of the Company's primary  gas-distribution  businesses will not
include   earnings  from   heating-season   operations   prior  to  the  KeySpan
Acquisition.  Moreover, there will be additional charges for an early retirement
program in the fourth quarter and related  programs in the near term, as well as
costs related to the integration of all major customer information and financial
reporting  systems.  The Company expects that the effect of rate reductions that
have been included in utility revenues will begin to be offset in fiscal 1999 as
the related synergy savings begin to be realized through cost reductions.

Earnings

Consolidated  results for the quarter ended  September 30, 1998 reflected a loss
of $26.4 million, or $0.17 per share, compared to earnings of $131.4 million, or
$1.09 per share, in the corresponding period last year.  Comparative results for
the quarter were  affected by  merger-related  charges and reflect the fact that
gas utility  customers  began  receiving the benefit of rate reductions upon the
effective date of the KeySpan  Acquisition,  before synergy savings are achieved
through cost  reductions.  Moreover,  the change in the Company's asset base and
electric  operations  resulting  from the LIPA  Transaction  contributed  to the
comparative  reduction in earnings,  which now reflect  service-fee  revenues to
recover costs at reduced margins under various service contracts with LIPA. (See
Electric  Revenues  below for additional  details.)  Results of KeySpan Gas East
Corporation are comparable with last year's results.

Earnings for the quarter ended September 30, 1998 also reflect the incurrence of
losses related to the seasonal  nature of gas-heating  sales on the combined and
significantly expanded customer base. Earnings from the Company's energy-related
investment  group,  which are not  material in the periods  reported,  primarily
reflect  income from:  gas  production  operations  of THEC;  investment  in the
Iroquois Gas Transmission System; and investment in the Premier Transco Pipeline
in  Northern  Ireland.  Earnings  from this  group are on  target,  but  reflect
generally soft gas production prices during the period.  The Company has a 24.5%
interest  in the  Premier  Transco  Pipeline  and a similar  interest in Phoenix
Natural Gas, which is expanding and  refurbishing  the gas  distribution  system
that serves the City of Belfast in Northern Ireland. In addition, the Company is
expanding its resource  base in the Gulf of Mexico and Canada,  the two critical
areas of supply to support  growth in the  Northeast and elsewhere in the United
States.  Further, the Company expects to continue to form strategic alliances to
capture significant  opportunities in North America and in select  international
markets.



                                      15

<PAGE>




Results of the  Company's  energy  marketing  group,  which  consists of KeySpan
Energy  Services  Inc.,   KeySpan  Energy  Solutions  Inc.  and  KeySpan  Energy
Management  Inc.,  reflect the start-up  nature of these  operations and are not
material in the periods  reported.  The Company will align these  operations  in
order  to take  full  advantage  of  opportunities  to  increase  sales  in more
profitable market segments.

Consolidated  results for the six months ended  September  30, 1998  reflected a
loss of $.3 million,  with no effect on a per share basis,  compared to earnings
of $163.6 million, or $1.35 per share, in the corresponding period last year. In
addition  to the  effects of the change in  electric  operations  (as  described
above),  the Company absorbed  substantial costs related to the LIPA Transaction
during the period ended September 30, 1998. The effect of these one time charges
was offset by realizing  certain federal income tax benefits related to the sale
of the  generation  and gas assets of LILCO to the  Company  and the  funding of
post-employment  benefits.  In addition,  the method of amortization of the Rate
Moderation Component (RMC) applicable to LILCO, which is included for two months
- April and May, changed significantly.  (The RMC, which is discussed more fully
under  "Rate  Moderation  Component",  was  acquired by LIPA as part of the LIPA
Transaction.)

Revenue Summary

Utility  firm  gas  and  transportation  sales  volumes  for the  quarter  ended
September  30,  1998,   were  18,886  MDTH,   compared  to  5,441  MDTH  in  the
corresponding  period last year.  Total gas throughput,  which includes sales to
interruptible  customers,  was 34,744 MDTH for the quarter  ended  September 30,
1998,  compared to 10,809 MDTH in the corresponding  period last year. Total gas
throughput  for the six months  ended  September  30, 1998 was 56,301  MDTH,  as
compared to 24,221  MDTH in the  corresponding  period last year.  Sales for the
quarter and six months  ended  September  30, 1997 do not include  sales made by
KeySpan's  gas  distribution  subsidiary.  The  increase for the quarter and six
months  ended  September  30, 1998  reflects  significant  expansion  of the gas
customer base as a result of the KeySpan Acquisition.

The revenues of the Company were significantly  affected as a result of the LIPA
Transaction and KeySpan Acquisition.  Set forth below are the Company's revenues
for the three and six months ended  September 30, 1998 and 1997.  (Note 2 to the
Condensed  Consolidated  Financial Statements includes pro forma information for
the twelve months ended September 30, 1998 and 1997.)



                                      16

<PAGE>




                              Three Months Ended          Six Months Ended
                                 September 30,              September 30,
                                    ($000)                       ($000)


                               1998         1997            1998       1997
                               ----         ----            ----       ----

KeySpan Corporation Revenues:
Electric Revenues:
 Electric Distribution      $       -    $ 790,331     $ 330,080   $1,350,417
 Electric Gen. & Serv.        171,621            -       239,593            -
Gas Distribution              200,595       62,078       353,121      166,480
Gas Production - THEC          30,545            -        42,258            -
Other Revenues                 23,497            -        30,192            -
                               ------            -       -------            -
TOTAL REVENUES              $ 426,258    $ 852,409     $ 995,244   $1,516,897
                            =========    =========     =========   ==========



Gas Distribution and Production Revenues

The increase in gas distribution and production revenues of approximately $169.1
million for the three months ended  September 30, 1998,  and $228.9  million for
the six months ended September 30, 1998, when compared to comparable  periods in
1997 was  principally the result of the inclusion of Brooklyn Union revenues and
gas  production  revenues of THEC for the entire  quarter and for the period May
29,  1998  through   September  30,  1998.   Pursuant  to  purchase   accounting
requirements,  the comparative  September 1997 periods included gas distribution
revenues of LILCO only and do not include revenues of KeySpan.


Electric Revenues

Electric  revenues for the quarter ended  September 30, 1998 represent  revenues
under various LIPA Service  Agreements.  For the six months ended  September 30,
1998  revenues are derived from the LIPA Service  Agreements  for the period May
29, 1998 through  September 30, 1998 and electric service revenues  covering the
period April 1, 1998  through May 28, 1998.  For the  comparable  1997  periods,
revenues include electric service revenues of LILCO only.

The decreases in electric revenues of approximately $618.7 million for the three
months ended  September 30, 1998 and  approximately  $780.7  million for the six
months ended  September 30, 1998 when compared to the same periods in 1997, were
the result of the LIPA Transaction  which was consummated on May 28, 1998. Prior
to the LIPA  Transaction,  LILCO provided fully integrated  electric services to
its  customers.  Included  within the rates  charged to  customers  was a return
(including interest) on the capital investment in the



                                      17

<PAGE>



generation and transmission and distribution  ("T&D") assets required to operate
the system as well as recovery  of the  electric  business  costs to operate the
system.  Upon  completion of the LIPA  Transaction,  the nature of the Company's
electric  business has changed  from that of an owner of an electric  generation
and T&D system, with a significant capital investment, to a new role as an owner
of the  generation  facilities  and as a manager  of the T&D system now owned by
LIPA. In its new role, the Company's capital investment is significantly reduced
and accordingly,  its revenues under the LIPA contracts  reflect that reduction.
Revenues  after May 28, 1998 reflect the impact of the LIPA  Service  Agreements
which contribute marginally to earnings.

Revenues resulting from the LIPA Service Agreements include the following:

Revenues   realized   under  the   Management   Services   Agreement(MSA)   were
approximately  $93.6  million  for the  quarter  ended  September  30,  1998 and
approximately  $131.4 million for the six months ended September 30, 1998. These
revenues  are derived  from the  performance  of the  day-to-day  operation  and
maintenance  of LIPA's T&D system and the  management of LIPA's  interest in the
Nine Mile Point Nuclear Power Station, Unit 2 (NMP2).

Revenues under the Power Supply Agreement (PSA)were  approximately $76.7 million
for the quarter ended  September 30, 1998 and  approximately  $103.8 million for
the six  months  ended  September  30,  1998  and are  derived  from the sale of
capacity and energy to LIPA from the Company's generating facilities.

Revenues under the Energy  Management  Agreement (EMA) were  approximately  $1.3
million for the quarter ended September 30, 1998 and approximately  $4.3 million
for the six months ended  September  30, 1998 and result from the  management of
fuel  supplies  for LIPA to fuel the  Company's  generating  facilities,  energy
purchases on a least-cost  basis,  off-system sales of output from the Company's
generating facilities and other power supplies either owned or under contract to
LIPA.

See "Electric  Operations - LIPA Agreements" for a more detailed  description of
each of these agreements.









                                      18

<PAGE>



Other Revenues

Other  revenues  for the quarter  ended  September  30, 1998  include  primarily
revenues of the Company's energy  management  subsidiary for the entire quarter.
This  subsidiary  provides  a  variety  of  services  in all  facets  of  energy
management   services  to  customers  that  operate  commercial  and  industrial
facilities, primarily within the New York City metropolitan area. Other revenues
for the six months ended September 30, 1998 include revenues of KeySpan's energy
management  subsidiary  for the period May 29, 1998 through  September 30, 1998.
Pursuant to purchase  accounting  requirements,  the comparative 1997 periods do
not include KeySpan.


Operating Expenses

Electric  fuel  expense  decreased  in both the  quarter  and six  months  ended
September 30, 1998 as compared with the comparable 1997 periods,  primarily as a
result of the LIPA Transaction. In accordance with the terms of the EMA, LIPA is
responsible for paying directly the cost of purchased power.

For the three and six months  ended  September  30,  1998,  purchased  gas costs
reflect the  seasonal  nature of gas heating  consumption.  Further,  such costs
reflect activity of Brooklyn Union for the period May 29, 1998 through September
30,  1998.  Such costs are not  included in the  comparable  1997 periods due to
purchase accounting requirements.

Operations  and  maintenance  expenses for the three months ended  September 30,
1998 have increased as compared to the  comparable  1997 period due primarily to
the  inclusion  of  KeySpan  operations  for the  entire  quarter  and the  LIPA
Transaction.  Prior to the LIPA  Transaction,  all T&D related capital  projects
were  capitalized and charged to depreciation  expense over the estimated useful
life of the asset.  As a result of the LIPA  Transaction,  all T&D  assets  were
acquired by LIPA,  and  therefore  all T&D related  costs are now expensed  when
incurred and recovered from LIPA through monthly billings.

Operations  and  maintenance  expenses  for the six months  reflect the one time
charges  associated with the LIPA Transaction and the KeySpan  Acquisition,  the
management  of T&D  assets  acquired  by  LIPA,  and  the  addition  of  KeySpan
operations  since May 29,  1998.  The  Company is  committed  to  realizing  the
forecasted   $1  billion  of  operating   synergy   savings  (over  a  ten  year
period)already  being  reflected in both utility tariff rates and contracts with
LIPA;



                                      19

<PAGE>



however, no assurance can be given as to what savings will be obtained.  As part
of an overall plan to realize the synergy savings,  the Company has initiated an
early  retirement  program and expects to initiate  related programs in the near
term.

Due to the LIPA  Transaction,  operating  taxes,  including  property  and gross
receipt  taxes,  have  decreased  this quarter and for the current six months as
compared to last year's corresponding periods, despite the addition of KeySpan's
expenses in the current reporting periods.  Significant  property related assets
were sold to LIPA and,  as a result,  related  property  taxes will no longer be
incurred by the Company.

Federal income tax expense  reflects  changes in pre-tax income and, for the six
months ended  September 30, 1998,  reflect  certain tax benefits  related to the
sale of the generation and gas assets of LILCO to the Company and to the funding
of other post-employment benefits.


Other Income and Deductions

Other income for the quarter and six months ended  September 30, 1998  includes,
primarily,   earnings  from  the  investment  of  the  proceeds  from  the  LIPA
Transaction, incentives earned under the Power Supply Agreement (PSA) and Energy
Management Agreement (EMA) and equity investments of KeySpan.  Incentives earned
under the PSA for the  quarter  and six months  ended  September  30,  1998 were
approximately  $4.0 million.  Incentives earned under the EMA were approximately
$2.1 million and approximately $2.5 million for the quarter and six months ended
September 30, 1998, respectively.

For the six months ended  September 30, 1998, the transaction  related  expenses
are  primarily  non-recurring  charges  associated  with the  LIPA  Transaction.
Specifically  these  charges  relate to  severance  payments  to certain  former
officers  of  LILCO,   amounting  to  approximately  $22.5  million,   and  LIPA
Transaction costs and certain payments made to LIPA upon the closing of the LIPA
Transaction amounting to approximately $41.2 million. Other deductions primarily
include  a charge  to  earnings  to  reflect  an  updated  present  value of the
remaining  payments under a class settlement which became effective in June 1989
and resolved a civil lawsuit  against LILCO brought under the Federal  Racketeer
Influenced and Corrupt Organization Act.






                                      20

<PAGE>



Rate Moderation Component

Prior to the LIPA  Transaction,  the Rate  Moderation  Component  (RMC) included
within the electric regulatory  amortizations and balance sheet, represented the
difference  between  the  Company's  revenue   requirements  under  conventional
ratemaking and the revenues provided by its electric rate structure. The RMC was
adjusted for the  operation of the Company's  Fuel  Moderation  Component  (FMC)
mechanism and the  difference  between the Company's  share of actual  operating
costs at NMP2 and amounts provided for in electric rates.

In April  1998,  the PSC  authorized  a  revision  to the  Company's  method  of
recording its monthly RMC amortization from a straight-line levelized basis over
the  Company's  rate year,  to a monthly  amortization  based upon each  month's
forecasted  revenue  requirement,  which more closely aligned such  amortization
with the Company's cost of service.  As a result of this change,  for the period
April 1, 1998 through May 28, 1998,  the Company  recorded  approximately  $51.5
million  more of non-cash RMC credits to income  (representing  accretion of the
RMC balance), or $33.5 million net of tax, than it would have under the previous
method.  Coincident  with the LIPA  Transaction,  which included the sale of the
Company's electric related regulatory assets, the RMC was discontinued.


Dividends and Financial Condition (Liquidity)

On September 10, 1998, the Board of Directors declared a quarterly cash dividend
of $0.445 per share on its outstanding  common stock payable on November 1, 1998
to  shareholders of record on October 15, 1998.  Common stock dividend  payments
for November 1, 1998 amounted to $66.3  million.  Based on recent market prices,
the dividend yield on the Company's common stock  approximates 6.0%. The Company
is currently  paying the  dividend at an annual rate of $1.78 per common  share.
The dividend  rate will be reviewed  annually by the Board of  Directors  and is
scheduled for review sometime within the quarter ending June 30, 1999.  However,
the amount and timing of all dividend  payments is subject to the  discretion of
the Board of  Directors  and will depend upon  business  conditions,  results of
operations,  financial conditions and other factors. The Company expects that as
it achieves the benefit of synergy savings through  expected cost reductions and
gas sales growth from its expanded core gas distribution  business, the dividend
payout ratio will be more  reflective  of the  industry  norm.  In addition,  on
October 30, 1998,  the Board of Directors  declared a quarterly  dividend on the
Company's 7.95% Preferred Stock Series AA of $.495 per share payable on December
1, 1998 to shareholders



                                      21

<PAGE>



of record on November 11, 1998.  The annual dividend rate on the
Series AA is $1.98 per share.

At September 30, 1998,  various  Company  subsidiaries  had  available  lines of
credit.  KeySpan's available bank lines of credit,  which secure the issuance of
commercial paper, amounted to $150 million. The lines of credit are available to
KeySpan and its subsidiary,  Brooklyn Union. In addition,  THEC had an available
line of credit of $135  million,  from which it borrowed $91  million.  In March
1998,  THEC issued $100 million of 8.625%  Senior  Subordinated  Notes due 2008.
These notes are subordinate to borrowings under THEC's line of credit.

As a result of the LIPA  Transaction,  the Company has a  significant  amount of
cash which it intends to use for,  among other things,  the repurchase of shares
of its common stock and the expansion of its  operations  through one or more of
the following  types of  transactions:  mergers with or  acquisitions of another
utility;  investments  in new gas pipelines  (and related assets such as storage
fields and  processing  plants)  and gas  exploration;  or the  purchase  and/or
construction of additional  electric power plants.  However, no assurance can be
given that any of the foregoing  types of  transactions  will occur or that such
transactions,  if completed, will be integrated with the Company's operations or
prove to be profitable.

On  October  30,  1998,  the  Company  announced  that the  Board  of  Directors
authorized  using up to $500  million  for the  purchase  of  common  shares  in
addition  to the  Board's  previous  authorization  to purchase up to 15 million
common shares.  Purchases from the initial authorization commenced on August 17,
1998. As of September  30, 1998 the Company had  repurchased  approximately  3.6
million common shares for approximately  $101 million and as of October 30, 1998
the  Company  had  repurchased   approximately  11  million  common  shares  for
approximately $333 million.

Pursuant to the PSC's orders dated February 5, 1998 and April 14, 1998 approving
the KeySpan  Acquisition,  Brooklyn  Union's and KeySpan Gas East  Corporation's
ability to pay dividends is conditioned  upon  maintenance of a utility  capital
structure  with debt not exceeding 55% and 58%,  respectively,  of total utility
capitalization.  In addition,  the level of dividends paid by both utilities may
not be  increased  from current  levels if a 40 basis point  penalty is incurred
under the customer service performance program.





                                      22

<PAGE>



Utility Rate and Regulatory Matters


                                 Gas Operations

In 1997,  Brooklyn  Union and LILCO filed a joint  petition with the PSC seeking
approval,  under  section  70 of  the  New  York  Public  Service  Law,  of  the
combination  by which  KeySpan and LILCO each would become  subsidiaries  of the
Company. (See Notes to the Condensed Consolidated Financial Statements, Note 2.,
"Sale of LILCO  Assets,  Acquisition  of  KeySpan,  and  Transfer  of Assets and
Liabilities to the Company".) In addition, the petition proposed $1.0 billion of
efficiency  savings,  excluding gas costs,  attributable to operating  synergies
that  are  expected  to be  realized  over  the 10  year  period  following  the
combination, to be allocated to ratepayers net of transaction costs. In December
1997,  Brooklyn Union,  LILCO, the Staff of the Department of Public Service and
six other parties entered into a Settlement  Agreement  (Stipulation)  resolving
all issues among them in the  proceeding  and, by orders dated  February 5, 1998
and April 14, 1998 the PSC approved the Stipulation.

Under the  Stipulation,  effective May 29, 1998,  Brooklyn Union's base rates to
core customers were reduced by $23.866 million annually.  In addition,  Brooklyn
Union is now subject to an earnings sharing provision  pursuant to which it will
be required to credit core customers with 60% of any utility  earnings up to 100
basis points above  certain  threshold  return on equity levels over the term of
the rate plan (other than any earnings associated with discrete  incentives) and
50% of any utility  earnings in excess of 100 basis points above such  threshold
levels.  The threshold levels are 13.75% in rate year 1998, 13.50% in rate years
1999  through  2001,  and  13.25% in rate year 2002.  A safety  and  reliability
incentive mechanism was implemented on the consummation date of the combination,
with a maximum 12 basis point pretax return on equity  penalty if Brooklyn Union
fails to achieve certain safety and reliability performance standards.  With the
exception of the simplification of the customer service  performance  standards,
the  Brooklyn  Union rate plan  approved by the PSC in  September  1996  remains
unchanged.  Any gas cost savings  allocable to Brooklyn Union resulting from the
combination will be reflected in rates to utility customers as those savings are
realized.

Also under the  Stipulation,  a  three-year  gas rate plan was  implemented  for
KeySpan  Gas East  Corporation  which  provides  for,  among  other  things,  an
estimated  reduction in customers' bills of approximately  3.9%,  including fuel
savings, through at least



                                      23

<PAGE>



November  30,  2000.  This gas rate  reduction  will  occur in three  phases  as
follows: (i) a reduction in base rates of approximately $12.2 million to reflect
decreases  in KeySpan  Gas East  Corporation's  cost of  service,  which  became
effective on February 5, 1998; (ii) a base rate reduction of approximately  $6.3
million  associated  with non-fuel  savings  related to the KeySpan  Acquisition
effective on May 29, 1998 and (iii) an expected  reduction in the Gas Adjustment
Clause (GAC) to reflect  annual fuel  savings  associated  with the  transaction
estimated at approximately $4.0 million. KeySpan Gas East Corporation is subject
to an earnings sharing  provision  pursuant to which it is required to credit to
core/firm customers 60% of any utility earnings in any rate year up to 100 basis
points above 11.10% and 50% of any utility earnings in excess of 12.10%.  Both a
customer  service  and a  safety  and  reliability  incentive  performance  were
implemented  effective  December 1, 1997 with maximum  pre-tax  return on equity
penalties  of 40  and  12  basis  points,  respectively,  if  KeySpan  Gas  East
Corporation fails to achieve certain performance standards in these areas.


                       Industry Restructuring Proceedings

Over the past few years,  the PSC has been  formulating  a policy  framework  to
guide the  transition  of New York  State's  gas  distribution  industry  in the
deregulated  gas  industry  environment.  Since May 1,  1996,  customers  in the
small-volume  market have been given the option to purchase  their gas  supplies
from sources other than the Company's two gas utility subsidiaries. Large-volume
customers had this option for a number of years. In addition to transporting gas
that  customers  purchase  from  marketers,  the Company's  utilities  have been
providing  billing,  meter reading and other  services for aggregate  rates that
match the distribution  charge reflected in otherwise  applicable sales rates to
supply these customers.

In November 1998, the PSC issued a policy statement setting forth its vision for
furthering competition in the natural gas industry. Under this vision, regulated
natural gas utilities  (LDCs) would plan to exit the business of purchasing  gas
for and selling gas to customers (the merchant  function) over the next three to
seven  years.   LDC's  would  remain  the  operators  of  the  gas  system  (the
distribution  function)  and the provider of last resort of natural gas supplies
during that period and until  alternatives  are developed.  The PSC's goal is to
encourage  more  competition  at the  local  level by  separating  the  merchant
function from the distribution function.



                                      24

<PAGE>




The PSC has acknowledged that each utility has operating circumstances unique to
its service territory and therefore separation of the merchant and distributions
functions should be done on a  utility-by-utility  basis. With this in mind, the
PSC will institute individual proceedings for each regulated natural gas utility
so that the parties can  determine  the most  effective  means of achieving  the
Commission's goals. In addition, the PSC will also institute generic proceedings
to examine reliability and other issues.

The  Company  conceptually   supports  the  vision  articulated  in  the  policy
statement.  However,  in the Company's  view,  any  transition to a new industry
structure must adequately  address a number of unresolved  issues to ensure that
separating  the merchant and  distribution  functions is in the best interest of
natural gas customers  and is equitable to LDC's.  Such issues  include:  system
reliability,  recovery of prudently  incurred  costs,  the obligation to provide
service to all firm  customers,  tax disparity among  suppliers,  administrative
overheads,  customer  acceptance  and the  obligation  to be  "supplier  of last
resort". Further, the Company will also pursue legislative changes where needed.
The Company is not currently  able to determine  what effect these  changes,  if
implemented, may have on its operations.


Electric Operations - LIPA Agreements

The  Company,  through  its  subsidiaries,  provides  services to LIPA under the
following agreements:

                       Management Services Agreement (MSA)

KeySpan  Electric  Services  LLC  ("KeySpan  Electric")  manages the  day-to-day
operations,  maintenance and capital  improvements of the T&D system.  LIPA will
exercise  control  over  the  performance  of the T&D  system  through  specific
standards for  performance and incentives to KeySpan  Electric.  In exchange for
providing the services,  KeySpan Electric will earn a $10 million management fee
and will be operating  under a contract  which provides  certain  incentives and
imposes certain penalties based upon its performance.  Annual service incentives
or penalties  under the MSA can reach $7 million if certain targets are achieved
or  not  achieved.  KeySpan  Electric  can  earn  certain  incentives  for  cost
reductions  associated with its fixed fee to LIPA. These incentives  provide for
KeySpan  Electric to retain 100% of its cost  reductions on the first $5 million
in  reductions  and retain 50% of  additional  cost  reductions up to 15% of the
total cost budget, thereafter all savings accrue to LIPA.



                                      25

<PAGE>



With  respect  to cost  overruns,  KeySpan  Electric  will  absorb the first $15
million of overruns,  with a sharing of overruns  above $15  million.  There are
certain limitations on the amount of cost sharing of overruns.

                          Power Supply Agreement (PSA)

KeySpan  Generation  LLC  ("KeySpan  Generation")  will  sell to LIPA all of the
capacity and, to the extent requested, energy from KeySpan Generation's existing
oil and gas-fired  generating plants. Sales of capacity and energy are made with
rates approved by the Federal Energy Regulatory Commission(FERC).  Initial rates
that were accepted by FERC (and are currently under review) were  implemented on
May 29,  1998.  The rates may be modified in the future in  accordance  with the
terms of the PSA for (i) agreed  upon labor and expense  indices  applied to the
base  year,(ii)  a  return  of and on net  capital  additions  required  for the
generating  facilities,  and (iii) reasonably incurred expenses that are outside
the control of KeySpan  Generation.  The PSA provides  incentives  and penalties
that can total $4 million annually for the maintenance of the output  capability
of the generating facilities.

                        Energy Management Agreement(EMA)

The EMA provides for KeySpan Energy Trading Services LLC ("KETS") to procure and
manage fuel supplies for LIPA to fuel the generating  facilities  under contract
to it and perform off-system capacity and energy purchases on a least-cost basis
to meet LIPA's needs. In exchange for these services KETS earns an annual fee of
$1.5 million. In addition, KETS will make off-system sales of excess output from
the  generating  facilities  and  other  power  supplies  either  owned or under
contract  to  LIPA.  LIPA is  entitled  to  two-thirds  of the  profit  from any
off-system  energy  sales  arranged by KETS.  The EMA  provides  incentives  and
penalties  that can total $7 million  annually for  performance  related to fuel
purchases and off- system power purchases.

Under  the  terms  of the  various  LIPA  contracts,  the  combined  performance
incentives  and  penalties for the MSA, PSA and EMA can not exceed $16.5 million
annually.










                                      26

<PAGE>



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.  (See  Notes to the  Condensed  Consolidated  Financial
Statements, Note 4., "Environmental Matters".)


Year 2000 Readiness

The Company has  evaluated  the extent to which  modifications  to its  computer
software, hardware and databases will be necessary to accommodate the year 2000.
Many computer  applications  are based on two digits and therefore  require some
additional programming to recognize the start of the new millennium.


                                System Readiness

A  corporate-wide  program  has been  established  to review  Company  software,
hardware, embedded systems and associated compliance plans. The program includes
both  information  technology  (IT)  and  non-IT  systems.  Non-It  systems  are
basically  vendor  supplied  embedded  systems  that are  critical  to the daily
operations of the Company.  These systems are generally in the areas of electric
production, distribution, transmission, gas distribution and communications. The
readiness of suppliers and vendor  systems is also under review.  The project is
under  the  direction  of the year  2000  Program  Office,  chaired  by the Vice
President, Technology Operations and Corporate Y2K Officer.

The critical areas of operations are being addressed  through a business process
review  methodology.  Each of the Company's critical business processes is being
reviewed  to:  identify  and  inventory  sub-components;  assess  for year  2000
compliance;  establish  repair  plans  as  necessary;  and  test in a year  2000
environment.  The inventory phase for both the IT systems and non- IT systems is
complete.  The total assessment  phase is 100% complete for the IT systems,  and
50% complete for non-IT systems. The assessment phase is expected to be complete
by December 31, 1998.

Hardware,  software  and embedded  systems are being tested and  certified to be
year 2000  compliant.  Repair and testing is now 65% complete for the IT systems
and 20% complete for the non-IT



                                      27

<PAGE>



systems.  Components  needed to support  the  critical  business  processes  and
associated business contingency plans are expected to be year 2000 ready by July
1, 1999.

Vendors and business partners needed to support the critical business  processes
are also being reviewed for their year 2000  compliance.  At this time,  none of
these  vendors  have  indicated  to the  Company  that they  will be  materially
adversely affected by the year 2000 problem.


                      Risk Scenarios and Contingency Plans

The  Company is  presently  in the  process of  analyzing  each of the  critical
business  processes to identify possible year 2000 risks. Each critical business
process  will be certified by the  responsible  corporate  officer as being year
2000 ready.  However,  the most reasonably  likely worst case scenarios are also
being identified.  Business operating procedures will be reviewed to ensure that
risks are  minimized  when  entering  the year 2000 and other  high risk  dates.
Contingency plans are being developed to address possible failure points in each
critical  business  process,  which plans are scheduled to be completed by July,
1999.

While the Company must plan for the  following  possible  worst case  scenarios,
management believes that these events are improbable:

Loss of gas pipeline delivery:

The  Company's  gas utility  subsidiaries  receive gas  delivery  from  multiple
national and international  pipelines and therefore the effects of a loss in any
one pipeline can be mitigated through the use of other pipelines.  Complete loss
of all the supply lines is not considered a likely scenario.  Nevertheless,  the
impact  of the  loss  of any  one  pipeline  is  dependent  on  temperature  and
vaporization rate. Should gas supply be decreased due to the loss of a pipeline,
each of the  Company's  gas  utility  subsidiaries  also  has a local  liquefied
natural gas  facility  under its direct  control that stores  sufficient  gas to
offset the temporary  loss of any one  pipeline.  The partial loss of gas supply
will not significantly  affect the Company's ability to supply electricity since
most of the plants have the ability to operate on oil.

Loss of electric grid  inter-connections/Company  operated electric transmission
and distribution facilities:





                                      28

<PAGE>



Electric  utilities  are  physically  connected  on a  regional  basis to manage
electric load.  This is often  referred to as the regional  grid.  Presently the
Company is working,  on behalf of LIPA, with other regional utilities to develop
a coordinated  operating  plan.  Should there be an instability in the grid, the
Company has the ability to remove LIPA's facilities and operate independently.

Certain  electric  system  components  such  as  individual   generating  units,
transmission  and  distribution  control  facilities,  and the  electric  energy
management  system have the  potential to be affected by the year 2000  problem.
The company has inventoried  both its and LIPA's electric system  components and
developed a plan to certify mission  critical  processes as year 2000 compliant.
As manager of the  transmission  and  distribution  facilities,  the  Company is
responsible for ensuring that these facilities operate properly and that related
systems are year 2000 compliant.  Under the terms of the various LIPA contracts,
LIPA will  reimburse  the Company for  certain  year 2000 costs  incurred by the
Company  for these  facilities.  Contingency  plans are being  developed,  where
appropriate,  for  loss of  critical  system  elements.  The  Company  presently
estimates that  contingency  plans regarding its electric  facilities  should be
completed by July 1999.

Loss of telecommunications:

The Company has a substantial dependency on many  telecommunication  systems and
services  for both  internal  and  external  communication  providers.  External
communications  with the public  and the  ability of  customers  to contact  the
Company in cases of  emergency  response is  essential.  The Company  intends to
coordinate  its  emergency  response  efforts  with  the  offices  of  emergency
management  of the  various  local  governments  within its  service  territory.
Internally,  there  are a  number  of  critical  processes  in both  the gas and
electric  operating  areas  that  rely  on  external  communication   providers.
Contingency plans will address methods for manually  monitoring these functions.
These contingency plans should be finalized by July 1999.

In  addition  to the above,  the  Company  is also  planning  for the  following
scenarios:   short  term  reduction  in  system  power  generating   capability;
limitation to fuel oil operations; reduction in quality of power output; loss of
automated meter reading; loss of ability to read customer meters,  prepare bills
and collect and process customer payments; and loss of the  purchasing/materials
management system.





                                      29

<PAGE>



The  Company  believes  that,  with   modifications  to  existing  software  and
conversions  to new  hardware  and  software,  the year 2000 issue will not pose
significant  operational  problems for its computer  systems.  However,  if such
modifications  and  conversions  are not made, or are not completed on time, and
contingency plans fail, the year 2000 issue could have a material adverse impact
on the  operations  of the  Company,  the extent of which  cannot  currently  be
determined.


                               Cost of Remediation

The Company expects to spend a total of  approximately  $30.9 million to address
the year 2000 issue. As of October 31, 1998,  $11.3 million had been expended on
the project.  The largest percentage expended is attributable to the assessment,
repair and testing of  corporate  IT  supported  computer  software and in-house
written  applications,  which totals $8.4 million.  In 1998,  year 2000 IT costs
represent  11.6% of the total IT  budget.  In 1999,  the IT year 2000  costs are
expected  to be 8.3% of the IT  budget.  The year 2000  issue  has not  directly
resulted in delaying any IT projects.  Presently,  the Company expects that cash
flow from  operations  and cash on-hand will be sufficient to fund the year 2000
project expenditures.


Risk Management

In addition to risk inherent in commodity  fuel  contractual  arrangements,  the
Company's  utility,  marketing and gas exploration  and production  subsidiaries
employ, from time to time, derivative financial instruments, such as natural gas
and oil  futures,  options  and swaps,  for the  purpose of hedging  exposure to
commodity price risk. The value at risk of the related  positions as measured by
the maximum adverse price movement in a single day is not material.

Whenever hedge positions are in effect,  the Company's  subsidiaries are exposed
to credit risk in the event of  nonperformance  by counter parties to derivative
contracts,  as well as nonperformance by the counter parties of the transactions
against which they are hedged. The Company believes that the credit risk related
to the futures,  options and swap instruments is no greater than that associated
with the  primary  commodity  contracts  which  they  hedge,  as the  instrument
contracts  are with major  investment  grade  financial  institutions,  and that
elimination of the price risk lowers the Company's  overall business risk. There
were no significant open hedge positions at September 30, 1998 and there



                                      30

<PAGE>



was no  opportunity  to  establish  acceptable  hedging  strategies  during  the
quarter.


New Financial Accounting Standards

The  Financial  Accounting  Standards  Board has recently  issued the  following
accounting  standards  that will be  implemented  by the  Company:  Statement of
Financial  Accounting  Standards  No.  131,  "Disclosure  about  Segments  of an
Enterprise  and Related  Information"  (SFAS No.  131);  Statement  of Financial
Accounting Standards No. 132,  "Employer's  Disclosures about Pensions and Other
Postretirement  Benefits "(SFAS No. 132); and Statement of Financial  Accounting
Standards  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities" (SFAS No. 133).

The Company  will adopt SFAS No. 131 and SFAS No. 132 for its  current  year end
reporting.  The Company  will adopt SFAS No. 133 in the first  quarter of fiscal
year 2000. The Company does not expect any material  effect from the adoption of
these statements.


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.  These  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; State and Federal regulatory
initiatives that increase  competition,  threaten cost and investment  recovery,
and impact rate  structures;  the ability of the Company to successfully  reduce
its cost structure;  the successful  integration of the Company's  subsidiaries;
the degree to which the Company develops  non-regulated  business ventures;  the
ability  of  the  Company  to  identify  and  make  complimentary  acquisitions;
inflationary  trends and  interest  rates;  the  ability of the  Company and its
significant vendors to modify their computer software, hardware and databases to
accommodate  the year 2000;  and other risks detailed from time to time in other
reports and other documents filed by the Company and its  predecessors  with the
Securities and Exchange Commission. For any of these statements,



                                      31

<PAGE>



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.




                                      32

<PAGE>



Part II.  Other Information

Item 1. Legal Proceedings

Subsequent  to the  closing of the LIPA  Transaction  and  KeySpan  Acquisition,
former  shareholders of LILCO commenced 13 class action lawsuits in the New York
State Supreme Court,  Nassau County,  against one or more of LILCO,  each of the
former  officers  and  directors of LILCO and the  Company.  These  actions were
consolidated in August 1998. The consolidated  action alleges that in connection
with certain  payments LILCO had determined  were payable in connection with the
LIPA and KeySpan  transaction  to LILCO's  chairman,  and to former  officers of
LILCO  ("Payments") (1) the named defendants  breached their fiduciary duty owed
to LILCO and KeySpan former and/or current  Company  shareholders as a result of
the Payments (2) the named defendants  intended to defraud such  shareholders by
means of  manipulative,  deceptive and wrongful  conduct,  including  materially
inaccurate  and  incomplete  news  reports and filings with the  Securities  and
Exchange Commission;  and (3) the named defendants recklessly and/or negligently
failed to disclose  material  facts  associated  with the Payments.  The Company
moved to dismiss the consolidated complaint on September 28, 1998.

In addition,  three shareholder  derivative actions have been commenced pursuant
to which such  shareholders seek the return of the Payments or damages resulting
from among other things,  an alleged breach of fiduciary duty on the part of the
former LILCO officers and  directors.  One action was brought on behalf of LILCO
in  federal  court,  and the other two  actions  were  brought  on behalf of the
Company in New York State Supreme Court, Nassau County.

A class action  lawsuit has also been filed in the New York State Supreme Court,
Suffolk County,  by the County of Suffolk against LILCO's former officers and/or
directors.  The County of Suffolk  alleges that the Payments were improper,  and
seeks to recover the Payments for the benefit of Suffolk County ratepayers.

Finally,  two class action securities suits were filed in federal court alleging
that certain  officers and  directors of LILCO  violated the federal  securities
laws by failing to properly disclose that the transactions with LIPA and KeySpan
would  trigger the  Payments.  The Company  expects  that these  actions will be
consolidated.

The Company  believes the  allegations in the suits are entirely  without merit,
and is determined to defend the actions vigorously.  Under the terms of the LIPA
Agreement,  the Company has assumed all  indemnification  obligations  LILCO may
have to its former  officers and directors and has agreed to indemnify LILCO for
certain



                                      33

<PAGE>



liabilities  relating  to LILCO's  activities  prior to the  closing of the LIPA
Transaction, including the activity relating to the Payments.

In addition,  certain related  proceedings  have been commenced  relating to the
Payments and disclosures made by LILCO with respect thereto.  These  proceedings
include  investigations  by the New York State  Attorney  General,  the New York
State  Public  Service  Commission  and LIPA,  joint  hearings  conducted by two
committees of the New York State assembly,  and an informal,  non-public inquiry
by the Securities and Exchange Commission. At this time the Company is unable to
determine  the outcome of these  proceedings,  or any of the lawsuits  described
above.

In October 1998,  the County of Suffolk and the Towns of Huntington  and Babylon
commenced an action against LIPA, the Company,  the PSC and others in the United
States  District  Court for the Eastern  District  of New York (the  "Huntington
Lawsuit").  The  Huntington  Lawsuit  alleges,  among other  things,  that LILCO
ratepayers (i) have a property right to receive or share in the alleged  capital
gain that  resulted  from the LIPA  Transaction  (which gain is alleged to be at
least $1 billion);  and (ii) that LILCO was required to refund to ratepayers the
amount of a  Shoreham-related  deferred tax reserve (alleged to be at least $800
million)  carried  on the  books  of  LILCO  at  the  consummation  of the  LIPA
Transaction.  The  Company  has  not yet  been  formally  made a  party  to this
proceeding  and is  currently  unable to  determine  the  effect,  if any,  this
proceeding will have on its financial condition or results of operations.


Item 5. Other Information

Acquisition of 50% Interest in Gulf Canada Resources Limited

On November  3, 1998,  the Company  announced  that it had reached an  agreement
under which it will acquire,  through its subsidiary  KeySpan Energy Development
Corporation,  a 50 percent interest in Gulf Canada Resources Limited's midstream
business in western  Canada and will form a partnership  with Gulf Canada called
"Gulf Midstream Services  Partnership (GMS)". The new business will offer a full
range of  midstream  services,  from  wellhead  to  natural  gas  marketers  and
producers  in  western  Canada.  GMS's  assets  will  include  interests  in  14
processing plants and associated  gathering systems.  The facilities can process
approximately  1.4  billion  cubic  feet of  natural  gas  daily,  of which  the
partnership's  share is  approximately  750 million cubic feet per day. GMS will
also  have a natural  gas  liquids  fractionation,  storage  and  transportation
facilities in Edmonton, a major natural gas liquids



                                      34

<PAGE>



hub.  GMS will be a major  marketer  of natural  gas and  natural gas liquids in
western Canada. Closing of this transaction is subject to a number of conditions
including completion of certain due diligence requirements,  receipt of required
third party  approvals  or the waiver or  expiration  of certain  rights and the
preparation of satisfactory documentation.

The Company will pay Gulf approximately US$ 189 million,  subject to adjustment.
In  addition,  the Company  will  provide a  three-year  US$ 65 million  loan on
commercial terms that at Gulf's option can be repaid or exchanged by the Company
for an additional  interest in GMS (currently  anticipated to equal 19.7%).  The
Company  has  agreed  to fund  Gulf's  share of  certain  discretionary  capital
expenditures  in GMS for the next three  years up to a maximum of  approximately
US$ 78 million,  in exchange for a  proportionate  increased share of GMS's cash
flow.


Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

(10a)     Indenture  of Trust  dated as of  December  1, 1997 by and between New
          York State Energy Research and Development Authority (NYSERDA) and The
          Chase  Manhattan  Bank,  as  Trustee,  relating  to the 1997  Electric
          Facilities Revenue Bonds (EFRBs), Series A.

         Participation  Agreement  dated as of  December  1, 1997 by and between
         NYSERDA and Long Island  Lighting  Company  relating to the 1997 EFRBs,
         Series A.

(10b)     Employment  Agreement dated September 10 1998, between the Company and
          Robert B. Catell.

(27)      Financial Data Schedule on Schedult UT.



(b) Reports on Form 8-K

On August 5, 1998,  the  Company  filed a Current  Report on Form 8-K  providing
disclosure under Item 5 applicable to the following:

     (1)  the  resignation of Dr.  William J.  Catacosinos as Chairman and Chief
          Executive  Officer  and as a director,  and the  election of Robert B.
          Catell to succeed Dr. Catacosinos



                                    35

<PAGE>



   as Chairman and Chief Executive Officer;

     (2)  the  authorization  of the Board of Directors to purchase up to 10% of
          the Company's  outstanding  common stock, or  approximately 15 million
          shares, through open market purchases;

     (3)  the  announcement  that a subsidiary  of the Company,  KeySpan  Energy
          Development  Corporation,  had joined Duke Energy  Corporation and the
          Williams Companies in developing the Cross BaySM pipeline,  which will
          transport gas from existing interstate  pipelines in New Jersey to New
          York City and Long Island.

On  September  11,  1998,  the  Company  filed a Current  Report on Form 8-K, as
amended on September 22, 1998 and September 29, 1998, providing disclosure under
Items 4, 5 and 8 applicable to the following:

     (1)  the  appointment  of  Arthur   Andersen  LLP  as  independent   public
          accountants  for the Company for its fiscal year ending  December  31,
          1998;

     (2)  the appointment of certain officers of the Company;

     (3)  authorization to amend the Company's  Certificate of Incorporation and
          By-Laws to provide that the Company  would have  principal  offices in
          each of Nassau County and Kings County;  and  confirmation of existing
          By-law  provisions  relating  to the timing of the annual  meeting and
          certain  shareholder related procedural matters for the annual meeting
          and proxy statement;

     (4)  authorization  to permit the Company to conduct its business under the
          name KeySpan Energy;

     (5)  creation  of  certain   committees  of  the  Board  of  Directors  and
          designation of certain members of such committees; and

     (6)  the change in the Company's fiscal year end to December 31.



                                      36

<PAGE>


                    MARKETSPAN 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.



                                       MARKETSPAN CORPORATION
                                             (Registrant)



Date November 16, 1998                  s/ Craig G. Matthews
                                        ----------------------
                                          Craig G. Matthews
                                       Executive Vice President and
                                       Chief Financial Officer


Date November 16, 1998                  s/ Ronald S. Jendras
                                        ---------------------
                                          Ronald S. Jendras
                                       Vice President, Controller and
                                       Chief Accounting Officer















                                      37