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

For the quarterly period ended       June 30, 1999
                                       OR
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     For the transition period from to

                         Commission file number 1-14161

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

             New York                             11-3431358
(State or other jurisdiction of                (I.R.S. Employer
 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)

                             MARKETSPAN CORPORATION
(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 July 29, 1999
         $.01 par value                                      139,292,752



<PAGE>

                      KEYSPAN CORPORATION AND SUBSIDIARIES

                                      INDEX
                                      -----

          Part I. FINANCIAL INFORMATION                        Page No.
                                                               --------
Item I. Financial Statements

                  Condensed Consolidated Balance Sheet -
                  June 30, 1999 and December 31, 1998                 3

                  Condensed Consolidated Statement of Income -
                  Three and Six Months Ended June 30,
                  1999 and 1998                                       5

                  Condensed Consolidated Statement of Cash Flows -
                  Three and Six Months Ended June 30,
                  1999 and 1998                                       6

                  Notes to Condensed Consolidated Financial
                  Statements                                          7

Item 2. Management's Discussion and Analysis Of Financial
                  Condition and Results of Operations                 19

Item 3. Quantitative and Qualitative Disclosures
                  About Market Risk                                   36


                           Part II. OTHER INFORMATION

Item 1 - Legal Proceedings                                            37

Item 4. Submission of Matters to a Vote of
                  Security Holders                                    40

Item 6 - Exhibits and Reports on Form 8-K                             41


Signature                                                             43




                                        2

<PAGE>
<TABLE>
<CAPTION>

                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (IN THOUSANDS OF DOLLARS)


                                                            JUNE 30,1999         December 31, 1998
                                                         ------------------     -------------------
                                                            (UNAUDITED)               (Audited)


ASSETS

<S>                                                 <C>                      <C>
CURRENT ASSETS
  Cash and temporary cash investments               $             307,295    $            942,776
  Customer accounts receivable                                    201,017                 320,836
  Other accounts receivable                                       203,568                 230,479
  Allowance for uncollectible accounts                            (24,142)                (20,026)
  Special deposits                                                108,377                 145,684
  Gas in storage, at average cost                                  95,178                 145,277
  Materials and supplies, at average cost                          75,835                  74,193
  Other                                                           122,848                  72,818
                                                        ------------------     -------------------
                                                                1,089,976               1,912,037
                                                        ------------------     -------------------


EQUITY INVESTMENTS                                                308,578                 289,193
                                                        ------------------     -------------------

PROPERTY
  Electric                                                      1,322,162               1,109,199
  Gas                                                           3,330,828               3,257,726
  Other                                                           361,595                 345,007
  Accumulated depreciation                                     (1,540,284)             (1,480,038)
  Gas exploration and production, at cost                       1,052,428                 994,104
  Accumulated depletion                                          (481,478)               (447,733)
                                                        ------------------     -------------------
                                                                4,045,251               3,778,265
                                                        ------------------     -------------------


DEFERRED CHARGES
  Regulatory assets                                               311,577                 279,524
  Goodwill                                                        241,316                 254,040
  Other                                                           388,480                 382,043
                                                        ------------------     -------------------
                                                                  941,373                 915,607
                                                        ------------------     -------------------
TOTAL ASSETS                                        $           6,385,178    $          6,895,102
                                                        ==================     ===================

</TABLE>


 See accompanying notes to the Condensed Consolidated Financial Statements.



                                                               3
<PAGE>


<TABLE>
<CAPTION>

                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (IN THOUSANDS OF DOLLARS)

                                                           JUNE 30,1999         December 31, 1998
                                                       ------------------      -------------------
                                                           (UNAUDITED)                (Audited)

 LIABILITIES AND CAPITALIZATION
<S>                                                  <C>                      <C>
 CURRENT LIABILITIES
   Current maturities of long-term debt              $               1,000    $            398,000
   Current redemption of preferred stock                           363,000                       -
   Accounts payable and accrued expenses                           421,875                 519,288
   Dividends payable                                                66,095                  66,232
   Taxes accrued                                                     8,939                  69,742
   Customer deposits                                                30,075                  29,774
   Interest accrued                                                 15,306                  19,965
                                                         ------------------     -------------------
                                                                   906,290               1,103,001
                                                         ------------------     -------------------

 DEFERRED CREDITS AND OTHER LIABILITIES
   Regulatory liabilities                                           26,235                  27,854
   Deferred federal income tax                                     163,948                  71,549
   Operating reserves                                              486,952                 457,459
   Other                                                            80,239                  75,740
                                                         ------------------     -------------------
                                                                   757,374                 632,602
                                                         ------------------     -------------------

 CAPITALIZATION
   Common stock, $.01 par value, authorized
     450,000,000 shares; outstanding 140,120,152
     and 144,628,654 shares stated at                            2,973,388               2,973,388
   Retained earnings                                               496,242                 474,188
   Accumulated foreign currency adjustment                           4,783                    (952)
   Treasury stock purchased                                       (546,448)               (423,716)
                                                         ------------------     -------------------
      Total common equity                                        2,927,965               3,022,908
   Preferred stock                                                  84,485                 447,973
   Long-term debt                                                1,637,491               1,619,067
                                                         ------------------     -------------------
 TOTAL CAPITALIZATION                                            4,649,941               5,089,948
                                                         ------------------     -------------------

 MINORITY INTEREST IN SUBSIDIARY COMPANY                            71,573                  69,551
                                                         ------------------     -------------------
 TOTAL LIABILITIES AND CAPITALIZATION                $           6,385,178    $          6,895,102
                                                         ==================     ===================

</TABLE>


See accompanying notes to the Condensed Consolidated Financial Statements.


                                                               4

<PAGE>
<TABLE>
<CAPTION>

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


                                                   THREE MONTHS                    SIX MONTHS
                                                  ENDED JUNE 30,                 ENDED JUNE 30,
                                                1999          1998               1999          1998
                                             ------------   ----------        ------------  -----------

 REVENUES
<S>                                        <C>           <C>               <C>            <C>
 Gas Distribution                          $     277,482 $    152,904      $      993,312 $    424,798
 Gas Exploration and Production                   35,021       11,713              61,541       11,713
 Electric Services                               189,734       68,365             364,271       68,365
 Electric Distribution                                 -      330,011                   -      885,693
 Energy Related Services                          37,125        6,386              78,557        6,386
                                             ------------   ----------        ------------  -----------
 Total Revenues                                  539,362      569,379           1,497,681    1,396,955

 OPERATING EXPENSES
 Purchased gas                                    96,819       63,189             408,073      191,590
 Fuel and purchased power                              -       91,762                   -      257,786
 Operations and maintenance                      242,066      187,940             485,148      320,102
 Depreciation, depletion and amortization         59,382       43,990             117,568       88,199
 Electric regulatory amortizations                     -      (40,005)                  -      (79,875)
 Operating taxes                                  77,145       97,768             181,038      214,880
                                             ------------   ----------        ------------  -----------
 Total Operating Expenses                        475,412      444,644           1,191,827      992,682
                                             ------------   ----------        ------------  -----------
 OPERATING INCOME                                 63,950      124,735             305,854      404,273
                                             ------------   ----------        ------------  -----------

 OTHER INCOME AND (DEDUCTIONS)
 Income from equity investments                    2,509         (207)              5,481         (207)
 Interest income                                   7,746       12,895              18,789       16,609
 Minority interest                                (1,887)        (568)             (2,191)        (568)
 Transaction related expenses,net                      -       (6,450)                  -       (6,450)
 Other                                            (2,820)      10,177                (551)      13,797
                                             ------------   ----------        ------------  -----------
 Total Other Income                                5,548       15,847              21,528       23,181
                                             ------------   ----------        ------------  -----------
 INCOME BEFORE INTEREST CHARGES
   AND INCOME TAXES                               69,498      140,582             327,382      427,454
                                             ------------   ----------        ------------  -----------

 INTEREST CHARGES                                 33,756       76,825              68,340      176,852
                                             ------------   ----------        ------------  -----------

 INCOME TAXES
      Current                                    (39,505)     121,184               7,141      143,757
      Deferred                                    52,258      (94,677)             85,691      (46,344)
                                             ------------   ----------        ------------  -----------
 Total Income Taxes                               12,753       26,507              92,832       97,413
                                             ------------   ----------        ------------  -----------

 NET INCOME                                       22,989       37,250             166,210      153,189
 Preferred stock dividend requirements             8,690       11,216              17,379       24,163
                                             ------------   ----------        ------------  -----------
 EARNINGS FOR COMMON STOCK                 $      14,299 $     26,034      $      148,831 $    129,026

 Foreign Currency Adjustment                       2,425       (1,429)              5,735       (1,429)

                                             ============   ==========        ============  ===========
 COMPREHENSIVE INCOME                      $      16,724 $     24,605      $      154,566 $    127,597
                                             ============   ==========        ============  ===========

 AVERAGE COMMON
   SHARES OUTSTANDING (000)                      140,749      134,166             141,865      127,916

 BASIC AND DILUTED EARNINGS
   PER COMMON SHARE                        $        0.10 $       0.19      $         1.05 $       1.01
                                             ============   ==========        ============  ===========

</TABLE>

See accompanying notes to the Condensed Consolidated Financial Statements.

                                        5



<PAGE>
<TABLE>
<CAPTION>
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
                            (IN THOUSANDS OF DOLLARS)

                                                                THREE MONTHS      Three Months        SIX MONTHS         Six Months
                                                                    ENDED             Ended              ENDED             Ended
                                                               JUNE 30, 1999      June 30, 1998      JUNE 30, 1999     June 30, 1998
                                                               ---------------    --------------    ----------------   -------------
OPERATING ACTIVITIES

<S>                                                        <C>             <C>               <C>                <C>
 Net Income                                                $       22,989  $         37,250  $          166,210 $         153,189
 ADJUSTMENTS TO RECONCILE NET INCOME TO NET
       CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
   Depreciation, depletion and amortization                        59,382            43,990             117,568            88,199
   Electric regulatory amortization                                     -           (40,005)                  -           (79,875)
   Deferred income tax                                             52,258           (94,677)             85,691           (46,344)
   Income from equity investments                                  (2,509)              207              (5,481)              207
   Dividends from equity investments                                    -                 -               4,296                 -
 CHANGES IN ASSETS AND LIABILITIES
   Accounts receivable                                            217,523            90,418             146,397            82,095
   Materials and supplies, fuel oil and gas in storage            (54,475)           (3,766)             48,252            66,858
   Accounts payable and accrued expenses                          (75,596)           (9,864)           (161,065)          (89,652)
   Interest accrued                                                (2,433)           67,486              (4,647)           56,306
   Special deposits                                                12,449            65,947              37,307            37,588
   Pensions and other post retirement benefits                          -          (285,212)                  -          (285,212)
   Other                                                          (30,539)         (113,481)            (35,856)          (96,360)
                                                             -------------    --------------    ----------------   ---------------
 Net Cash Provided by (Used in)  Operating Activities             199,049          (241,707)            398,672          (113,001)
                                                             -------------    --------------    ----------------   ---------------

 INVESTING ACTIVITIES

 Capital expenditures                                            (310,031)         (100,199)           (396,362)         (155,935)
 Net cash from KeySpan Acquisition                                      -           165,168                   -           165,168
 Net proceeds from LIPA Transaction                                     -         2,314,588                   -         2,314,588
 Other                                                             (3,563)           (8,390)             12,451           (17,679)
                                                              -------------    --------------    ----------------   ---------------
 Net Cash (Used in) Provided by Investing Activities             (313,594)        2,371,167            (383,911)        2,306,142
                                                             -------------    --------------    ----------------   ---------------

 FINANCING ACTIVITIES

 Proceeds from sale of common stock                                     -             6,514                   -            11,068
 Treasury stock purchased                                         (68,671)                -            (122,732)                -
 Issuance of preferred stock                                            -            75,000                   -            75,000
 Issuance of long-term debt                                         8,000                 -              15,000                 -
 Payment of long-term debt                                       (397,000)         (100,000)           (397,000)         (100,000)
 Preferred stock dividends paid                                    (8,690)          (12,926)            (17,379)          (25,873)
 Common stock dividends paid                                      (63,323)          (90,353)           (127,683)         (144,385)
 Other                                                                186           (16,965)               (448)          (17,297)
                                                             -------------    --------------    ----------------   ---------------
 Net Cash (Used in) Financing Activities                         (529,498)         (138,730)           (650,242)         (201,487)
                                                             -------------    --------------    ----------------   ---------------
 Net (Decrease) or Increase in Cash and Cash Equivalents   $     (644,043) $      1,990,730  $         (635,481)$       1,991,654
                                                             =============    ==============    ================   ===============

 Cash and cash equivalents at beginning of period          $      951,338  $        180,919  $          942,776 $         179,995
 Net (Decrease) or Increase in cash and cash equivalents         (644,043)        1,990,730            (635,481)        1,991,654
                                                             =============    ==============    ================   ===============
 Cash and Cash Equivalents at End of Period                $      307,295  $      2,171,649  $          307,295 $       2,171,649
                                                             =============    ==============    ================   ===============
</TABLE>

See accompanying notes to the Condensed Consolidated Financial Statements.



                                        6


<PAGE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.       ORGANIZATION OF THE COMPANY

         KeySpan 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")and  following  the  acquisition  of KeySpan  Energy
         Corporation ("KSE"). The Company is a "predominately intrastate" public
         utility  holding  company  exempt  from most of the  provisions  of the
         Public Utility Holding Company Act of 1935, as amended.

         On May 28, 1998, the Company  completed two business  combinations as a
         result of which it (i) became the successor operator of the non-nuclear
         electric generating facilities,  gas distribution operations and common
         plant  formerly  owned by LILCO  and  entered  into  long-term  service
         agreements  to  operate  the  electric  transmission  and  distribution
         ("T&D")  system  acquired  by LIPA (the "LIPA  Transaction");  and (ii)
         acquired  KSE,  the parent  company of The  Brooklyn  Union Gas Company
         ("Brooklyn Union")(the "KeySpan Acquisition").

         With the exception of a small portion of Queens  County,  the Company's
         subsidiaries are the only providers of gas distribution services in the
         New York City  counties  of Kings,  Richmond  and  Queens  and the Long
         Island  counties of Nassau and  Suffolk.  Brooklyn  Union  provides gas
         distribution  services to  customers  in the New York City  boroughs of
         Brooklyn,  Queens and Staten Island,  and KeySpan Gas East  Corporation
         d/b/a Brooklyn Union of Long Island  ("Brooklyn Union of Long Island"),
         a Company subsidiary,  provides gas distribution  services to customers
         in the Long Island  counties  of Nassau and  Suffolk  and the  Rockaway
         Peninsula of Queens County.

         In addition, Company subsidiaries operate the electric T&D system owned
         by LIPA,  own and sell  capacity and energy to LIPA from the  Company's
         generating  facilities  located on Long Island and manage fuel supplies
         for  LIPA to fuel  the  Company's  Long  Island  generating  facilities
         through  long-term  service  contracts that range from eight to fifteen
         years.  Moreover,  on June 18, 1999,  Company  subsidiaries  became the
         owner,  lessee and operator of the 2,168 megawatt  Ravenswood  electric
         generation  facility located in Long Island City, Queens.  (See Note 10
         "Contractual  Obligations and  Contingencies"  for a description of the
         Ravenswood Acquisition.)



                                        7

<PAGE>




         Other Company  subsidiaries are involved in gas and oil exploration and
         production; wholesale and retail gas and electric marketing; appliance,
         heating,   ventilation  and  air  conditioning   services;   and  large
         energy-system ownership,  installation and management. Further, certain
         subsidiaries   have  investments  in  natural  gas  pipelines  and  gas
         distribution facilities; midstream natural gas processing and gathering
         facilities    and   gas   storage    facilities,    domestically    and
         internationally.   (See  Note  8  "Business  Segments"  for  additional
         information.)


2.       BASIS OF PRESENTATION

         The  financial  statements  presented  herein  reflect  the  results of
         operations  of the  consolidated  Company  for the three and six months
         ended June 30, 1999. For financial reporting purposes,  LILCO is deemed
         the acquiring company pursuant to a purchase accounting  transaction in
         which  KSE  was  acquired.   Consequently,   the  financial  statements
         presented  herein  for the three and six  months  ended  June 30,  1998
         reflect the results of operations of the consolidated  Company from May
         29, 1998 through June 30, 1998.  Periods prior to May 29, 1998,  (i.e.,
         January 1, 1998 through May 28,  1998)reflect  results of operations of
         LILCO  only.  Since  the  acquisition  of KSE  was  accounted  for as a
         purchase,  purchase accounting  adjustments,  including goodwill,  have
         been reflected in the financial statements included herein.

         The weighted  average number of common shares  outstanding  used in the
         calculation  of earnings  per share for the three and six months  ended
         June  30,  1999  and 1998  reflect  the  issuance  of  common  stock to
         consummate the KeySpan  Acquisition  and the reduction  associated with
         repurchases of common stock.

         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 June 30,
         1999,  and the results of its  operations  and cash flows for the three
         and six months ended June 30, 1999 and 1998. 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.

         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  statements  and notes thereto  included in the Company's
         Annual Report on Form 10-K for the Transition Period ended December 31,
         1998.


3.       REVENUES

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

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

         Electric  Services  revenues are derived from  billings to LIPA for the
         management and operation of LIPA's T&D system, electric generation, and
         fuel management.  (For a description of the various services agreements
         with LIPA see the Company's  Form 10K for the  Transition  Period ended
         December 31,  1998.) In  addition,  electric  revenues,  since June 18,
         1999, also include revenues from the Ravenswood facility. Revenues from
         electric  generation  are not  affected by weather  since  billings are
         based on fully allocated capacity.

         Prior to the LIPA  Transaction,  electric  revenues  were  comprised of
         cycle  billings  rendered to  residential,  commercial  and  industrial
         customers and the accrual of electric revenues for services rendered to
         customers not billed at month-end. In addition,  LILCO's rate structure
         provided for a revenue reconciliation mechanism which

                                        8

<PAGE>




         eliminated  the impact on earnings of electric sales that were above or
         below the levels reflected in rates.


4.       GAS EXPLORATION AND PRODUCTION

         The Houston Exploration Company ("THEC"), a 64% owned subsidiary of the
         Company  which is engaged in gas and oil  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  and the lower of cost or fair  value of
         unproved properties, such excess costs are charged to operations.

         As of June 30, 1999, THEC estimates,  using prices in effect as of such
         date,  that the ceiling  limitation  imposed under full cost accounting
         rules exceeded actual capitalized costs.


5.       GOODWILL

         At June 30, 1999,  the Company had  recorded  goodwill in the amount of
         $241.3 million,  representing  the excess of acquisition  cost over the
         fair value of net assets  acquired  related to its purchases of certain
         consolidated and unconsolidated subsidiaries, including $166.3 million,
         net of accumulated amortization of $4.6 million relating to the KeySpan
         Acquisition. Goodwill is being amortized over 15 to 40 years.


6.       ENVIRONMENTAL MATTERS

         The Company has  recorded a liability  of  approximately  $129  million
         associated with investigation and remedial  obligations with respect to
         14 of the Company's former manufactured gas plant  ("MGP")sites,  three
         of which are designated as "Class II Sites." Three MGP sites (one Class
         II  Site)  are  associated  with  Brooklyn  Union's  operations  or its
         predecessors;  11 MGP  sites  are  associated  with the  operations  of
         Brooklyn  Union of Long  Island or its  predecessors  (two of which are
         designated



                                        9

<PAGE>




         as Class II Sites).  With  respect to the Brooklyn  Union MGP sites,  a
         total of approximately $47.8 million has been accrued, representing the
         best  estimate  of  remedial  costs for two sites  that are  subject to
         Administrative  Orders on  Consent  ("AOC's")  with the New York  State
         Department of Environmental  Conservation ("DEC") and the minimum range
         of an estimate for the investigation and/or remediation of other sites.
         Discussions  with the DEC are ongoing with regards to  investigation of
         other sites. With respect to Brooklyn Union of Long Island MGP sites, a
         total of  approximately  $81.2 million has been accrued as a minimum of
         an   estimated   range  of  costs  for  the  11  sites   that  will  be
         investigated/remediated  pursuant to AOC's with the DEC. Two AOC's were
         executed on March 31, 1999 for Brooklyn Union of Long Island MGP sites.
         One AOC  addressed  two MGP sites  classified  as Class II Sites on the
         State  registry  of  inactive  hazardous  waste  sites.  The  other AOC
         addressed four other MGP sites.  Both AOC's generally  require Brooklyn
         Union of Long  Island to  investigate  the  condition  of each site and
         conduct  remediation   activities  depending  on  the  results  of  the
         investigation. Brooklyn Union of Long Island also expects to enter into
         an AOC with the DEC requiring the Company to conduct  preliminary  site
         assessments  for the five  other  former  MGP sites  that are no longer
         owned by the Company.

         Under prior rate orders,  the Public Service Commission of the State of
         New York  ("NYPSC")  has allowed  recovery of costs  related to certain
         Brooklyn  Union MGP sites.  At June 30,  1999,  the Company has a total
         remaining  regulatory asset of approximately $100 million.  The Company
         believes  that current  rate plans in effect for both Gas  Distribution
         subsidiaries  provide for recovery of environmental  costs attributable
         to the Gas Distribution segment.


7.       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.




                                       10

<PAGE>




         The  Company's  regulatory  assets  of  $311.6  million  are  primarily
         comprised of regulatory tax assets,  costs  associated with the 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 net  regulatory
         assets (regulatory assets less regulatory  liabilities) could result in
         a  charge  to  net  income  of   approximately   $185.5   million,   or
         approximately   $1.32  per  share  of  common  stock,  which  would  be
         classified as an extraordinary item.


8.       BUSINESS SEGMENTS

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

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

         The Gas  Exploration  and Production  segment is engaged in gas and oil
         exploration  and  production,  and the  development  and acquisition of
         domestic  natural gas and oil properties.  This segment consists of our
         64%  equity  interest  in  THEC,  an  independent  natural  gas and oil
         exploration company, as well as KeySpan Exploration and Production LLC,
         our wholly owned subsidiary engaged in a joint venture with THEC.

         Subsidiaries in the Energy Related  Investments segment include our 20%
         equity  interest  in the  Iroquois  Gas  Transmission  System LP; a 50%
         interest  in the  Premier  Transco  Pipeline  and a 24.5%  interest  in
         Phoenix  Natural Gas,  both in Northern  Ireland;  and  investments  in
         certain  midstream  natural gas assets in Western  Canada owned jointly
         with Gulf Canada Resources Limited, through the Gulf Midstream Services
         Partnership  ("GMS").  These  subsidiaries  are accounted for under the
         equity method since the Company's ownership



                                       11

<PAGE>




         interests  are 50% or  less.  Accordingly,  equity  income  from  these
         investments  is  reflected  in Other  Income  and  (Deductions)  in the
         Condensed Consolidated Income Statement.

         The  Company's  Energy  Related  Services  segment  primarily  includes
         KeySpan Energy  Management Inc.  ("KEM"),  KeySpan Energy Services Inc.
         ("KES"),  KeySpan Energy  Solutions,  LLC ("KESol") and KeySpan Fritze,
         LLC  ("Fritze").  KEM owns,  designs and/or operates energy systems for
         commercial  and  industrial   customers  and  provides   energy-related
         services  to  clients  located  primarily  within  the  New  York  City
         metropolitan  area.  KES  markets  gas and  electricity,  and  arranges
         transportation  and  related  services,  largely  to retail  customers,
         including   those  served  by  the  Company's   two  gas   distribution
         subsidiaries.  KESol and Fritze  provide  various  appliance,  heating,
         ventilation and air conditioning services to customers primarily within
         the Company's  service  territory.  KESol was established in April 1998
         and Fritze was acquired in November 1998.

         The  Other  segment  primarily  represents  unallocated  administrative
         expenses of the Company,  preferred stock dividends,  and earnings from
         the investment of cash proceeds from the LIPA Transaction.

         The accounting  policies of the segments are the same as those used for
         the preparation of the Condensed Consolidated Financial Statements. The
         Company's  segments  are  strategic  business  units  that are  managed
         separately   because  of  their  different   operating  and  regulatory
         environments.  As of June 30, 1999, the total assets of each reportable
         segment  have not  changed  materially  from those  levels  reported at
         December 31, 1998 except for the Gas Exploration and Production segment
         whose  assets  increased by $14.5  million due to our  formation of and
         investment in KeySpan  Exploration  and Production LLC and the Electric
         Services  segment whose assets  increased by $230.0  million due to the
         acquisition  of  the  2,168  megawatt  Ravenswood  electric  generation
         facility  located in Long Island City,  Queens,  a portion of which has
         been  leased to a Company  subsidiary  under a master  lease  financing
         arrangement.  (See Note 10 "Contractual  Obligations and Contingencies"
         for more  details.) The segment  information  presented  below reflects
         amounts reported in the Condensed  Consolidated  Financial  Statements,
         excluding special charges,  for the three and six months ended June 30,
         1999 and 1998.



                                       12

<PAGE>

<TABLE>
<CAPTION>

THREE MONTHS ENDED JUNE 30, 1999                                                                          (In Thousands of Dollars)
===================================================================================================================================
                                                        Gas Exploration    Energy Related  Energy Related
                 Gas Distribution   Electric Servies     and Production     Investments       Services         Other         Total
===================================================================================================================================
<S>              <C>               <C>                 <C>                 <C>             <C>              <C>          <C>
Revenue          $    277,482      $      189,734      $         35,021    $               $    37,125      $            $  539,362
-----------------------------------------------------------------------------------------------------------------------------------
Cost of Gas            96,819                   -                     -               -              -             -         96,819

Operations and
Maintenance            88,148             108,120                 6,326           1,580         37,327           565        242,066

Depreciation
Depletion &
Amortization           24,351              10,337                17,972             286            703         5,733         59,382

Operating Taxes        45,836              28,447                   113               1              -         2,748         77,145

Intercompany
Billings                  867              10,398                     -               -              -       (11,265)             -
-----------------------------------------------------------------------------------------------------------------------------------
Total Expense    $    256,021      $      157,302      $         24,411    $      1,867    $    38,030      $ (2,219)    $  475,412
-----------------------------------------------------------------------------------------------------------------------------------
Operating Income $     21,461      $       32,432      $         10,610    $     (1,867)   $      (905)     $  2,219     $   63,950
===================================================================================================================================
Earnings for
Common Stock     $      1,220      $       15,037      $          3,326    $      2,448    $      (254)     $ (7,478)    $   14,299
===================================================================================================================================
Basic and Diluted
EPS              $      0.01       $        0.11       $         0.02      $       0.02    $      0.00      $  (0.06)    $     0.10
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

THREE MONTHS ENDED JUNE 30, 1999                                                                          (In Thousands of Dollars)
===================================================================================================================================
                                                        Gas Exploration    Energy Related  Energy Related
                 Gas Distribution   Electric Servies     and Production     Investments       Services         Other         Total
===================================================================================================================================
<S>              <C>               <C>                 <C>                 <C>             <C>              <C>          <C>
Revenue          $    152,904      $    398,376        $         11,713    $         28    $    6,358       $      -     $  569,379
-----------------------------------------------------------------------------------------------------------------------------------
Cost of Gas            63,189            91,762                       -               -             -              -        154,951

Operations and
Maintenance            61,329           114,378                   2,138             600         6,701          2,794        187,940

Depreciation
Depletion &
Amortization            8,817            26,220                   6,781               -           162          2,010         43,990

Electric
Regulatory
Amortization                -           (40,005)                      -               -             -              -        (40,005)

Operating Taxes        25,672            70,805                      45               -           168          1,078         97,768

Intercompany
Billings                3,494             1,172                       -               -             -         (4,666)             -
-----------------------------------------------------------------------------------------------------------------------------------
Total Expense    $    162,501      $    264,332        $          8,964    $        600    $    7,031       $  1,216     $  444,644
====================================================================================================================================
Operating Income $     (9,597)     $    134,044        $          2,749    $       (572)   $     (673)      $ (1,216)    $  124,735
====================================================================================================================================
Earnings for
Common Stock     $    (16,381)     $     51,155        $          1,028    $         48    $     (317)      $ (3,049)    $ 32,484(a)
====================================================================================================================================
Basic and Diluted
EPS              $      (0.12)     $       0.38        $           0.01    $       0.00    $     0.00       $  (0.03)    $   0.24(a)
====================================================================================================================================
</TABLE>

(a) Excludes  $6.5 million or $0.05 per diluted  share of  non-recurring
charges associated with the LIPA Transaction.


                                       13

<PAGE>

<TABLE>
<CAPTION>



SIX MONTHS ENDED JUNE 30, 1999                                                                           (In Thousands of Dollars)
===================================================================================================================================
                                                               Gas Exploration    Energy Related  Energy Related
                 Gas Distribution       Electric Services      and Production     Investments     Services        Other    Total
===================================================================================================================================
<S>              <C>                    <C>                 <C>                 <C>             <C>              <C>          <C>
Revenue          $    993,312           $    364,271            $     61,541        $      -     $   78,557    $       -  $1,497,681
------------------------------------------------------------------------------------------------------------------------------------
Cost of Gas           408,073                      -                       -               -              -            -     408,073

Operations and
Maintenance           187,228                200,288                  12,285           2,669         80,555        2,123     485,148

Depreciation
Depletion &
Amortization           48,605                 20,265                  35,029             618          1,472       11,579     117,568

Operating Taxes       118,289                 57,440                     146               8              3        5,152     181,038

Intercompany
Billings                3,917                 21,041                       -               -              -      (24,958)          -
------------------------------------------------------------------------------------------------------------------------------------
Total Expense    $    766,112           $    299,034            $     47,460        $  3,295     $   82,030    $  (6,104) $1,191,827
------------------------------------------------------------------------------------------------------------------------------------
Operating Income $    227,200           $     65,237            $     14,081        $ (3,295)    $   (3,473)   $   6,104  $  305,854
====================================================================================================================================
Earnings for
Common Stock     $    121,909           $     31,621            $      3,804        $  2,750     $   (1,693)   $  (9,560) $  148,831
====================================================================================================================================
Basic and Diluted
EPS              $       0.86           $       0.22            $       0.03        $   0.02     $    (0.01)   $   (0.07) $     1.05
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>

SIX MONTHS ENDED JUNE 30, 1999                                                                           (In Thousands of Dollars)
===================================================================================================================================
                                                               Gas Exploration    Energy Related  Energy Related
                 Gas Distribution       Electric Services      and Production     Investments     Services        Other    Total
===================================================================================================================================
<S>              <C>                    <C>                 <C>                 <C>             <C>            <C>      <C>
Revenue          $    424,798           $    954,058        $         11,713    $         28    $     6,358    $        $ 1,396,955
------------------------------------------------------------------------------------------------------------------------------------
Cost of Gas           191,590                257,786                       -               -              -          -      449,376

Operations and
Maintenance            93,408                214,461                   2,138             600          6,701      2,794      320,102

Depreciation
Depletion &
Amortization           19,522                 59,724                   6,781               -            162      2,010       88,199

Electric
Regulatory
Amortization                -                (79,875)                     -                -              -          -      (79,875)

Operating Taxes        50,381                163,208                     45                -            168      1,078      214,880

Intercompany
Billings                3,494                  1,172                      -                -              -     (4,666)           -
------------------------------------------------------------------------------------------------------------------------------------
Total Expense    $    358,395           $    616,476        $         8,964     $        600    $     7,031    $ 1,216  $   992,682
------------------------------------------------------------------------------------------------------------------------------------
Operating Income $     66,403           $    337,582        $         2,749     $       (572)   $      (673)   $(1,216) $   404,273
====================================================================================================================================
Earnings for
Common Stock     $     23,162           $    114,604        $         1,028     $         48    $      (317)   $(3,049) $ 135,476(a)
====================================================================================================================================
Basic and Diluted
EPS              $        0.1           $       0.90        $          0.01     $       0.00    $      0.00    $ (0.03) $    1.06(a)
====================================================================================================================================
</TABLE>

(a) Excludes  $6.5 million or $0.05 per diluted share of  non-recurring  charges
associated with the LIPA Transaction.



                                       14

<PAGE>




9.  EXTINGUISHMENT OF LONG-TERM DEBT

  On June  15,  1999  the  Company,  in  accordance  with  the  LIPA  Agreement,
  extinguished  its  obligations to LIPA under a promissory note relating to the
  7.30%  Debentures  due July 15,  1999.  The  Company's  obligation  for  these
  debentures  of $411.5  million  consisted  of the  principal  amount of $397.0
  million and $14.5 million of interest accrued and unpaid.


10.  CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

  On June 18, 1999 the Company  completed its  acquisition of the 2,168 megawatt
  Ravenswood  electric  generating facility located in Long Island City, Queens,
  New York from  Consolidated  Edison Company of New York,  Inc. ("Con Ed"), for
  approximately $597
  million.

  As a means of financing  this  acquisition,  the Company  entered into a lease
  agreement with a special purpose,  unaffiliated financing entity that acquired
  a portion of the facility  directly  from Con Ed and leased it to a subsidiary
  of the Company under a ten year lease.  The Company has guaranteed all payment
  and  performance  obligations  of its  subsidiary  under  the  lease.  Another
  subsidiary of the Company provides all operating, maintenance and construction
  services for the facility.  The lease program was established in order for the
  Company to finance  approximately  $425 million of the acquisition cost of the
  facility.  The lease qualifies as an operating  lease for financial  reporting
  purposes while preserving the Company's  ownership of the facility for federal
  and state income tax purposes.  The balance of the funds needed to acquire the
  facility were provided from cash on hand. The Company has recorded an asset of
  approximately $230 million,  representing its ownership interest in the assets
  acquired.

  The Company has assumed all of Con Ed's  historical  contingent  environmental
  obligations  relating to facility  operations other than  liabilities  arising
  from  pre-closing  disposal of waste at off-site  locations  and any  monetary
  fines arising from Con Ed's pre-closing conduct. These environmental exposures
  are generally divided between (1) future capital  expenditures,  in the nature
  of  property  and  leasehold  improvements,  necessary  to address  compliance
  obligations and (2) expenditures to investigate  and, as necessary,  remediate
  certain  on-site  contamination  which  may or may  not  result  in  leasehold
  improvements. Given the recent nature of the acquisition, our



                                       15

<PAGE>




  actual  knowledge of facility  conditions  is in the  developmental  stage and
  implementation plans and estimates are, therefore, preliminary.

  Presently,  there are four AOC's  issued to Con Ed by the DEC. The Company has
  contractually  agreed  to  assume  Con  Ed's  remaining   obligations  at  the
  Ravenswood  facility under these AOC's.  Generally,  the Company's  derivative
  obligations are expected to include  investigation  and remediation of certain
  petroleum releases, inspection and any necessary corrective action for certain
  aboveground  storage  tanks and  underground  piping,  potential  upgrades  to
  existing  cooling  water  intake  structures,  and  implementation  of an  air
  emissions opacity reduction  program.  The Company is currently  negotiating a
  consolidated  AOC with the DEC that will clarify the scope and timing of these
  activities.

  The Company has identified  certain  capital  expenditures  for  environmental
  compliance  purposes at Ravenswood  that are  reasonably  likely to occur.  To
  address an anticipated  shortfall of NOx emissions allowances beginning in May
  2003,  the Company  may incur  immaterial  capital  costs for  additional  air
  pollution control equipment.  Alternatively, the Company may elect to purchase
  additional  allowances.  The Company  probably will be required to upgrade the
  Ravenswood  cooling intake  structures to meet the best  available  technology
  requirements  of the  Federal  Clean  Water  Act.  The  extent and cost of any
  upgrades are uncertain and will depend upon the results of analysis of certain
  studies.

  Pursuant to its  derivative  AOC  obligations,  the Company will  complete the
  investigation  and  remediation  of  certain  petroleum  and  other  hazardous
  material releases at Ravenswood,  as necessary.  The Company will also address
  similar releases not covered by the AOC's. The Ravenswood  facility is located
  on a former MGP site. The Company has no current  obligation to investigate or
  remediate  the  property  for  contamination  resulting  from  historical  MGP
  operations,  although there may be a need to perform certain site  remediation
  as part of an overall  improvement of property  related to the installation of
  new  generation  capacity.   Based  on  information  currently  available  for
  environmental contingencies related to the Ravenswood acquisition, the Company
  has accrued $5 million as the minimum liability to be incurred.





                                       16

<PAGE>




  The Company  intends to seek  regulatory  approvals to upgrade the  Ravenswood
  facility  through the  installation of a gas-fired  combined cycle  generation
  unit with a capacity of approximately  250 megawatts of electricity that would
  increase  electric  generation  capacity at the plant by 12%. The new capacity
  could be operational by 2002 depending upon the timeliness and  responsiveness
  of regulatory approvals.


11. NEW FINANCIAL ACCOUNTING STANDARDS

  In June 1999, the Financial  Accounting  Standards  Board ("FASB") issued SFAS
  No. 137,  "Accounting  for  Derivative  Instruments  and Hedging  Activities -
  Deferral  of the  Effective  Date of SFAS No.  133."  SFAS No.  137 defers the
  effective date of SFAS No. 133 from fiscal years beginning after July 15, 1999
  to fiscal years  beginning  after July 15, 2000.  The Company will  therefore,
  adopt SFAS No.  133 in the first  quarter  of fiscal  year 2001.  SFAS No. 133
  establishes  accounting and reporting standards for derivative instruments and
  for hedging  activities.  It requires that an entity recognize all derivatives
  as either assets or  liabilities  in the  statement of financial  position and
  measure  those  instruments  at fair value.  The  Company  does not expect any
  material earnings effect from adoption of this statement.




                                       17

<PAGE>




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

Results of  operations  for the three and six months ended June 30, 1999 reflect
the operations of the  consolidated  Company,  which  includes all  KSE-acquired
companies,  Brooklyn Union of Long Island and  subsidiaries  providing  electric
services.   As  required  under  purchase   accounting  rules  for  the  KeySpan
Acquisition,  results of  operations  for the three  months  ended June 30, 1998
reflect the results of LILCO only for the period  April 1, 1998  through May 28,
1998 and results of the consolidated  Company from May 29, 1998 through June 30,
1998.  Results of operations  for the six months ended June 30, 1998 reflect the
results of LILCO only for the period  January 1, 1998  through  May 28, 1998 and
results of the  consolidated  Company  from May 29, 1998  through June 30, 1998.
(Capitalized  terms used in the discussions to follow but not otherwise defined,
have  the  same  meaning  as  when  used  in  the  Footnotes  to  the  Condensed
Consolidated Financial Statements included under Item 1.)

EARNINGS SUMMARY

Consolidated earnings for the quarter ended June 30, 1999 were $14.3 million, or
$0.10 per diluted  share,  compared to earnings of $26.0  million,  or $0.19 per
diluted share, in the corresponding  quarter last year. During the quarter ended
June 30, 1998, the Company  incurred  special  charges  associated with the LIPA
Transaction of $6.5 million or $0.05 per diluted share.  Consolidated  earnings,
excluding  special  charges,  for the  quarter  ended  June 30,  1998 were $32.5
million or $0.24 per diluted share.  (See Note 8. to the Condensed  Consolidated
Financial  Statements  "Business  Segments"  for a summary of earnings  for each
business segment.)

Consolidated  earnings  for the six  months  ended  June 30,  1999  were  $148.8
million, or $1.05 per diluted share,  compared to earnings of $129.0 million, or
$1.01 per diluted share,  in the  corresponding  period last year.  Consolidated
earnings, excluding special charges, for the six months ended June 30, 1998 were
$135.5  million  or $1.06  per  diluted  share.  (See  Note 8. to the  Condensed
Consolidated  Financial Statements "Business Segments" for a summary of earnings
for each business segment.)

Due to the change in the structure of the Company's  business as a result of the
LIPA Transaction and the requirements of purchase accounting rules applicable to
the KeySpan  Acquisition,  results of operations  for the periods ended June 30,
1999 are not  comparable to the results of operations for the periods ended June
30, 1998. Therefore, for comparative purposes, we will combine the results of



                                       18

<PAGE>




operations,  excluding special charges associated with the LIPA Transaction,  of
KSE and LILCO for the entire  three and six month  periods  ended June 30, 1998.
These combined  results are intended to reflect the results of the Company as if
the KeySpan Acquisition occurred on the first day of the reporting period, i.e.,
January 1, 1998. This "proforma,  combined company basis" format will be used to
explain  variations in operating  results  between periods in the discussions to
follow.

On a proforma,  combined  company  basis,  earnings for the three and six months
ended June 30, 1998 were $36.0  million and $219.3  million,  respectively.  The
following  table sets forth  consolidated  net  income for the  quarter  and six
months ended June 30, 1999 and the proforma, combined company basis consolidated
net income for the three and six months ended June 30, 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Results of Operations           Three Months Ended   Three Months Ended     Six Months Ended     Six Months Ended
   (In Thousands of Dollars)      June 30, 1999         June 30, 1998         June 30, 1999        June 30, 1998
-------------------------------------------------------------------------------------------------------------
<S>                                   <C>                 <C>                   <C>                  <C>
Gas Distribution                      $ 1,220             ($11,539)             $121,909             $108,722

Gas Exploration and Production          3,326                3,472                 3,804                7,805

Electric Services                      15,037               51,155                31,621              114,604

Energy Related Investments              2,448               (1,198)                2,750               (1,864)

Energy Related Services                  (254)              (2,071)               (1,693)              (5,728)

Other                                  (7,478)              (3,851)               (9,560)              (4,233)
-------------------------------------------------------------------------------------------------------------
Earnings for Common Stock             $14,299              $35,968              $148,831             $219,306
=============================================================================================================
</TABLE>

Gas Distribution  earnings for the quarter and six months ended June 30, 1999 as
compared to the same  periods in 1998,  on a proforma,  combined  company  basis
reflect the benefits of significantly  lower operating expenses offset, in part,
by lower net revenues  (revenues  less gas costs and revenue  taxes) due to rate
reductions associated with the KeySpan Acquisition. As previously indicated, Gas
Distribution  earnings for the quarter  ended June 30 generally  are  marginally
profitable or unprofitable due to the seasonal nature of gas heating sales.

Earnings from the Gas Exploration  and Production  segment for the quarter ended
June 30, 1999  remained  relatively  constant  as compared to the  corresponding
period in 1998,  on a  proforma,  combined  company  basis.  The  benefits  from
slightly higher production volumes and decreased  operating expenses were offset
by slightly lower average realized gas prices and increased  interest expense of
$2.2  million due to higher  levels of debt  outstanding.  Earnings  for the six
months ended June 1999 as compared to the same period in 1998, primarily reflect
significantly lower average



                                       19

<PAGE>




realized  gas  prices  (experienced  during the  quarter  ended  March  1999) as
compared to the same period in 1998 and higher interest expense of $5 million.

The change in the Company's  asset base and electric  operations  resulting from
the LIPA  Transaction  contributed  to the  comparative  reduction  in  Electric
Services  earnings,  which now  reflect  primarily  service-fee  revenues  under
various service  contracts with LIPA. The Company's  operating margins under the
agreements  with  LIPA  are  lower  than  those  experienced  prior  to the LIPA
Transaction.  Earnings  for the quarter and six months  ended June 30, 1999 also
include  earnings  of  $2.9  million  from  our  acquisition  of the  Ravenswood
facility.  The purchase of Ravenswood was completed on June 18, 1999.  (See Note
10 to the Condensed Consolidated Financial Statements  "Contractual  Obligations
and Contingencies.")

Comparative earnings from the Energy Related Investments segment for the quarter
and six months ended June 30, 1999 as compared to the corresponding periods last
year, on a proforma, combined company basis, primarily reflect earnings from our
investment in Gulf Midstream Services  Partnership  ("GMS"),  formed in December
1998, and more favorably  results from our investments in Northern  Ireland.  In
addition,  for the  quarter  and six  months  ended  June 30,  1998  results  of
operations  from this segment  reflect  after-tax costs of $1.6 million and $3.2
million,  respectively, to settle certain contracts associated with the sale, in
1997,  of our domestic  cogeneration  investments  and related  fuel  management
operations.

Operating  results from the Energy Related  Services segment for the quarter and
six months  ended June 30, 1999 as compared to the  corresponding  periods  last
year, on a proforma,  combined  company basis reflect the benefits  derived from
the continued  integration of companies  acquired  during the past two years and
more favorable results from gas and electric marketing services.  These benefits
were offset by losses  incurred by subsidiaries  providing  appliance and repair
services,  due to the start-up nature of their operations in highly  competitive
markets.

Earnings  from the Other  segment for the quarter and six months  ended June 30,
1999 reflect  charges,  including  preferred  stock  dividends,  incurred by the
corporate and  administrative  areas of the Company that have not been allocated
to the various business segments,  offset, in part, by interest income earned on
investments of the proceeds from the LIPA Transaction.




                                       20

<PAGE>




REVENUES

GAS DISTRIBUTION
Utility firm gas and transportation sales volumes for the quarter and six months
ended June 30, 1999, were 29,650 MDTH and 116,189 MDTH, respectively.  Total gas
sales  and   transportation,   which  includes  sales  and   transportation   to
interruptible  and off-system  customers,  were 38,648 MDTH and 142,027 MDTH for
the quarter and six months ended June 30, 1999, respectively.

On a proforma, combined company basis, firm gas and transportation sales volumes
for the quarter and six months ended June 30, 1998, were 30,120 MDTH and 106,213
MDTH,  respectively.  On a proforma,  combined company basis total gas sales and
transportation  for the quarter  and six months  ended June 30, 1998 were 40,105
MDTH and 139,223 MDTH, respectively.

Weather,  as measured by annual degree days, was 9.2% warmer than normal for the
six months  ended June 30, 1999 as compared to 18.3%  warmer than normal for the
corresponding  period last year. Firm gas sales normalized for weather were 2.5%
higher in the six months ended June 30, 1999 as compared to the six months ended
June 30, 1998, reflecting ongoing gas sales growth.

Gas  Distribution  revenues  for the quarter and six months  ended June 30, 1999
were $277.5 million and $993.3 million, respectively, compared to $152.9 million
and $424.8 million for the comparable  periods in 1998. The increase in revenues
for the quarter and six months was  principally  the result of the  inclusion of
Brooklyn  Union  revenues  for the entire  quarter and six months ended June 30,
1999.  Reported  revenues  for the  quarter  and six months  ended June 30, 1998
include  Brooklyn  Union  revenues  for the period May 29, 1998 through June 30,
1998  only.  On a  proforma,  combined  company  basis,  total Gas  Distribution
revenues for the quarter and six months ended June 30, 1998 were $303.7  million
and $1,063.7  million,  respectively.  Set forth below are net gas revenues on a
proforma, combined company basis:
<TABLE>
<CAPTION>

                                                                                          (In Thousands of Dollars)
-------------------------------------------------------------------------------------------------------------------
                                  Three Months          Three Months            Six Months          Six Months
                                     Ended                  Ended                 Ended               Ended
                                    June 30,               June 30,              June 30,            June 30,
                                      1999                  1998                   1999                1998
------------------------------------------------------------------------------------------------------------------
Gas Distribution

<S>                          <C>                                           <C>
Revenues                     $         277,482     $       303,714         $      993,312      $    1,063,681

Cost of Gas                             96,819             115,439                408,073             447,155

Revenue Taxes                           18,425              20,436                 62,621              67,042
------------------------------------------------------------------------------------------------------------------
Net Revenues                 $         162,238     $       167,839         $      522,618      $      549,484
==================================================================================================================
</TABLE>

                                       21

<PAGE>

The decrease in  comparative  net gas revenues of $5.6 million and $26.9 million
for the three and six months respectively,  was due primarily to rate reductions
associated  with the KeySpan  Acquisition.  Brooklyn  Union reduced rates to its
core  customers by $23.9  million on an annual basis  effective May 29, 1998 and
Brooklyn  Union of Long  Island  reduced  its rates to core  customers  by $12.2
million  annually  effective  February 5, 1998 and by an additional $6.3 million
annually  effective  May 29,  1998.  Reduced  net  revenues  resulting  from the
reductions  amounted to $4.8  million  for the  quarter  ended June 30, 1999 and
$19.2 million for the six months ended June 30, 1999. Further,  revenues derived
from  Brooklyn  Union's  appliance  and  repair  services  are  included  in Gas
Distribution  revenues for the period January 1, 1998 through March 31, 1998. In
April 1998, Brooklyn Union "spun-off" its appliance and repair services to KESol
and, as a result,  Gas  Distribution  revenues for 1999 do not include  revenues
from such services. As required by the NYPSC, on July 1, 1999, Brooklyn Union of
Long Island discontinued providing non-safety related appliance repair services.
These  services are now offered by KESol to customers  within  Brooklyn Union of
Long  Island's  service   territory.   Net  revenues  as  a  percentage  of  Gas
Distribution  sales were approximately 53% and 52% for the six months ended June
30, 1999 and 1998, respectively.

GAS EXPLORATION AND PRODUCTION
Gas  Exploration  and  Production  revenues for the quarter and six months ended
June 30, 1999 were $35.0 million and $61.5 million respectively,  as compared to
$11.7  million  for the  quarter  and six months  ended June 30,  1998.  For the
periods  ended June 30,  1998,  Gas  Exploration  and  Production  revenues  are
reflected for the period May 29, 1998 through June 30, 1998 only.

On a proforma  combined  company  basis,  revenues  from this segment were $35.1
million and $68.0  million for the quarter and six months  ended June 30,  1998,
respectively.  Revenues  for the quarter  ended June 30, 1999 as compared to the
same  period  last year  reflect  the  benefits  derived  from a 6%  increase in
production  volumes,  offset by a 6%  decrease in average  realized  gas prices.
Revenues  for the six months  ended June 1999 as  compared to the same period in
1998 primarily  reflect  significantly  lower average realized gas prices in the
quarter ended March 1999. The effective price realized  (average  wellhead price
received for production  including  hedging gains and losses) generally has been
increasing  recently  and was $2.03 per MCF for the quarter  ended June 30, 1999
compared  to $2.17 per MCF for the  corresponding  quarter of 1998.  The average
wellhead price was also $2.03 per MCF in the current  quarter  compared to $2.13
per MCF for the quarter ended June 30, 1998. The effective  wellhead  prices for
the six months ended June 30, 1999



                                       22

<PAGE>




and 1998 were $1.82 per MCF and $2.15 per MCF, respectively.  Gas production for
the three  and six  months  ended  June 30,  1999 was 17.2  BCFe and 33.7  BCFe,
respectively as compared to 16.2 BCFe and 31.6 BCFe for the three and six months
ended June 30, 1998, respectively.  At December 31, 1998, THEC had total natural
gas  reserves of  approximately  480 BCFe,  primarily  in the Gulf of Mexico and
Texas.

ELECTRIC SERVICES
Electric  Services revenues of $189.7 million and $364.3 million for the quarter
and six months ended June 30, 1999 represent revenues under various LIPA Service
Agreements  and   approximately  two  weeks  of  revenues  from  our  Ravenswood
investment.  Revenues  of $398.4  million  for the  quarter  ended June 30, 1998
reflect  Electric  Distribution  revenues of LILCO only for the period  April 1,
1998 through May 28, 1998 and Electric  Services revenues for the period May 29,
1998 through June 30, 1998 under  various LIPA Service  Agreements.  Revenues of
$954.1  million  for the  six  months  ended  June  30,  1998  reflect  Electric
Distribution  revenues of LILCO only for the period  January 1, 1998 through May
28, 1998 and Electric  Services  revenues under various LIPA Service  Agreements
for the period May 29, 1998 through June 30, 1998.

The  decrease in electric  revenues  for the three and six months ended June 30,
1999  when  compared  to the same  period  in 1998,  was the  result of the LIPA
Transaction.  Prior to the LIPA  Transaction,  LILCO provided  fully  integrated
electric  services  to its  customers.  Included  within  the rates  charged  to
customers  was a return on the  capital  investment  in the  generation  and T&D
assets,  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 changed from that of owner of an electric  generation and T&D
system,  with a significant  capital  investment,  to a new role as owner of the
non-nuclear  generation facilities and as 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 resulting from the LIPA Service Agreements included the following:

Revenues  realized under the Management  Services  Agreement("MSA")  were $105.6
million  for the quarter  and $204.9  million for the six months  ended June 30,
1999.  These  revenues are derived  from the  performance,  by KeySpan  Electric
Services, LLC, of the day-to-day operation and maintenance of LIPA's T&D system,
management of construction additions to the T&D system, and management of LIPA's



                                       23

<PAGE>




interest in the Nine Mile Point Nuclear Power Station, Unit 2
("NMP2").

Revenues  realized by KeySpan  Generation,  LLC under the Power Supply Agreement
("PSA") were $74.0 million for the quarter and $147.0 million for the six months
ended June 30, 1999 and are derived from the sale of capacity and energy to LIPA
from the Company's generating facilities at rates approved by the Federal Energy
Regulatory Commission ("FERC").

Revenues  realized  by KeySpan  Energy  Trading  Services,  LLC under the Energy
Management  Agreement ("EMA") were $1.4 million for the quarter and $3.7 million
for the six months  ended June 30, 1999 and result from the  management  of fuel
supplies for LIPA to fuel the Company's generating facilities, the management of
energy  purchases on a least-cost  basis to meet LIPA's needs and the management
of off-system electric sales.

Revenues  realized from the Ravenswood  facility from June 18, 1999 through June
30,  1999  were  $8.7  million.  (See  Note  10  "Contractual   Obligations  and
Contingencies"  to the  Condensed  Consolidated  Financial  Statements  for more
details on the Ravenswood acquisition.)

ENERGY RELATED SERVICES
Revenues from the Energy Related  Services  segment were $37.1 million and $78.6
million  for the quarter and six months  ended June 30,  1999  respectively,  as
compared to $6.4  million for the  comparable  periods in 1998.  For the periods
ended June 30, 1998,  Energy  Related  Services  revenues are  reflected for the
period May 29, 1998 through June 30, 1998 only.

Revenues on a proforma,  combined  company  basis from this  segment  were $17.3
million for the quarter ended June 30, 1998 and $32.1 million for the six months
ended June 30, 1998, respectively.  The increase in comparative revenues for the
periods  ended June 30, 1999 was due primarily to the inclusion of revenues from
Fritze of $10.4  million and $20.9  million for the quarter and six months ended
June 30, 1999, respectively.  Moreover,  revenues from KEM and KES increased for
both  the  quarter  and six  months  ended  June  30,  1999 as  compared  to the
comparable periods last year due to the benefits derived from companies acquired
during the past two years and the growth in the number of  customers  purchasing
energy from KES.




                                       24

<PAGE>




OPERATING EXPENSES

Total operating expenses were $475.4 million for the quarter ended June 30, 1999
as compared to $444.6  million for the quarter ended June 30, 1998.  For the six
months ended June 30, 1999 total  operating  expenses were  $1,191.8  million as
compared to $992.7  million for the six months ended June 30, 1998.  Comparative
total  operating  expenses  reflect the change in the structure of the Company's
business and the timing of the LIPA Transaction and KeySpan Acquisition.

Operating  expenses,  excluding  the cost of gas and revenue  taxes  (i.e.,  net
operating expenses), were $360.2 million and $721.1 for the three and six months
ended June 30, 1999,  respectively.  On a proforma,  combined company basis, net
operating expenses,  excluding special charges, were $480.3 million and $1,053.8
million for the quarter and six months ended June 30, 1998. The discussion  that
follows  presents a comparison  of net  operating  expenses,  excluding  special
charges, on a proforma, combined company basis, by major segment for the quarter
and six months ended June 30, 1999  compared to the  corresponding  periods last
year.

GAS DISTRIBUTION
Net operating expenses were $140.8 million, or 51% of Gas Distribution revenues,
for the quarter ended June 30, 1999 as compared to $164.4 million, or 54% of Gas
Distribution  revenues,  for the  quarter  ended  June 30,  1998 on a  proforma,
combined  company  basis.  For the six months ended June 30, 1999 net  operating
expenses  were $295.4  million as compared to $337.8  million for the six months
ended June 30, 1998 on a proforma, combined company basis. The decrease of $23.6
million and $42.4  million for the quarter and six months ended June 30, 1999 as
compared  to the  corresponding  periods  last  year  was  due to a  significant
reduction in operations  and  maintenance  expense  reflecting,  primarily,  the
benefits  derived  from  cost  reduction  measures  and  operating  efficiencies
employed during the past few years. Such measures included, but were not limited
to,  the early  retirement  program  completed  in 1998,  and  similar  measures
employed in prior years by Brooklyn Union. Further,  Brooklyn Union's "spin-off"
of non-safety  related appliance repair services to KESol in 1998 contributed to
the reduction in operating and maintenance expense for the six months ended June
30,  1999.  Brooklyn  Union of Long  Island  discontinued  providing  non-safety
related appliance repair services on July 1, 1999.

The Company is committed to realizing the forecasted $1 billion of net operating
synergy  savings (over a ten-year  period)  currently being reflected in utility
tariff rates and contracts with LIPA;



                                       25

<PAGE>




however, no assurances can be given as to what level of savings
will be realized.

GAS EXPLORATION AND PRODUCTION
Gas Exploration and Production operating expenses for the quarter ended June 30,
1999 were $24.4 million, or 70% of Gas Exploration and Production  revenues,  as
compared to $26.8 million,  or 76% of Gas Exploration  and Production  revenues,
for the  corresponding  period last year on a proforma,  combined company basis.
Operating  expenses were $47.5 million for the six months ended June 30, 1999 as
compared to $52.7  million for the six months ended June 30, 1998 on a proforma,
combined company basis. The comparative decrease in expenses for the quarter and
six months was  primarily  due to a decrease in depletion  expense.  In December
1998,  THEC recorded a pre-tax  impairment  charge of $130 million to reduce the
value of its proved gas  reserves  in  accordance  with the asset  ceiling  test
limitations of the SEC applicable to gas exploration and development  operations
accounted for under the full cost method. As a result, THEC's depletion rate for
the quarter and six months ended June 30, 1999 was $1.05 per MCFe of  production
and $1.04 per MCFe of production, respectively, as compared to $1.25 per MCFe of
production for both the quarter and six months ended June 30, 1998.

ELECTRIC SERVICES
Operating  expenses  for the  quarter  and six months  ended June 30,  1999 were
$157.3 million and $299.0  million,  respectively  as compared to $264.3 million
and  $616.5  million  for the  quarter  and six  months  ended  June  30,  1998,
respectively.  The  decrease in  operating  expenses  was due  primarily  to the
elimination of electric fuel expense.  As a result of the LIPA Transaction,  and
in accordance with the terms of the EMA, LIPA is responsible for paying directly
the cost of fuel and purchased  power.  Further,  for the quarter and six months
ended June 30, 1999  depreciation  expense  decreased by $15.9 million and $39.5
million, respectively, and operating taxes decreased by $42.4 million and $105.8
million,  respectively,  as compared to the corresponding periods last year. Due
to the LIPA Transaction,  significant  property related assets were sold to LIPA
and, as a result, related depreciation and property taxes are no longer incurred
by the Company.  Offsetting these decreases was the effect on operating expenses
associated with electric regulatory amortizations, primarily the Rate Moderation
Component  ("RMC"),  which  reduced  operating  expenses by $40.0 million in the
quarter  ended June 30, 1998 and by $79.9  million in the six months  ended June
30, 1998.

ENERGY RELATED SERVICES
Operating  expenses for the quarter ended June 30, 1999 were $38.0  million,  as
compared to $20.7  million  for the  quarter  ended June 30, 1998 on a proforma,
combined company basis. Operating expenses



                                       26

<PAGE>




were $82.0  million for the six months  ended June 30, 1999 as compared to $41.2
million for the six months ended June 30, 1998 on a proforma,  combined  company
basis. The comparative  increase in operating  expenses for both periods was due
to the formation and  commencement  of operations of KESol,  the  acquisition of
Fritze in November 1998 and the  integration  of  operations  of other  acquired
companies during the past few years and increased purchased gas costs of KES.

OTHER INCOME AND DEDUCTIONS

Other  income for the  quarter  and six  months  ended  June 30,  1999  includes
primarily earnings from the investment of the proceeds from the LIPA Transaction
and equity earnings from subsidiaries  comprising the Energy Related Investments
segment,  offset by a charge of $6 million to accrue carrying charges on certain
rate settlement  items previously  recorded.  For the three and six months ended
June 30,  1998,  other income  includes  benefits of  approximately  $10 million
primarily  related  to certain  electric  regulatory  incentives  that have been
discontinued due to the LIPA Transaction.

OTHER EXPENSES

Interest  expense for the three and six months ended June 30, 1999  reflects the
significantly  reduced  level  of  outstanding  debt  resulting  from  the  LIPA
Transaction.  This benefit was offset, in part, by the interest expense from the
KSE-acquired companies. Upon consummation of the LIPA Transaction,  LIPA assumed
substantially  all of the  outstanding  debt of LILCO.  The Company,  in return,
issued  promissory notes to LIPA for its continuing  obligation to pay principal
and interest on certain series of debt that were assumed by LIPA. Since the LIPA
Transaction  occurred on May 28,  1998,  interest  expense for the three and six
months  ended June 30,  1998  reflects  only one month of the  reduced  level of
outstanding debt.  However,  interest expense for the three and six months ended
June 30, 1999 reflects the reduction in outstanding debt for the entire periods.
Outstanding  debt at June 30, 1999 was $1.6  billion as compared to $4.5 billion
(LILCO only) prior to the LIPA Transaction.

Income tax expense for the quarter and six months  ended June 30, 1999  reflects
the level of pre-tax  income in both periods and an  adjustment  to deferred tax
expense and current tax expense for the utilization of a previously deferred net
operating  loss  carryforward  ("NOL")  recorded in 1998.  In 1998,  the Company
recorded,  as a deferred tax asset, a benefit of $52.2 million for a NOL that it
will apply in its 1999 federal income tax return.  In the quarter ended June 30,
1999, the Company reversed the deferred



                                       27

<PAGE>




tax  asset  and  recorded  the NOL  benefit  in its  current  tax  provision  in
anticipation of applying this NOL to this year's federal income tax payment.

LIQUIDITY, CAPITAL REQUIREMENTS AND DIVIDENDS

LIQUIDITY
The  increase in cash flow from  operations  for the three and six months  ended
June 30, 1999 as  compared  to the  corresponding  periods  last year,  reflects
continued strong results from core utility  operations and the benefits from the
integration of  KSE-acquired  companies.  Further,  cash flow from operations in
1999 reflects the benefit of the $52.2 million NOL on quarterly  federal  income
tax payments for 1999,  as previously  discussed.  Moreover,  in May 1998,  $250
million  was funded into other  postretirement  Voluntary  Employee  Beneficiary
Trusts and as a result,  cash flow from  operations for the three and six months
ended June 30, 1998 was adversely affected.

At June 30, 1999, the Company had cash and temporary cash  investments of $307.3
million and had available  unsecured  bank lines of credit of $300  million.  In
addition,  THEC has an unsecured available line of credit with a commercial bank
that  provides  for a  current  commitment  of $200  million.  This  line can be
increased to $250  million,  subject to certain  conditions.  During the quarter
ended  June 30,  1999,  THEC  incurred  borrowings  of $8.0  million  under this
facility,  at which time $148 million was  outstanding.  Subsequent  to June 30,
1999, THEC had borrowed an additional $4 million, bringing borrowings under this
facility to $152 million.

CAPITAL  REQUIREMENTS
On June 15, 1999 the Company  extinguished  its promissory note to LIPA relating
to the 7.30%  Debentures due July 15, 1999.  The Company's  obligation for these
debentures of $411.5 million consisted of the principal amount of $397.0 million
and $14.5 million of interest accrued and unpaid.  (See Note 9. to the Condensed
Consolidated Financial Statements "Extinguishment of Long-Term Debt.")

The Company  acquired the  Ravenswood  facility on June 18, 1999.  As a means of
financing the  acquisition,  the Company  entered into a lease  agreement with a
special  purpose,  unaffiliated  financing entity that acquired a portion of the
facility directly from Con Ed and leased it to a subsidiary of the Company.  The
lease  program  was  established  in order for the Company to finance up to $425
million of the $597 million acquisition cost of the facility. The balance of the
funds needed to acquire the facility were provided from cash on hand.  (See Note
10. to the Condensed Consolidated



                                       28

<PAGE>




Financial  Statements  "Contractual  Obligations  and  Contingencies"  for  more
details on the lease agreement.)

In 1998, the Company's Board of Directors authorized the repurchase of a portion
of the Company's outstanding common stock. The initial  authorization  permitted
the repurchase of up to 10 percent of the Company's then  outstanding  stock, or
approximately  15 million  common  shares.  A second  authorization  permits the
Company to use up to an  additional  $500  million of cash for the  purchase  of
common shares.  As of July 29, 1999, the Company had repurchased 19.6 million of
its common shares for $568.9 million. In addition,  the Company has commenced an
"odd-lot"  program  whereby  holders  of less than 100  shares of the  Company's
common stock may sell their shares to the Company or "round-up"  their  holdings
to 100 shares. The Company intends to continue  repurchasing its common stock on
the open market.

As a result of the LIPA  Transaction,  the Company had a  significant  amount of
cash which it has used to, among other things,  repurchase  shares of its common
stock on the open market, expand its operations through increased investments in
energy related  activities,  such as gas processing  plants and gas exploration,
and acquire the Ravenswood facility.  Management expects to access the financial
markets during the fourth quarter of fiscal 1999 and during fiscal 2000 in order
to issue approximately $500 million of debt securities. It is anticipated that a
combination  of tax-exempt  debt  obligations  through the New York State Energy
Research Development Authority  ("NYSERDA"),  and publicly traded unsecured debt
obligations will be issued. Moreover, the debt may be issued through one or more
wholly owned  subsidiaries.  It is  anticipated  that these  securities  will be
issued to replace debt obligations that have matured,  as previously  discussed,
and/or provide working capital.  In addition,  the Company intends to enter into
certain  interest rate swap  transactions  to hedge a portion of its outstanding
fixed rate debt. The specific timing of these transactions will be determined in
light of market conditions and other factors.

In  addition,  THEC may sell,  in one or more  offerings,  shares of common  and
preferred  stock,  and/or  unsecured  debt  securities.  The  aggregate  initial
offering price of the securities  that will be issued are not expected to exceed
$250 million. The specific timing of these offerings,  as well as the prices and
terms of the  securities  to be issued,  will be  determined  in light of market
conditions and other factors. THEC indicated that the net proceeds received from
the sale of any  securities  will be used for the  repayment of debt and general
corporate purposes.  The Company intends to, at a minimum,  maintain its current
64% ownership



                                       29

<PAGE>




interest of THEC and therefore,  will purchase additional shares as necessary to
maintain this level of ownership interest.

The Company is currently  evaluating its entire  capital  structure to determine
the appropriate  levels of debt and equity.  Further,  the Company is evaluating
certain  credit  facilities  and may issue  commercial  paper  during the fourth
quarter.  The Company anticipates that this evaluation process will be completed
toward the latter part of 1999. At this point in time, except as indicated,  the
Company cannot determine the outcome of this evaluation process.

Through a  subsidiary,  the Company owns a 300-mile  fiber optic network on Long
Island and in New York City and is  currently in the process of  evaluating  its
options with respect to the use of this network. Specifically, the options under
consideration   include   entering  into  a  partnership  with  or  acquiring  a
telecommunications  company; using excess capacity on the fiber-optic network to
provide  services to other  carriers,  including  telecommunications  companies,
Internet  providers,  cable  television,  as  well  as  providing  high-capacity
transmission  to commercial  customers;  or expanding the  fiber-optic  business
network by bundling  energy and  telecommunications  products  and  services for
commercial customers.

The  Company  also  continues  to explore  opportunities  for  expansion  of its
operations  through one or more of the following types of transactions:  mergers
with or  acquisitions  of other  utilities or entities;  investments  in new gas
pipelines  (and related  assets) and gas  exploration;  or the  purchase  and/or
construction of additional  electric power plants.  However, no assurance can be
given that any additional transactions will occur or that such transactions,  if
completed,  will be  integrated  with the  Company's  operations  or prove to be
profitable.

DIVIDENDS
On June 21, 1999,  the Board of Directors  declared a quarterly cash dividend of
$0.445 per share on its  outstanding  common stock  payable on August 1, 1999 to
shareholders  of record on July 14,  1999.  The  Company is  currently  paying a
dividend at an annual rate of $1.78 per common  share.  The  Company's  dividend
policy is reviewed annually by the Board of Directors.  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.

GAS DISTRIBUTION - RATE MATTERS

By  orders  dated  February  5, 1998 and April  14,  1998 the NYPSC  approved  a
Stipulation and Agreement ("Stipulation") among Brooklyn Union, LILCO, the Staff
of the NYPSC and six other parties that in



                                       30

<PAGE>




effect  approved  the KeySpan  Acquisition  and  established  gas rates for both
Brooklyn  Union and Brooklyn  Union of Long Island that are currently in effect.
(For more  information on these  agreements refer to the Company's Annual Report
on Form 10-K for the Transition Period ended December 31, 1998.)

ENVIRONMENTAL MATTERS

The Company is subject to various  federal,  state and local laws and regulatory
programs  related  to  the   environment.   Ongoing   environmental   compliance
activities,  which  have  not  been  material,  are  charged  to  operation  and
maintenance activities. The Company estimates that the remaining minimum cost of
its MGP-related  environmental  cleanup  activities,  including costs associated
with Ravenswood,  will be approximately  $134 million and has recorded a related
liability  for such  amount.  Further,  as of June 30,  1999,  the  Company  has
expended a total of $13.2 million. (See Note 6. "Environmental Matters" and Note
10.  "Contractual  Obligations and Contingencies" to the Condensed  Consolidated
Financial Statements.)

YEAR 2000 ISSUES

The Company's  computer  applications are generally based on two digits and have
required  additional  programming to recognize the start of the new  millennium.
Embedded  hardware  systems have also been updated in order to properly  operate
into the year 2000. The  remediation and testing of critical  systems  necessary
for the reliable and safe delivery of electricity and gas have been completed.

System Readiness

A  corporate-wide  project  has been in  progress  since 1997 to review  Company
software,  hardware,  embedded  systems and  associated  compliance  plans.  The
project 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 following
areas: electric production,  distribution,  and transmission;  gas distribution;
and communications.  The readiness of suppliers and vendor systems has also been
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 have been addressed  through a mission critical
process review methodology. Each of the Company's mission critical processes has
been reviewed to:  identify and inventory  sub-components;  assess for year 2000
compliance;



                                       31

<PAGE>




establish  repair  plans  as  necessary;  and test in a year  2000  environment.
Mission  critical  functions  consist of both  service  critical  functions  and
business critical functions. Service critical functions relate to our ability to
procure gas from  suppliers  and deliver the gas to our  customers in a safe and
reliable  manner;  and  to  generate   electricity  and  maintain  the  electric
transmission  and distribution  system for LIPA. As of July 1, 1999,  inventory,
assessment,  repair,  testing and the development of contingency plans for these
systems have been completed. Business critical systems, which includes metering,
billing  and certain  financial  and  accounting  systems,  are 96%  complete in
remediation  and 90% complete in testing.  Testing of the last of these  systems
will be complete by  November  1, 1999.  Reports  have been filed with the NYPSC
documenting, in detail, this status.

Vendors and business  partners needed to support the mission critical  processes
are also being  reviewed for their year 2000  readiness.  At this time,  none of
these  vendors  have  indicated  to the  Company  that they  will be  materially
adversely affected by the year 2000 problem.  However, many vendors and business
partners have not responded to repeated  requests for their year 2000  readiness
status.  Included in the Company's  overall  contingency  plans, are contingency
plans that address vendor and business partners year 2000 risks.

Risk Scenarios and Contingency Plans

The Company has  analyzed  each of the mission  critical  processes  to identify
possible year 2000 risks. Each mission critical process will be certified by the
responsible  corporate  officer as being year 2000  ready.  The most  reasonably
likely worst case scenarios have been identified. Operating procedures have been
reviewed  to ensure that risks are  minimized  when  entering  the year 2000 and
other high risk dates. Contingency plans have been completed to address possible
failure points in each mission critical process. These plans will continue to be
reviewed and revised as necessary. Revisions may be required based on the status
of critical vendors and business  partners.  Testing of these  contingency plans
will continue to be performed internally,  as well as with neighboring utilities
and business partners.

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



                                       32

<PAGE>




use of other pipelines.  Complete loss of all the supply lines is not considered
a reasonable 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 affect the Company's  ability
to supply  electricity  since most of the plants  have the ability to operate on
oil.

LOSS OF ELECTRIC GENERATION OR ELECTRIC TRANSMISSION AND
DISTRIBUTION

Electric  utilities  are  physically  connected  on a  regional  basis to manage
electric load. This  interconnection  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,  T&D
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 ready.  As manager of the T&D  facilities,  the
Company is responsible for ensuring that these  facilities  operate properly and
that  related  systems are year 2000 ready.  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 have been  developed,
where appropriate, for loss of critical system elements.

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 is coordinating
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 address methods for
manually monitoring these functions and/or utilizing  alternative  communication
methods.



                                       33

<PAGE>




In  addition  to the above,  the  Company  has also  planned  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.

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 do not perform as expected 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  $30.8 million to address
the year 2000 issue. As of June 30, 1999, $21.5 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. 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
other IT projects. Presently, the Company expects that cash flow from operations
and cash  on-hand will be  sufficient  to fund any  remaining  year 2000 project
expenditures.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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



                                       34

<PAGE>




cost structure;  the successful integration of the Company's  subsidiaries;  the
degree to which the Company develops unregulated business ventures;  the ability
of the Company to identify and make complementary  acquisitions,  as well as the
successful  integration of such acquisitions;  inflationary  trends and interest
rates;  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,  the Company claims the protection of
the  safe  harbor  for  forward-looking  information  contained  in the  Private
Securities Litigation Reform Act of 1995, as amended.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  Company and its  subsidiaries  are subject to various  risk  exposures  and
uncertainties  associated with their operations.  The primary risk exposures are
related  to  firm  gas  contracts,  financial  instruments,  various  regulatory
initiatives  of  the  NYPSC  and  FERC,  the  increasingly   competitive  energy
environment,  and foreign currency  fluctuations.  The Company's exposure to the
aforementioned market risks has remained  substantially  unchanged from December
31,  1998.  However,  due to the  increased  level  of  investment  in  Canadian
affiliates in December 1998 and its  continued  investment in Northern  Ireland,
the Company's exposure to foreign currency  fluctuations has increased.  At June
30,  1999,  the  Company  has  approximately  $230  million  invested  in  these
affiliates.

Also,  during the period from January 1, 1999 to June 30, 1999,  Brooklyn  Union
utilized derivative instruments, primarily swaps, to "lock-in" approximately 40%
of its  profit  margins  related  to sales to its  large-volume  customers.  The
utility tariff  applicable to certain  large-volume  customers permits gas to be
sold at prices  established  monthly  within a specified  range  expressed  as a
percentage of prevailing alternate fuel oil prices. 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  swap
instruments  is no  greater  than that  associated  with the  primary  commodity
contracts  which they hedge,  and that  reduction  of the exposure to price risk
lowers the Company's overall business risk.






                                       35

<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 the Company and each of the former
officers and  directors of LILCO . 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  Transaction and
KeySpan  Acquisition to LILCO's  chairman,  and to former officers of LILCO (the
"Payments"):  (i) the named  defendants  breached  their  fiduciary duty owed to
LILCO and KSE former  and/or  current  Company  shareholders  as a result of the
Payments;  (ii) 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 SEC; and (iii) the
named defendants recklessly and/or negligently failed to disclose material facts
associated with the Payments.

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.  The Company moved to dismiss this action in September  1998,
and on June 25, 1999, the federal court issued an order  dismissing this action.
The other two  actions  were  brought on behalf of the Company in New York State
Supreme Court, Nassau County. In one of these state court actions, the Company's
directors and the recipients of the Payments are also named as defendants.

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 LIPA  Transaction  and  KeySpan
Acquisitions  would trigger the Payments.  These  actions were  consolidated  in
October 1998.

On April 28, 1999, the Company signed a Stipulation  and Agreement of Settlement
to settle the above-referenced  actions, except for the federal court derivative
action,  in exchange for (i) $7.9 million to be  distributed  (less  plaintiffs'
attorneys  fees) to  certain  former  LILCO  and KSE  shareholders  and  certain
MarketSpan shareholders and (ii) the Company's agreement to implement certain



                                       36

<PAGE>




corporate governance and executive compensation procedures. In this respect, the
Company has agreed to, among other things,  certain requirements with respect to
the composition of its Audit and Compensation and Nominating  Committees and has
agreed to be bound by a number of enumerated  principles in connection  with the
establishment  and payment of executive  compensation  and  severance  benefits.
These  requirements,  which are also  required to be  detailed in the  Company's
proxy  statements  for annual  meetings of  shareholders,  may not be altered or
rescinded prior to January 1, 2002. Further,  the entire $7.9 million settlement
commitment  will be funded  from  insurance.  The  parties  have  submitted  the
settlement  to the Nassau County  Supreme Court for its review and approval.  On
June 30, 1999,  following a hearing to consider the fairness of the  settlement,
the court gave final approval of the  settlement.  The parties have submitted to
the court a judgment of settlement  and on July 1, 1999 the court  approved that
judgment.  On August 3, 1999 an intervener plaintiff filed a notice of appeal of
that order and final  judgment.  Pending the outcome of the appeal,  the parties
intend  to make an  application  to the  federal  court  for an order  and final
judgment,  dismissing  the remaining  federal court actions  based,  among other
things, on the binding effect of the state court judgment.

In addition to the above-mentioned actions, a class action lawsuit has also been
filed in the New York State  Supreme  Court,  Suffolk  County,  by the County of
Suffolk,  on behalf  of itself  and other  Suffolk  County  ratepayers,  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. The Company moved to consolidate this action with the
above-mentioned consolidated action in October 1998. On May 4, 1999, the parties
submitted a stipulation of discontinuation to the court.

In October 1998,  the County of Suffolk and the Towns of Huntington  and Babylon
commenced  an action  against  LIPA,  the  Company,  the NYPSC 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 transaction with LIPA (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.  In December  1998,  and again in June 1999,  the  plaintiffs
amended their complaint.  The amended complaint contains allegations relating to
the Payments and adds the



                                       37

<PAGE>




recipients of the Payments as  defendants.  In June 1999, the Company was served
with the  second  amended  complaint.  The  Company  intends to file a motion to
dismiss the second amended complaint.

Finally,  certain other 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 NYPSC and LIPA, joint
hearings  conducted by two  committees  of the New York State  Assembly,  and an
informal,  non-public  inquiry by the SEC. In December 1998, the Company settled
with LIPA and the NYPSC. The agreement includes a payment of $5.2 million by the
Company  to LIPA that will be used by LIPA to supply  postage-paid  bill  return
envelopes  to  customers  for the next three  years.  The Company also agreed to
fully  reimburse and  indemnify  LIPA for costs  incurred by LIPA,  amounting to
approximately  $765,000,  for  attorneys and other  consultants  involved in the
investigation.  Such amounts are not covered by  insurance.  In March 1999,  the
Company  settled  with the New York  Attorney  General.  The  Company  agreed to
implement and adhere to the  corporate  governance  and  executive  compensation
procedures in accordance with the settlement of the shareholder  actions and pay
the New York Attorney General $1.5 million. One half of the $1.5 million will be
covered by insurance. To date, no action has been taken by the SEC.

At this time the  Company is unable to  determine  the  outcome  of the  ongoing
proceedings, or any of the remaining lawsuits described above.





                                       38

<PAGE>




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

The Company's  Annual Meeting of  Shareholders  was held on May 20, 1999 (Annual
Meeting).  The persons  named below were  elected as Directors by holders of the
Company's  Common  Stock,  casting  votes  in  favor  or  withholding  votes  as
indicated:


                                            VOTES                 VOTES

             DIRECTOR                     IN FAVOR              WITHHELD

LILYAN H. AFFINITO                       106,283,893           14,873,860
GEORGE BUGLIARELLO                       106,386,066           14,771,687
ROBERT B. CATELL                         106,496,729           14,661,024
HOWARD R. CURD                           106,473,146           14,684,607
RICHARD N. DANIEL                        106,567,865           14,589,888
DONALD H. ELLIOTT                        106,519,662           14,638,091
ALAN H. FISHMAN                          106,590,334           14,567,419
JAMES R. JONES                           106,468,778           14,688,975
STEPHEN W. MCKESSY                       106,534,614           14,623,139
EDWARD D. MILLER                         106,579,640           14,578,113
BASIL A. PATERSON                        106,353,423           14,804,330
JAMES Q. RIORDAN                         106,458,082           14,699,671
FREDERIC V. SALERNO                      106,509,267           14,648,486
VINCENT TESE                             106,478,822           14,678,931


The voting results of the other items that were approved by  shareholders at the
Annual Meeting are as follows:

1.    Ratification  of the  appointment  of Arthur  Andersen LLP as  independent
      auditors for the period January 1, 1999 to December 31, 1999.

                   FOR             AGAINST         ABSTAIN      BROKER NON-VOTES
                   ---             -------         -------      ----------------

  COMMON SHARES   119,885,950      601,527         670,276       NOT APPLICABLE






                                       39

<PAGE>




2.    Approval of an amendment of the Company's  Certificate of Incorporation to
      change the Company's name to KeySpan Corporation.

                   FOR           AGAINST         ABSTAIN        BROKER NON-VOTES
                   ---           -------         -------        ----------------

  COMMON SHARES    119,681,554   824,064         652,135         NOT APPLICABLE



3. Approval of the Company's Employee Discount Stock Purchase Plan.

                   FOR          AGAINST         ABSTAIN         BROKER NON-VOTES
                   ---          -------         -------         ----------------

  COMMON SHARES    94,063,633   4,485,779       1,485,805           21,122,536



4.    Approval of the Company's  Long-Term  Performance  Incentive  Compensation
      Plan.

                   FOR          AGAINST         ABSTAIN         BROKER NON-VOTES
                   ---          -------         -------         ----------------

  COMMON SHARES    75,968,065   22,006,732      2,060,420           21,122,536



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

*3.1     Certificate of Incorporation of the Company effective
         April 16, 1998, Amendment to

         Certificate of Incorporation of the Company effective May
         26, 1998, Amendment to

         Certificate of Incorporation of the Company effective May
         26, 1998, Amendment to

         Certificate of Incorporation of the Company effective
         April 7, 1999, and Amendment to

         Certificate of Incorporation of the Company effective May 20, 1999.

*10.1    Guaranty, dated as of June 9, 1999, from the Company in favor of
         LIC Funding, Limited Partnership.






                                       40

<PAGE>




*10.2           Lease Agreement, dated as of June 9, 1999, between LIC
                Funding, Limited Partnership and KeySpan-Ravenswood, Inc.
                (Section 12(b)(i), (ii) and (iii) and Section 12(c)(i),
                (ii) and (iii), have been omitted from the material and
                filed separately with the Securities and Exchange
                Commission pursuant to a request for confidential
                treatment.  These sections appear on pages 60 and 61 of
                the complete document).

*10.3           Long-Term Performance Incentive Compensation Plan
                effective May 20, 1999.

*27             Financial Data Schedule

(b)             Reports on Form 8-K

In its  Report on Form 8-K dated May 20,  1999,  the  Company  reported  that it
changed its corporate name from MarketSpan Corporation to KeySpan Corporation.

In its Report on Form 8-K dated June 22, 1999, the Company reported that on June
18, 1999 it acquired the 2,168 megawatt  Ravenswood electric generation facility
from the Consolidated Edison Company of New York, Inc.

-------------------------

*Filed Herewith






                                       41

<PAGE>



                      KEYSPAN CORPORATION AND SUBSIDIARIES



                                    SIGNATURE



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






                                          KEYSPAN CORPORATION

                                             (Registrant)



Date August 13, 1999                    s/ Ronald S. Jendras
                                        ------------------------------
                                        Ronald S. Jendras
                                        Vice President, Controller
                                        and Chief Accounting Officer