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


For the quarterly period ended       September 30, 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                                 (I.R.S. Employer
jurisdiction of 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)


(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 October 20, 1999
   -------------------------------------------------------------
        $.01 par value                             133,866,077


<PAGE>



                      KEYSPAN CORPORATION AND SUBSIDIARIES

                                      INDEX



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

Item 1. Financial Statements

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

               Condensed Consolidated Statement of Income -
               Three and Nine Months Ended September 30,
               1999 and 1998                                           5

               Condensed Consolidated Statement of Cash Flows -
               Three and Nine Months Ended September 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                     21

Item 3. Quantitative and Qualitative Disclosures
               About Market Risk                                       40


                      Part II.      OTHER INFORMATION

Item 1 - Legal Proceedings                                              41

Item 6 - Exhibits and Reports on Form 8-K                               44


Signatures                                                              45



<PAGE>


<TABLE>
<CAPTION>

                             CONDENSED CONSOLIDATED BALANCE SHEET
                                  (IN THOUSANDS OF DOLLARS)

                                                         September    30,      December    31,
                                                         1999                  1998
                                                         -----------------     ----------------

                                                         (Unaudited)           (Audited)
ASSETS

CURRENT ASSETS
<S>                                                  <C>                   <C>
    Cash and temporary cash investments              $   129,899           $   942,776
    Customer accounts receivable                         174,865               320,836
    Other accounts receivable                            200,519               230,479
    Allowance for uncollectible accounts                 (23,300)              (20,026)
    Special deposits                                     90,634                145,684
    Gas in storage, at average cost                      163,318               145,277
    Materials and supplies, at average cost              74,948                74,193
    Other                                                182,096               72,818
                                                         -----------------     ----------------

                                                         992,979               1,912,037
                                                         -----------------     ----------------


EQUITY INVESTMENTS                                       325,929               289,193
                                                         -----------------     ----------------

PROPERTY
    Electric                                             1,337,563             1,109,199
    Gas                                                  3,373,802             3,257,726
    Other                                                368,235               345,007
    Accumulated depreciation                             (1,563,592)           (1,480,038)
    Gas exploration and production, at cost              1,096,583             994,104
    Accumulated depletion                                (500,154)             (447,733)
                                                         -----------------     ----------------

                                                         4,112,437             3,778,265
                                                         -----------------     ----------------


DEFERRED CHARGES
    Regulatory assets                                    313,837               279,524
    Goodwill                                             251,023               254,040
    Other                                                361,675               382,043
                                                         -----------------     ----------------

                                                         926,535               915,607
                                                         -----------------     ----------------

TOTAL ASSETS                                         $   6,357,880         $   6,895,102
                                                         =================     ================
</TABLE>
   See accompanying notes to the Condensed Consolidated Financial Statements.


<PAGE>





<TABLE>
<CAPTION>

                             CONDENSED CONSOLIDATED BALANCE SHEET
                                  (IN THOUSANDS OF DOLLARS)


                                                         September 30,         December 31,
                                                         1999                  1998
                                                         -----------------     ----------------
                                                         (Unaudited)           (Audited)
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
<S>                                                  <C>                   <C>
    Current maturities of long-term debt             $   1,000            $    398,000
    Current redemption of preferred stock                363,000               -
    Accounts payable and accrued expenses                451,845               519,288
    Notes payable                                        103,950               -
    Dividends payable                                    61,461                66,232
    Taxes accrued                                        6,079                 69,742
    Customer deposits                                    32,021                29,774
    Interest accrued                                     8,918                 19,965
                                                         -----------------     ----------------
                                                         1,028,274             1,103,001
                                                         -----------------     ----------------

DEFERRED CREDITS AND OTHER LIABILITIES
    Regulatory liabilities                               29,129                27,854
    Deferred federal income tax                          197,978               71,549
    Operating reserves                                   494,681               457,459
    Other                                                82,815                75,740
                                                         -----------------     ----------------
                                                         804,603               632,602
                                                         -----------------     ----------------

CAPITALIZATION
    Common stock, $.01 par value, authorized
      450,000,000 shares; outstanding 134,214,473
       and 144,628,654 shares stated at                  2,973,388             2,973,388
    Retained Earnings                                    438,896               474,188
    Accumulated foreign currency adjustment              2,502                 (952)
    Treasury stock purchased                             (712,888)             (423,716)
                                                         -----------------     ----------------
      Total common equity                                2,701,898             3,022,908
    Preferred stock                                      84,359                 447,973
    Long-term debt                                       1,663,040             1,619,067
                                                         -----------------     ----------------
TOTAL CAPITALIZATION                                     4,449,297             5,089,948
                                                         -----------------     ----------------

MINORITY INTEREST IN SUBSIDIARY COMPANY                  75,706                69,551
                                                         -----------------     ----------------
TOTAL LIABILITIES AND CAPITALIZATION                 $   6,357,880         $   6,895,102
                                                         =================     ================
</TABLE>

   See accompanying notes to the Condensed Consolidated Financial Statements.


<PAGE>


<TABLE>
<CAPTION>

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

                                                         Three Months Ended           Nine Months Ended
                                                           September 30,                 September 30,
                                                        1999         1998             1999          1998
                                                        ---------    ----------       ----------    ---------
REVENUES
<S>                                                 <C>           <C>              <C>           <C>
Gas Distribution                                    $   208,572   $  203,241       $  1,208,254  $  629,516
Gas Exploration and Production                          42,081       30,545           103,622       42,258
Electric Services                                       241,259      176,358          606,552       244,723
Electric Distribution                                   -            -                -             885,693
Energy Related Services                                 46,557       24,437           124,675       30,823
                                                        ---------    ----------       ----------    ---------
Total Revenues                                          538,469      434,581          2,043,103     1,833,013
                                                        ---------    ----------       ----------    ---------
OPERATING EXPENSES
Purchased gas                                           62,560       56,305           470,633       247,895
Fuel and purchased power                                 -           -                -             257,786
Operations and maintenance                              298,679      259,895          793,197       581,474
Depreciation, depletion and amortization                63,130       59,202           180,698       147,401
Electric regulatory amortizations                       -            -                -             (79,875)
Operating taxes                                         77,317       77,824           258,355       292,704
                                                        ---------    ----------       ----------    ---------
Total Operating Expenses                                501,686      453,226          1,702,883     1,447,385
                                                        ---------    ----------       ----------    ---------
OPERATING INCOME                                        36,783       (18,645)         340,220       385,628
                                                        ---------    ----------       ----------    ---------
OTHER INCOME AND (DEDUCTIONS)
Income from equity investments                          4,268        3,315            9,749         3,108
Interest income                                         1,884       24,769           20,673        41,378
Minority interest                                       (3,035)       (750)          (5,226)    4   (1,318)
Other                                                   1,317          450            3,183          7,837
                                                        ---------    ----------       ----------    ---------
Total Other Income                                      4,434        27,824           28,379        51,005
                                                        ---------    ----------       ----------    ---------
INCOME BEFORE INTEREST CHARGES AND INCOME TAXES         41,217       9,179            368,599       436,633
                                                        ---------    ----------       ----------    ---------
INTEREST CHARGES                                        26,661       30,945           95,001        207,797
                                                        ---------    ----------       ----------    ---------
INCOME TAXES
Current                                                 (23,111)     (9,853)          (14,886)      133,904
Deferred                                                28,651       5,743            113,258       (40,601)
                                                        ---------    ----------       ----------    ---------
Total Income Taxes                                      5,540        (4,110)          98,372        93,303
                                                        ---------    ----------       ----------    ---------
NET INCOME                                              9,016        (17,656)         175,226       135,533
Preferred stock dividend requirements                   8,688        8,694            26,067        32,857
                                                        ---------    ----------       ----------    ---------
EARNINGS FOR COMMON STOCK                           $   328       $  (26,350)      $  149,159    $  102,676
Foreign Currency Adjustment                             (2,281)      860              3,454         (569)
                                                        =========    ==========       ==========    =========
COMPREHENSIVE INCOME                                $   (1,953)   $  (25,490)      $  152,613    $  102,107
                                                        =========    ==========       ==========    =========
AVERAGE COMMON SHARES OUTSTANDING (000)                 136,506      157,328          140,079       137,720
BASIC AND DILUTED EARNINGS PER COMMON SHARE         $   0.00      $  (0.17)        $  1.06       $  0.75
                                                        =========    ==========       ==========    =========
</TABLE>
   See accompanying notes to the Condensed Consolidated Financial Statements.


<PAGE>

<TABLE>
<CAPTION>


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

                                                  THREE          Three            NINE
                                                  MONTHS         Months           MONTHS        Nine Months
                                                  ENDED          Ended            ENDED         Ended
                                                  SEPTEMBER      September        SEPTEMBER     September
                                                  30, 1999       30, 1998         30, 1999      30, 1998
                                                  -------------  -------------    ------------  -------------
OPERATING ACTIVITIES
<S>                                               <C>            <C>              <C>           <C>
Net Income                                        $  9,016       $  (17,656)      $ 175,226     $  135,533
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
Depreciation, depletion and amortization
Electric regulatory amortizations                    63,130         59,202          180,698        147,401
Deferred income tax                                  -              -                 -            (79,875)
Income from equity investments                       28,651         5,743           113,258        (40,601)
Dividends from equity investments                    (4,268)        (3,315)         (9,749)        (3,108)
CHANGES IN ASSETS AND LIABILITIES                    2,079          2,078           6,375          2,078
Accounts receivable
Materials and supplies, fuel oil and gas in          9,141          58,973          155,538        141,068
storage                                              (67,249)       (52,244)        (18,997)       14,614
Accounts payable and accrued expenses                17,207         17,973          (143,858)      (71,679)
Interest accrued                                     (6,403)        (20,741)        (11,050)       35,565
Special deposits                                     17,743         (101,311)       55,050         (63,723)
Pensions and other post retirement benefits          -               -              -              (283,774)
Other                                                (25,911)       (75,546)        (59,437)       (173,344)
                                                     -----------    ----------      -----------    ----------
Net Cash Provided by (Used in) Operating
Activities                                           43,136         (126,844)       443,054        (239,845)
                                                     -----------    ----------      -----------    ----------
INVESTING ACTIVITIES
Capital expenditures                                 (138,307)      (114,153)       (512,257)      (270,088)
Net cash from KeySpan Acquisition                    -              -               -              165,168
Net proceeds from LIPA Transaction                   -              -               -              2,314,588
Other                                                21,222         (4,098)         10,015         (21,777)
                                                     -----------    ----------      -----------    ----------
Net Cash (Used in) Provided by Investing
Activities                                           (117,085)      (118,251)       (502,242)      2,187,891
                                                     -----------    ----------      -----------    ----------
FINANCING ACTIVITIES
Proceeds from sale of common stock                   -              6,536           -              17,604
Treasury stock purchased                             (166,440)      (101,483)       (289,172)      (101,483)
Issuance of preferred stock                          -              -               -              75,000
Notes payable                                        103,950        -               103,950        -
Issuance of long-term debt                           25,523         3,000           40,523         3,000
Payment of long-term debt                            -              -               (397,000)      (100,000)
Preferred stock dividends paid                       (8,688)        (8,682)         (26,067)       (34,555)
Common stock dividends paid                          (57,692)       (69,081)        (185,375)      (213,466)
Other                                                (100)          32              (548)          (17,265)
                                                     -----------    ----------      -----------    ----------
Net Cash (Used in) Financing Activities              (103,447)      (169,678)       (753,689)      (371,165)
                                                     -----------    ----------      -----------    ----------
Net (Decrease) or Increase in Cash and Cash
Equivalents                                          (177,396)      (414,773)       (812,877)      1,576,881
                                                     ===========    ==========      ===========    ==========
Cash and cash equivalents at beginning of period      307,295        2,171,649       942,776        179,995
Net (Decrease or Increase in cash and cash
equivalents                                       $  (177,396)   $  (414,773)     $ (812,877)   $  1,576,881
                                                     -----------    ----------      -----------    ----------
Cash and Cash Equivalents at End of Period        $  129,899     $  1,756,876     $ 129,899     $  1,756,876
                                                     ===========    ==========      ===========    ==========

</TABLE>

   See accompanying notes to the Condensed Consolidated Financial Statements.


<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,  Company  subsidiaries  own, lease and operate the 2,168 megawatt
     Ravenswood electric generation facility, ("Ravenswood Facility") located in
     Long  Island  City,  Queens.  (See  Note 10  "Contractual  Obligations  and
     Contingencies"  for a description  of the  Ravenswood  transaction.)

     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;  large  energy-system
     ownership,   installation  and  management;   and  electric  infrastructure
     construction. 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  9   "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 nine months ended September
     30, 1999,  as well as for the three months ended  September  30, 1998.  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 nine months
     ended  September  30,  1998  reflect  the  results  of  operations  of  the
     consolidated  Company from May 29, 1998 through September 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.

     In the  opinion  of  the  Company,  the  accompanying  unaudited  Condensed
     Consolidated  Financial  Statements  contain all  adjustments  necessary to
     present  fairly the  financial  position of the Company as of September 30,
     1999,  and the results of its  operations  and cash flows for the three and
     nine months ended  September 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.


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  Annual  Report on Form  10-K for the  transition
     period  ended  December  31,  1998.) In addition,  electric  revenues  also
     include  revenues  from the  Ravenswood  Facility  from  June  18,  1999 to
     September  30,  1999.  Revenues  from  electric  generation  generally  are
     unaffected by weather  variations  since  virtually all costs of production
     are  recovered in fixed fee billings to LIPA and Con Edison,  the Company's
     electric generation customers.

     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 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 September 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 September 30, 1999,  the Company had recorded  goodwill in the amount of
     $251.0 million,  representing  the excess of acquisition cost over the fair
     value  of  net  assets  acquired   related  to  its  purchases  of  certain
     investments,  including $165.2 million, net of accumulated  amortization of
     $5.7 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  $125.2  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 as Class II Sites).  With
     respect to the Brooklyn  Union MGP sites, a total of $47.3 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 $77.9 million has been accrued as a minimum of an estimated  range
     of costs for the 11 sites that will be  investigated/remediated.  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 has entered 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 September 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.

     The Company's  regulatory assets of $313.8 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  $185.1 million,  or  approximately  $1.36 per
     share of common stock, which would be classified as an extraordinary item.



<PAGE>



8. EXTINGUISHMENT OF LONG-TERM DEBT AND FINANCING

     In June 1999, the Company  extinguished  its obligation  under a 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.

     At September 30, 1999,  the Company had available  unsecured  bank lines of
     credit of $300 million.  Borrowings were made during the month of September
     1999.  The average  outstanding  daily  balance  during the month was $40.2
     million at a weighted  average  annualized  rate of 5.52%. At September 30,
     1999, the Company had $103.9 million in short-term  borrowings  outstanding
     at a weighted average annualized rate of 5.83%.


9. BUSINESS SEGMENTS

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

     The Gas Distribution  segment consists of Brooklyn Union and Brooklyn Union
     of Long Island, 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.

     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.  The Company is currently
     reviewing its strategic  alternatives  for THEC, which may include the sale
     of all or a portion of THEC. (See  Management's  Discussion and Analysis of
     Financial Condition and Results of Operations,  "Capital  Requirements" for
     further information.)

     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.  In  addition  a
     subsidiary  provides  services in electric  infrastructure  construction to
     Company affiliates and to third parties.

     Subsidiaries in the Energy Related Investments segment include a 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
     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   Communications   Corporation,   KeySpan  Energy  Solutions,   LLC
     ("KESol"),   Fritze  KeySpan,  LLC  ("Fritze"),   and  Delta  KeySpan  Inc.
     ("Delta").  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.  KeySpan Communications  Corporation owns a
     300-mile  fiber optic  network on Long Island and in New York City.  KESol,
     Fritze and Delta provide various  appliance,  heating,  ventilation and air
     conditioning  services to customers within the Company's service territory,
     New Jersey and Rhode Island.  KESol was  established in April 1998,  Fritze
     was acquired in November 1998 and Delta was acquired in September 1999.

     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.  At
     September 30, 1999,  the total assets of certain  reportable  segments have
     increased  from levels  reported at December  31, 1998 as follows:  the Gas
     Exploration and Production  segment's assets increased by $14.5 million due
     to our formation of and  investment in KeySpan  Exploration  and Production
     LLC; the Electric Services segment's assets increased by $230.0 million due
     to the  acquisition  of the Ravenswood  Facility (see Note 10  "Contractual
     Obligations and Contingencies"  for more details),  and $4.9 million due to
     the  formation  of  KeySpan   Energy   Construction;   the  Energy  Related
     Investments   segment's  assets  increased  by  $7.4  million  due  to  the
     acquisition by GMS of 37% of Paddle River Gas Plant;  and the assets of the
     Energy  Related  Services  segment  increased  by $21.2  million due to the
     acquisition  of  Delta   Mechanical  of  New  England,   Inc.,  a  heating,
     ventilation and air conditioning company in Rhode Island. (See Management's
     Discussion  and Analysis of Financial  Condition and Results of Operations,
     "Capital  Requirements" for further information on these acquisitions.) The
     segment  information  presented  below  reflects  amounts  reported  in the
     Condensed Consolidated Financial Statements, excluding special charges, for
     the three and nine months ended September 30, 1999 and 1998.

<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999                                                                  (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                    Gas           Gas Exploration  Electric Services Energy Related     Energy Related
                    Distribution  and Production                     Investments        Services          Other        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>                <C>             <C>               <C>               <C>       <C>
Revenue             $208,572      $  42,081          $241,259        $        -        $    46,557       $    -    $  538,469
------------------------------------------------------------------------------------------------------------------------------------
Cost of Gas         62,560                -                 -                 -                  -            -        62,560

Operations
and
Maintenance         106,101       7,532               131,403             1,276             45,325        7,042       298,679

Depreciation
Depletion
&
Amortization        24,630        18,644               12,395               196               993         6,272        63,130

Operating Taxes     41,168           107               36,724                 -                 -          (682)       77,317

Intercompany
Billings            2,748              -               11,345                 -                 -       (14,093)            -
------------------------------------------------------------------------------------------------------------------------------------

Total Expense    $237,207        $26,283             $191,867            $1,472           $46,318       $(1,461)     $501,686
------------------------------------------------------------------------------------------------------------------------------------

Operating Income $(28,635)       $15,798             $ 49,392           $(1,472)          $   239       $ 1,461      $ 36,783
------------------------------------------------------------------------------------------------------------------------------------

Earnings
for
Common Stock     $(29,037)       $ 5,435             $ 28,164           $ 2,651           $   286       $(7,171)      $   328
------------------------------------------------------------------------------------------------------------------------------------
Basic and
Diluted
EPS              $  (0.21)       $  0.04            $    0.21           $  0.02           $  0.00        $(0.06)      $  0.00
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998                                                               (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                    Gas           Gas Exploration  Electric Services Energy Related     Energy Related
                    Distribution  and Production                     Investments        Services          Other        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>              <C>               <C>                <C>               <C>         <C>
Revenue             $203,241      $   30,545       $  176,358        $       89         $   24,348        $   -       $ 434,581
------------------------------------------------------------------------------------------------------------------------------------
Cost of Gas         56,305              -                -                 -                  -                 -       56,305

Operations
and
Maintenance         101,939            6,994          111,712             1,396         $   23,938          13,916     259,895

Depreciation
Depletion
&
Amortization         23,647           19,759            9,824               108                426           5,438      59,202

Operating Taxes      38,779              171           30,243                 1                349           8,281      77,824

Intercompany
Billings                581                -           12,955                 -                  -         (13,536)         -
------------------------------------------------------------------------------------------------------------------------------------
Total Expense      $221,251          $26,924         $164,734            $1,505            $24,713         $14,099    $453,226
------------------------------------------------------------------------------------------------------------------------------------
Operating Income   $(18,010)         $ 3,621         $ 11,624           $(1,416)           $  (365)        $(14,099)  $(18,645)
------------------------------------------------------------------------------------------------------------------------------------

Earnings
for
Common Stock       $(26,842)         $ 1,315         $  4,380           $ 1,174             $   77         $ (2,639)  $(22,535)(a)
------------------------------------------------------------------------------------------------------------------------------------

Basic and
Diluted
EPS                $  (0.17)         $ 0.01          $   0.03           $  0.01             $  0.00        $  (0.03)  $  (0.15)(a)
------------------------------------------------------------------------------------------------------------------------------------
(a) Excludes $3.8 million or $0.02 per diluted share of  non-recurring charges (net of tax) associated with the LIPA Transaction.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999                                                                     (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                    Gas           Gas Exploration  Electric Services Energy Related     Energy Related
                    Distribution  and Production                     Investments        Services          Other         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>              <C>               <C>               <C>               <C>          <C>
Revenue             $1,208,254    $   103,622      $ 606,552         $         -       $ 124,675         $    -       $2,043,103
------------------------------------------------------------------------------------------------------------------------------------
Cost of Gas            470,633             -               -                   -               -              -          470,633

Operations
and
Maintenance            299,700         19,817        334,690           3,945             125,880           9,165         793,197

Depreciation
Depletion
&
Amortization            73,235         53,673         32,660             814               2,465          17,851         180,698

Operating Taxes        159,457            253         94,162               8                   3           4,472         258,355

Intercompany
Billings                 6,664              -         32,388               -                   -         (39,052)              -
------------------------------------------------------------------------------------------------------------------------------------

Total Expense       $1,009,689        $73,743       $493,900          $4,767             $128,348        $(7,564)      $1,702,883
------------------------------------------------------------------------------------------------------------------------------------

Operating Income    $  198,565        $29,879       $112,652          $(4,767)           $ (3,673)       $ 7,564       $  340,220
------------------------------------------------------------------------------------------------------------------------------------

Earnings
for
Common Stock        $   92,873        $ 9,239       $ 59,786          $ 5,401            $ (1,408)       $16,732)      $  149,159
------------------------------------------------------------------------------------------------------------------------------------

Basic and
Diluted
EPS                 $     0.66        $  0.07          $0.43          $  0.04            $  (0.01)       $ (0.13)       $    1.06
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998                                                                   (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                    Gas           Gas Exploration  Electric Services Energy Related     Energy Related
                    Distribution  and Production                     Investments        Services          Other        Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>            <C>               <C>               <C>              <C>              <C>         <C>
Revenue             $ 629,516      $   42,258        $1,130,416        $      117       $   30,706       $      -    $1,833,013
------------------------------------------------------------------------------------------------------------------------------------

Cost of Gas           247,895              -                 -                  -                -              -       247,895

Fuel and Purchased
Power                       -              -           257,786                  -                -              -       257,786

Operations
and
Maintenance           196,824          9,132           326,173              1,996           30,639         16,710       581,474

Depreciation
Depletion
&
Amortization           43,169         26,540           69,548                 108              588          7,448       147,401

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

Operating Taxes        89,160           216           193,451                   1              517          9,359        292,704

Intercompany
Billings                4,075             -            14,127                   -                -        (18,202)             -
------------------------------------------------------------------------------------------------------------------------------------

Total Expense        $581,123       $35,888          $781,210              $2,105          $31,744        $15,315     $1,447,385
------------------------------------------------------------------------------------------------------------------------------------

Operating Income      $48,393        $6,370          $349,206             $(1,988)         $(1,038)       $(15,315)   $ 385,628
------------------------------------------------------------------------------------------------------------------------------------

Earnings
for
Common Stock         $(3,680)       $2,343           $118,984             $1,222           $  (240)      $  (5,688)   $ 112,941(a)
------------------------------------------------------------------------------------------------------------------------------------

Basic and
Diluted
EPS                  $(0.03)       $  0.02             $0.86             $ 0.01              $0.00       $   (0.04)   $  0.82(a)
------------------------------------------------------------------------------------------------------------------------------------
(a) Excludes $10.3 million or $0.07 per diluted share of non-recurring charges (net of tax)  associated with the LIPA Transaction.
</TABLE>
<PAGE>


10.  CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

       The Company acquired 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"),  on June  18 1999  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 will be responsible for 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.  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.

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





<PAGE>



11.    ACQUISITION OF EASTERN ENTERPRISES

       On November 4, 1999,  The  Company  and Eastern  Enterprises  ("Eastern")
       announced  that the companies have signed a definitive  merger  agreement
       under which the Company  will  acquire all of the common stock of Eastern
       for $64.00 per share in cash.  This  represents a premium of 24% over the
       Eastern  closing  price of $51.56 on November 3, 1999,  and a 45% premium
       over the average of the last 90-day  trading  period.  The  Agreement and
       Plan of Merger was filed as an exhibit to the Company's Form 8-K filed on
       November 5, 1999.

       The  transaction  has a total value of  approximately  $2.5 billion ($1.7
       billion in equity and $0.8 billion in assumed debt and preferred  stock).
       The transaction  will be accounted for as a purchase.  The increased size
       and scope of the combined organization should enable the combined company
       to provide enhanced, cost-effective customer service and to capitalize on
       the above-average  growth  opportunities for natural gas in the Northeast
       and provide additional resources to the Company's unregulated businesses.
       The combined companies will serve 2.4 million customers.

       It is  anticipated  that the  combined  company  will have assets of $8.8
       billion,  $4.3  billion in  revenues,  and EBITDA of  approximately  $950
       million.  The  Company  expects  pre-tax  annual  cost  savings  will  be
       approximately  $30 million.  These cost savings result primarily from the
       elimination of duplicate corporate and administrative  programs,  greater
       efficiencies  in  operations  and  business   processes,   and  increased
       purchasing efficiencies. The Company expects to achieve reductions due to
       the merger  through a variety of  programs  which  would  include  hiring
       freezes,  attrition and separation programs.  All union contracts will be
       honored.

       The Company  expects to raise $1.7 billion of initial  financing  for the
       transaction in short term markets which will  ultimately be replaced with
       long term financing.  Going forward, the Company will actively manage its
       balance sheet to maintain strong  investment grade ratings at each of its
       rated entities.

       The Company anticipates  continuing its current annual dividend of $1.78.
       Eastern will continue to pay its dividend at the annual rate of $1.72.

       Upon  completion  of the  transaction  Mr.  Robert B.  Catell will remain
       chairman  and  CEO of the  combined  company  and  Mr.  J.  Atwood  Ives,
       currently chairman and CEO of Eastern, will retire from active management
       at Eastern and will join the Company's board of directors.  The Company's
       corporate  headquarters  will  remain in New York and a  headquarters  in
       Boston will serve the New England operations.

       The merger is  conditioned,  among  other  things,  upon the  approval of
       Eastern shareholders,  the Securities and Exchange Commission and the New
       Hampshire  Public Utility  Commission.  The Company  anticipates that the
       transaction can be completed in 9 to 12 months but is unable to determine
       when or if all required approvals will be obtained.

       In connection with the merger,  Eastern has amended its merger  agreement
       with  EnergyNorth,  Inc.  ("EnergyNorth")  to  provide  for an  all  cash
       acquisition  of  EnergyNorth  shares at a price per share of $61.13.  The
       restructured  EnergyNorth  merger is expected to close  contemporaneously
       with the KeySpan/Eastern Enterprises transaction.

     Following the  announcement  that the Company has entered into an agreement
     to purchase Eastern  Enterprises,  Standard & Poor's Rating Services placed
     the  Company's  and  certain  of its  subsidiaries',  as well as  Eastern's
     corporate credit, senior unsecured debt, and preferred stock on CreditWatch
     with  negative  implications.  Similarly,  Moody's  Investors  Service also
     placed the Company's and certain of its subsidiaries', as well as Eastern's
     corporate  credit,  senior  unsecured debt,  commercial paper and preferred
     stock on review for possible downgrade.

       Eastern  Enterprises  owns and operates Boston Gas Company,  Colonial Gas
       Company,  Essex  Gas  Company,   Midland  Enterprises  Inc.  ("Midland"),
       Transgas Inc. ("Transgas"),  and ServicEdge Partners, Inc. ("ServicEdge")
       Upon  completion of the pending merger with  EnergyNorth,  Inc.,  Eastern
       will serve over 800,000  natural gas customers in  Massachusetts  and New
       Hampshire.  Midland,  headquartered  in Cincinnati,  Ohio, is the leading
       carrier  of coal and a major  carrier  of other dry bulk  cargoes  on the
       nation's inland waterways. Transgas is the nation's largest over-the-road
       transporter  of  liquefied   natural  gas.   ServicEdge  is  the  largest
       unregulated  provider of  residential  HVAC  equipment  installation  and
       service to customers in Massachusetts.



12.    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.



<PAGE>









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

Results of  operations  for the three and nine months ended  September  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.  Since the KeySpan  Acquisition  occurred  on May 28,  1998,
results of operations for the three months ended  September 30, 1998 reflect the
operations  of the  consolidated  Company  for that entire  three month  period.
However,   as  required  under  purchase   accounting   rules  for  the  KeySpan
Acquisition,  results of operations for the nine months ended September 30, 1998
reflect  the  results  of  LILCO  only  for  the  period  prior  to the  KeySpan
Acquisition (January 1, 1998 through May 28, 1998) as well as the results of the
consolidated  Company for the period after the KeySpan Acquisition (May 29, 1998
through  September  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 September 30, 1999 were $0.3 million
compared  to a loss of  $26.4  million,  or  $0.17  per  diluted  share,  in the
corresponding  quarter  last year.  Earnings  for the  quarter  ended  September
generally are marginal due to the seasonal  nature of gas heating sales from our
core gas distribution  operations.  The increase in comparative earnings for the
quarter  ended  September 30, 1999 when compared to the same period of the prior
year  reflects,  primarily,  earnings  from the  acquisition  of the  Ravenswood
Facility.  (See  Note  9. to the  Condensed  Consolidated  Financial  Statements
"Business Segments" for a summary of earnings for each business segment and Note
10. to the Condensed Consolidated Financial Statements "Contractual  Obligations
and Contingencies" for a discussion on the Ravenswood Acquisition.)

Consolidated  earnings for the nine months ended  September 30, 1999 were $149.2
million, or $1.06 per diluted share,  compared to earnings of $102.7 million, or
$.75 per diluted share, in the  corresponding  period last year. During the nine
months ended September 30, 1998, the Company incurred  after-tax special charges
associated  with the LIPA  Transaction  of $10.3  million  or $0.07 per  diluted
share.  Consolidated  earnings,  excluding special charges,  for the nine months
ended September 30, 1998 were $112.9 million or $0.82 per diluted share.

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 (as discussed above), results of operations for the nine
months ended  September 30, 1999 are not comparable to the results of operations
for the nine months ended September 30, 1998. For comparative  purposes, we have
combined the results of operations,  excluding  special charges  associated with
the LIPA  Transaction,  of KSE and LILCO for the entire nine month  period ended
September  30,  1998.  This  combined  presentation  is  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 also be used to explain  variations  in  operating  results
between  the nine months  ended  September  30,  1999 and the nine months  ended
September 30, 1998 in the discussions to follow.

The  following  table sets forth  consolidated  earnings  for the quarter  ended
September  30, 1999 and  September  30,  1998.  In addition the table sets forth
consolidated  net income for the nine months  ended  September  30, 1999 and the
proforma,  combined  company basis  consolidated  net income for the nine months
ended September 30, 1998:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Results of Operations    Three Months     Three  Months     Nine Months        Nine Months Ended
(In    Thousands  of     Ended September  Ended September   Ended September    Ended September
Dollars)                 30, 1999         30, 1998          30,  1999          30, 1998
-------------------------------------------------------------------------------------------------
<S>                      <C>              <C>                <C>              <C>
Gas Distribution         $(29,037)        $(26,842)          $92,873          $81,880

Gas Exploration and
Production                  5,435            1,315             9,239            9,120

Electric Services          28,164            4,380            59,786          118,984

Energy Related
Investments                 2,651            1,174             5,401             (690)

Energy Related Services       286               77            (1,408)          (5,651)

Other                      (7,171)          (2,639)          (16,732)          (6,872)
=================================================================================================

Earnings for Common Stock $   328         $(22,535)         $149,159         $196,771
=================================================================================================
</TABLE>

Gas  Distribution  earnings for the quarter ended September 30, 1999 as compared
to the corresponding  quarter last year have remained relatively  constant.  Gas
Distribution earnings for the quarter ended September 30 are unprofitable due to
the  seasonal  nature of gas heating  sales.  Earnings for the nine months ended
September  30,  1999 as  compared  to the same  period in 1998,  on a  proforma,
combined  company basis reflect the benefits of  significantly  lower  operating
expenses and interest expense offset,  in part, by lower net revenues  (revenues
less gas costs and revenue  taxes) due to rate  reductions  associated  with the
KeySpan Acquisition.

Earnings from the Gas Exploration  and Production  segment for the quarter ended
September 30, 1999 as compared to the corresponding quarter in 1998, reflect the
combined  benefits  of a 16%  increase  in  gas  production  volumes  and an 18%
increase in gas prices.  These  benefits  were  offset,  in part,  by  increased
interest  expense  of $2.1  million  due to higher  levels of debt  outstanding.
Earnings  for the nine  months  ended  September  30, 1999  remained  relatively
constant  as  compared  to the  corresponding  period  last year,  on a proforma
combined  company  basis.  The  benefits  from  higher  production  volumes  and
decreased  operating  expenses were offset by lower average  realized gas prices
and  increased  interest  expense of $7.1  million due to higher  levels of debt
outstanding.

Electric  Services  earnings for the quarter and nine months ended September 30,
1999 reflect results from the various  service  contracts with LIPA and earnings
from the  Ravenswood  Facility.  The  increase  in  comparative  results for the
quarter is due  primarily  to  earnings  of $23.0  million  from the  Ravenswood
Facility. Earnings for the nine months ended September 30, 1998 reflect Electric
Distribution  results of LILCO for the period  January 1, 1998  through  May 28,
1998 and Electric Services results for the period May 29, 1998 through September
30, 1998 under various LIPA Service Agreements.  The Company's operating margins
under the  agreements  with LIPA are lower than those  experienced  prior to the
LIPA Transaction.  As a result, earnings for the nine months ended September 30,
1999 are lower than earnings for the comparable period in 1998.

Earnings from the Energy  Related  Investments  segment for the quarter and nine
months ended  September 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 favorable  results from our investments in Northern  Ireland.  In
addition,  for the nine months ended  September  30, 1998 results of  operations
from this segment  reflect  after-tax  costs of $3.2  million 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 nine months
ended September 30, 1999 as compared to the corresponding period 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.

Losses from the Other  segment for the quarter and nine months  ended  September
30, 1999 reflect charges and 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.  Interest income has been
decreasing  as the  Company  continues  to  apply  the  proceeds  from  the LIPA
Transaction to finance  certain  acquisitions,  repurchase  shares of its common
stock on the open market, and retire maturing debt.


Revenues

GAS DISTRIBUTION
Gas  Distribution  revenues for the quarter and nine months ended  September 30,
1999 were $208.6 million and $1,208.3 million, respectively,  compared to $203.2
million and $629.5 million for the  comparable  periods in 1998. The increase in
revenues for the nine months ended September 30, 1999 was principally the result
of the  inclusion  of Brooklyn  Union  revenues for the entire nine months ended
September 30, 1999.  Reported  revenues for the nine months ended  September 30,
1998  include  Brooklyn  Union  revenues  for the  period May 29,  1998  through
September 30, 1998 only.

On a proforma,  combined company basis, total Gas Distribution  revenues for the
nine months ended  September  30, 1998 were $1,268.4  million.  Set forth in the
table  below  are:  net gas  revenues;  firm gas sales  volumes;  transportation
volumes (which  includes  transportation  volumes for the delivery of gas to the
Company's  electric  generation  subsidiary on behalf of LIPA);  and other sales
volumes (which include sales and  transportation  volumes to  interruptible  and
off-system  customers)  for the three months ended  September 30, 1999 and 1998,
the nine months ended  September  30, 1999 and on a proforma,  combined  company
basis the nine months ended September 30, 1998.
<PAGE>
<TABLE>
<CAPTION>

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

<S>                    <C>             <C>               <C>              <C>
Revenues               $208,572        $203,241          $1,208,254       $1,268,399

Cost of Gas              62,560          56,305             470,633          503,460

Revenue Taxes            12,675          12,533             75,296            79,575
=============================================================================================
Net Revenues           $133,337        $134,403           $662,325          $685,364
=============================================================================================
Firm Gas Sales (MDTH)    16,353          16,408            120,401           116,388

Firm Transportation(MDTH)35,241          24,995             76,793            39,705

Other Sales (MDTH)       12,441          14,594             38,279            47,604

Degree Days                 N/A             N/A              2,835             2,549

Warmer than Normal          N/A             N/A                9.7%             18.8%
---------------------------------------------------------------------------------------------
</TABLE>

The  decrease in  comparative  net gas  revenues  of $23.0  million for the nine
months ended September 30, 1999 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.  For the nine months ended  September  30, 1999,  rate  reductions
impacted revenues by $19.2 million.  Further,  since April 1998, net revenues no
longer  reflect  revenues  derived from  Brooklyn  Union's  appliance and repair
services since these services have been "spun-off" to KESol.


GAS EXPLORATION AND PRODUCTION
Gas  Exploration  and Production  revenues for the quarter and nine months ended
September  30,  1999 were $42.1  million  and $103.6  million  respectively,  as
compared  to $30.5  million  and $42.3  million  for the quarter and nine months
ended  September 30, 1998.  For the nine months ended  September  30, 1998,  Gas
Exploration  and  Production  revenues are reflected for the period May 29, 1998
through September 30, 1998 only. On a proforma combined company basis,  revenues
from this segment were $98.6  million for the nine months  ended  September  30,
1998. The following  table sets forth THEC's  historical  natural gas production
data during the periods indicated:
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                          Three Months Three Months   Nine Months  Nine Months
                          Ended        Ended          Ended        Ended
                          September    September 30,  September    September
                          30, 1999     1998           30, 1999     30, 1998
--------------------------------------------------------------------------------
<S>                       <C>          <C>            <C>          <C>
Production:

Natural gas production
(Mcf)                     17,922       15,482         51,572       47,102

Average sales price:

Natural gas (per Mcf)
realized                  $2.33        $1.98          $2.00        $2.09

Natural gas (per Mcf)
unhedged                  $2.47        $1.84          $2.05        $2.01
--------------------------------------------------------------------------------
</TABLE>

Revenues  for the quarter  ended  September  30,  1999,  as compared to the same
period last year, reflect the benefits derived from a 16% increase in production
volumes,  combined with an 18% increase in average  realized gas prices (average
wellhead  price  received for  production  including  hedging gains and losses).
Revenues for the nine months ended  September  30, 1999, as compared to the same
period in 1998,  reflect a 9% increase in production volumes offset, in part, by
a 4% decrease in average realized gas prices. At December 31, 1998, THEC had 480
BCFe of net proved  reserves  of natural  gas,  of which 80% was  classified  as
proved developed.

ELECTRIC SERVICES
Electric  Services revenues of $241.3 million and $606.6 million for the quarter
and nine months ended  September 30, 1999 represent  revenues under various LIPA
Service Agreements and revenues from the Ravenswood Facility from June 18, 1999.
Revenues of $176.4 million for the quarter ended September 30, 1998 also reflect
revenues under various LIPA Service Agreements. Revenues of $1,130.4 million for
the nine months ended September 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 September 30, 1998.

The increase in electric  revenues for the quarter  ended  September 30, 1999 as
compared  to  the  corresponding  quarter  in  1998,  is  due  primarily  to the
Ravenswood  Facility,  which contributed $61.4 million during this quarter.  The
decrease in revenues for the nine months ended September 30, 1999 as 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  and from the  Ravenswood
Facility were as follows:

Revenues  realized under the  Management  Services  Agreement("MSA"),  including
incentives,  were $96.0 million for the quarter and $300.8  million for the nine
months ended  September 30, 1999.  For the quarter ended  September 30, 1998 and
for the period May 29, 1998  through  September  30, 1998,  revenues,  including
incentives, were $93.6 million and $131.4 million, respectively.  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 interest in
the Nine Mile Point Nuclear Power Station, Unit 2 ("NMP2").

Revenues  realized by KeySpan  Generation,  LLC under the Power Supply Agreement
("PSA"),  including  incentives,  were $80.6  million for the quarter and $228.2
million for the nine months  ended  September  30, 1999 and are derived from the
sale of  capacity  and  energy  to LIPA from the  Company's  Long  Island  based
generating  facilities  at  rates  approved  by the  Federal  Energy  Regulatory
Commission ("FERC"). For the quarter ended September 30, 1998 and for the period
May 29, 1998 through September 30, 1998, revenues,  including  incentives,  were
$80.6 million and $107.8 million, respectively. Under the terms of the PSA, LIPA
is obligated to pay for capacity at rates which  reflect a large  percentage  of
the overall fixed cost for maintaining and operating the generating  facilities.
A small variable  maintenance charge is imposed for each unit of energy actually
acquired from these  facilities.  As a result,  fluctuations in seasonal weather
patterns do not have a significant effect on revenues under the PSA.

Revenues  realized  by KeySpan  Energy  Trading  Services,  LLC under the Energy
Management Agreement ("EMA"),  including  incentives,  were $3.0 million for the
quarter and $7.2 million for the nine months ended September 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.  For the quarter
ended  September 30, 1998 and for the period May 29, 1998 through  September 30,
1998,  revenues,  including  incentives,  were $2.2  million  and $5.5  million,
respectively.

Revenues  realized  from the  Ravenswood  facility  were $61.4  million  for the
quarter ended  September 30, 1999 and $70.1 million for the period June 18, 1999
through  September 30, 1999.  Currently,  all of the capacity of and energy from
the  Ravenswood  Facility is  purchased by Con Ed.  Similar to the PSA,  current
rates charged to Con Ed reflect a large percentage of the overall fixed cost for
maintaining and operating the generating facilities.  As a result,  fluctuations
in seasonal weather patterns do not have a significant effect on revenues.  (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 $46.6 million and $124.7
million for the quarter and nine months ended  September 30, 1999  respectively,
as compared to $24.4  million and $30.8  million for the  comparable  periods in
1998.  For the nine months ended  September 30, 1998,  Energy  Related  Services
revenues are  reflected  for the period May 29, 1998 through  September 30, 1998
only.

Revenues on a proforma,  combined  company  basis from this  segment  were $56.9
million  for  the  nine  months  ended  September  30,  1998.  The  increase  in
comparative revenues for both the three and nine months ended September 30, 1999
was due  primarily  to the  inclusion of revenues  from Fritze  KeySpan of $14.8
million and $35.7  million for the quarter and nine months ended  September  30,
1999, respectively.  Moreover,  revenues from KEM and KES increased for both the
quarter and nine months ended  September 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.  Further,   Delta  KeySpan,   our  newly  acquired  HVAC  contractor,
contributed  revenues of $3.1  million  for the  quarter  and nine months  ended
September 30, 1999.

Operating Expenses

Total operating expenses were $501.7 million for the quarter ended September 30,
1999 as compared to $453.2 million for the quarter ended September 30, 1998. For
the nine months ended September 30, 1999, total operating expenses were $1,702.9
million as compared to $1,447.4  million for the nine months ended September 30,
1998.  Comparative total operating  expenses for the nine months ended September
30,  1999 as  compared  to the same  period in 1998,  reflect  the change in the
structure of the Company's  business and the timing of the LIPA  Transaction and
KeySpan Acquisition.

Net  operating  expenses  (operating  expenses  less the cost of gas and revenue
taxes) were $426.5  million and  $1,157.0  million for the three and nine months
ended September 30, 1999, respectively.  On a proforma,  combined company basis,
net operating  expenses,  excluding  special  charges,  were $384.4  million and
$1,439.6  million for the quarter and nine months ended  September 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 nine months ended September 30, 1999 compared to the
corresponding periods last year.

GAS DISTRIBUTION
Net operating  expenses were $162.0 million for the quarter ended  September 30,
1999 as compared to $152.4 million for the quarter ended September 30, 1998. For
the nine months ended  September 30, 1999,  net  operating  expenses were $463.8
million as compared to $491.7  million for the nine months ended  September  30,
1998 on a proforma,  combined company basis. The increase in operating  expenses
for the quarter ended September 30, 1999 was due, in part, to increased property
tax expense, as applicable property base and tax rates generally have increased,
and  increased  employee  benefit  costs.  However,  the  Company  has  realized
significant reductions in operations and maintenance expense for the nine months
ended September 30, 1999 compared to the  corresponding  period last year. These
reductions reflect, 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 nine months  ended  September  30, 1999.  Brooklyn  Union of Long Island
discontinued  providing  non-safety related appliance repair services on July 1,
1999, further reducing operating expenses for this segment.

GAS EXPLORATION AND PRODUCTION
Operating expenses for the quarter and nine months ended September 30, 1999 were
$26.3  million  and $73.7  million,  respectively.  Operating  expenses  for the
quarter and nine months ended September 30, 1998 on a proforma, combined company
basis  were $26.9  million  and $79.6  million,  respectively.  The  comparative
decrease in expenses  for the  quarter  and nine 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 nine months ended
September 30, 1999 was $1.04 per MCFe of  production  compared to $1.28 per MCFe
and $1.26 per MCFe of production for the quarter and nine months ended September
30, 1998, respectively.

ELECTRIC SERVICES
Operating expenses for the quarter and nine months ended September 30, 1999 were
$191.9 million and $493.9  million,  respectively  as compared to $164.7 million
and $781.2  million for the quarter and nine months  ended  September  30, 1998,
respectively.  The increase in  comparative  operating  expenses for the quarter
ended September 30, 1999 is due primarily to the inclusion of operating expenses
for the Ravenswood Facility since June 1999. For the nine months ended September
30, 1999, operating expenses,  as compared to the same period in 1998, decreased
by $287.3 million 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 nine months ended  September  30, 1999,  depreciation  expense
decreased  by $36.9  million and  operating  taxes  decreased  by $99.3  million
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 is the addition of expenses associated with operating
the  Ravenswood   Facility  and  the   discontinuation  of  electric  regulatory
amortizations,  primarily the Rate Moderation  Component ("RMC"),  which reduced
operating  expenses by $79.9  million for the nine months  ended  September  30,
1998.

ENERGY RELATED SERVICES
Operating  expenses for the quarter ended September 30, 1999 were $46.3 million,
as compared to $24.7 million for the quarter ended September 30, 1998. Operating
expenses  were $128.3  million for the nine months ended  September  30, 1999 as
compared  to $65.9  million for the nine months  ended  September  30, 1998 on a
proforma, combined company basis. The comparative increase in operating expenses
for both periods,  was due to the acquisition of Fritze KeySpan in November 1998
and Delta  KeySpan in September  1999,  the  integration  of operations of other
acquired companies during the past few years, and increased  purchased gas costs
of KES. The formation and  commencement  of operations of KESol,  in April 1998,
also contributed to the comparative  increase in operating expenses for the nine
months ended September 30, 1999.


Other Income and Deductions

Other income for the quarter and nine months ended  September  30, 1999 and 1998
includes  earnings from the investment of the proceeds from the LIPA Transaction
and equity earnings from subsidiaries  comprising the Energy Related Investments
segment. Interest income has been decreasing as the Company continues to use the
proceeds  from the LIPA  Transaction  to make certain  acquisitions,  repurchase
shares of its common stock on the open market, and retire maturing debt. For the
nine months ended  September  30,  1998,  other  income also  includes  benefits
related to certain electric  regulatory  incentives that have been  discontinued
due to the LIPA  Transaction,  offset,  in part,  by after-tax  special  charges
associated with the LIPA Transaction.

Other Expenses

Interest  expense for the three months ended  September 30, 1999, as compared to
the same period last year, primarily reflects the repayment of $397.0 million of
promissory  notes due LIPA that matured in June 1999.  Interest  expense for the
nine months ended September 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 nine months ended  September  30, 1998
reflects only four months of the reduced  level of  outstanding  debt.  However,
interest  expense for the nine months  ended  September  30, 1999  reflects  the
reduction  in  outstanding  debt  for the  entire  period.  Outstanding  debt at
September  30, 1999 was $1.7  billion as compared to $4.5  billion  (LILCO only)
prior to the LIPA Transaction.

Income tax expense for the quarter  and nine  months  ended  September  30, 1999
reflects  the level of pre-tax  income in both  periods  and for the nine months
ended  September 30, 1999, 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  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 Financing

LIQUIDITY
The  increase in cash flow from  operations  for the three and nine months ended
September 30, 1999 as compared to the corresponding  periods last year, reflects
continued strong results from core utility operations, benefits derived from the
acquisition of the Ravenswood  Facility and, for the nine months ended September
30, 1999 the benefits from the integration of KSE-acquired  companies.  Further,
cash flow from  operations for the nine months ended September 30, 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 Voluntary Employee  Beneficiary Trusts to fund certain employee post
retirement welfare benefits and, as a result,  cash flow from operations for the
nine months ended September 30, 1998 was adversely affected.

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; retire outstanding debt; expand its operations through
increased  investments  in energy  related  activities,  such as gas  processing
plants and heating,  ventilation and air-conditioning companies; and acquire the
Ravenswood  Facility.  At September 30, 1999, the Company had cash and temporary
cash investments of $129.9 million and available  unsecured bank lines of credit
of $300 million. Borrowings were made under these facilities during the month of
September 1999. The average daily outstanding balance during the month was $40.2
million at a weighted  average  annualized rate of 5.52%. At September 30, 1999,
the  Company  had $103.9  million in  short-term  borrowings  outstanding  at an
annualized rate of 5.83%. In addition,  THEC has an unsecured  available line of
credit with a commercial  bank that  provides for a current  commitment  of $240
million.  This  line  can be  increased  to $250  million,  subject  to  certain
conditions.   During  the  quarter  ended  September  30,  1999,  THEC  incurred
borrowings of $12.0 million under this facility,  at which time $160 million was
outstanding  at the end of the quarter.  Subsequent to September 30, 1999,  THEC
borrowed an additional $21 million under this facility to acquire a 64% interest
in two additional undeveloped wells.

The Company is in the process of  negotiating a $700 million,  revolving  credit
agreement  with a  one-year  term with  Chase  Manhattan  Bank to ensure  credit
availability  and  liquidity.  Pricing  under the facility  will be subject to a
ratings-based  grid.  The annual fee on this facility will be .075% per annum on
the balance of funds  available and  borrowing  will bear interest at LIBOR plus
50.0 basis points. Borrowings in excess of more than 33% of the total commitment
will bear interest at LIBOR plus 62.5 basis points. This credit facility will be
used to support an  anticipated  $700  million  commercial  paper  program.  The
Company  anticipates issuing commercial paper beginning in the fourth quarter of
calendar year 1999.  Proceeds  received from commercial paper borrowings will be
used to repay outstanding  borrowings under the Company's current line of credit
and will also be used for  general  corporate  purposes.  The  existing  line of
credit will be terminated upon execution of the revolving credit agreement.  The
Company  anticipates  issuing  commercial paper rather than borrowing on the new
revolving credit agreement.

CAPITAL REQUIREMENTS
On November 4, 1999,  the  Company  entered  into a  definitive  agreement  with
Eastern Enterprises ("Eastern"),  pursuant to which the Company will acquire all
of the  outstanding  common  stock of Eastern for $64.00 per share in cash.  The
transaction  has a total value of  approximately  $2.5 billion  ($1.7 billion in
equity and $0.8 billion in assumed debt and preferred  stock).  Eastern owns and
operates, among other entities,  Boston Gas Company, Colonial Gas Company, Essex
Gas  Company  and  Midland  Enterprises  Inc.  (See  Note 11.  To the  Condensed
Consolidated Financial Statements  "Acquisition of Eastern Enterprises" for more
information.)

<PAGE>
In September  1999,  a Company  subsidiary  purchased  Delta  Mechanical  of New
England,  Inc. The company  builds and installs  heating,  ventilating,  and air
conditioning ("HVAC") systems primarily for commercial customers in Rhode Island
and in the New England region and is the largest HVAC contractor in Rhode Island
with revenues of  approximately  $30 million for the twelve months ended May 31,
1999. Also in September,  the Company, through GMS, completed the acquisition of
Richland  Petroleum's  37% interest in the Paddle River Gas Plant.  The acquired
plant  interest is owned by a Company  subsidiary  and  managed by GMS.  The gas
plant,  located in Alberta,  Canada,  is capable of  processing up to 82 million
cubic feet per day (mmcf/d) of raw sour gas,  with modern acid gas  re-injection
and natural gas liquids recovery facilities. With current throughput of about 40
mmcf/d, the plant's unutilized  capacity  represents a significant  opportunity.
The  total  acquisition  price  for these  two  transactions  amounted  to $19.6
million.

In June 1999,  the  Company  acquired  the  Ravenswood  Facility.  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 Financial Statements "Contractual  Obligations
and Contingencies" for more details on the lease agreement.)

The Company has begun a process to review strategic  alternatives  regarding its
investment  in THEC.  The process will include an assessment of the role of THEC
within the Company's  future  strategic  plan, and will consider a full range of
strategic  transactions  which could include the sale of all or a portion of its
investment in THEC. The Company has decided not to continue its full  commitment
with  regards to its joint  venture  drilling  program  with THEC.  The drilling
program  will be  extended  only on a  quarter-by-quarter  basis until March 31,
2000. The remaining balance of the cash investments for 1999 will continue to be
carried  forward  through the  expiration of the drilling  program,  but will be
limited to expenditures for further development of existing successful wells and
not for new  exploration  activities.  In  addition,  the Company has decided to
extend   its   credit   facility   agreement   with  THEC   beyond   1999  on  a
quarter-by-quarter basis until March 31, 2000.
<PAGE>
FINANCING

On October 27 1999, the Company's  wholly-owned  subsidiary,  KeySpan Generation
LLC issued,  through the New York State Energy Research  Development  Authority,
$41.1 million of Pollution  Control Revenue  Refunding Bonds, 1999 Series A. The
proceeds  from  this  financing  will be used to  extinguish  a  portion  of the
Company's  promissory  notes  due  LIPA.  The  initial  interest  rate on  these
tax-exempt  bonds  will be 3.95%  and  will  apply  through  January  13,  2000.
Thereafter,  the interest rate will be reset based on an auction procedure.  The
Company  anticipates  that the interest rate on these  tax-exempt  bonds will be
substantially lower than the interest rate on the debt it is replacing.

In June 1999,  the Company  extinguished  a portion of its  promissory  notes to
LIPA. 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 8. to the  Condensed  Consolidated  Financial  Statements
"Extinguishment of Long-Term Debt and Financing.")  Management expects to access
the financial  markets during the first quarter of fiscal 2000 in order to issue
approximately  $400 million of debt  securities  to replace the debt  obligation
that has matured.

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 October 20 1999, the Company had repurchased  24.9 million
of its common shares for $723.4 million.  At this point in time, the Company has
discontinued  repurchasing  its common  stock on the open market.  However,  the
Company reserves the right to repurchase  additional  shares of its common stock
on the open market if future market conditions warrant.

The Company  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.

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  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  of $5.0
million associated with the Ravenswood  Facility,  will be approximately  $130.2
million and has recorded a related  liability  for such amount.  Further,  as of
September 30, 1999, the Company has expended a total of $14.3 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;  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 was  completed.  As of September  30, 1999  business  critical
systems,  which includes metering,  billing and certain financial and accounting
systems,  were 98% complete in remediation and 93% complete in testing.  Testing
of the last of these systems will be complete by November 30, 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 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.

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 September 30, 1999,  $24.7 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 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.
<PAGE>
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
September 30, 1999, the Company has  approximately  $245.0  million  invested in
these affiliates.

Also,  during the period from  January 1, 1999 to September  30, 1999,  Brooklyn
Union  utilized   derivative   instruments,   primarily   swaps,   to  "lock-in"
approximately  60% 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.

Over the past few years,  the NYPSC has been  formulating a policy  framework to
guide the  transition  of New York  State's  gas  distribution  industry  in the
deregulated  gas  industry  environment.  In November  1998,  the NYPSC issued a
policy  statement  setting forth its vision for  furthering  competition  in the
natural gas  industry.  Under this vision,  regulated  natural gas  utilities or
local  distribution  companies  ("LDC's")  would  plan to exit the  business  of
purchasing gas for and selling gas to customers (the merchant function) over the
next three to seven years.  LDC's would  remain the  operators of the gas system
(the  distribution  function)  and the  provider  of last  resort of natural gas
supplies during that period and until  alternatives  are developed.  The NYPSC's
goal is to  encourage  more  competition  at the local level by  separating  the
merchant function from the distribution function.


As required by NYPSC's  policy  statement,  the Company filed its  restructuring
proposal  with the NYPSC in October 1999.  In its filing,  the Company  offers a
comprehensive  restructuring plan designed to (i) provide a significant  impetus
toward  exiting  the gas  supply  business  and (ii)  present  the NYPSC with an
opportunity  to realize its vision of a competitive  unbundled gas supply market
for all customers  within the  transitional  time frame of three to seven years.
Under the Company's  proposal the Company  would  continue to be the provider of
last resort during the transition  period. The restructuring plan seeks to "jump
start" the migration of the mass customer market (especially the residential and
the small commercial and industrial  markets) from bundled utility sales service
to unbundled  transportation service,  accelerates the elimination of regulatory
cost burdens from the gas supply  market,  provides  protections  for low income
customers,  and sets forth a plan to  minimize  potential  stranded  costs.  The
Company believes that its proposal strikes a balance among competing stakeholder
interests  in order to most  effectively  make  available  the  benefits  of the
unbundled gas supply market to all customers.  The Company currently is not able
to determine the outcome of this proceeding and what effect, if any, it may have
on the Company's operations.


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
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,  however that appeal was  subsequently  withdrawn.  The parties have
filed a stipulation in Federal Court to dismiss the remaining  federal  actions,
with  prejudice,  based upon the State Court  Settlement.  The Federal court has
approved the stipulation and a final order was entered on October 12, 1999.

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  recipients  of the  Payments as  defendants.  In June
1999,  the Company was served with the second amended  complaint.  On August 23,
1999, the Company filed 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.

<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K



(a)      Exhibits

*27    Financial Data Schedule

(b)      Reports on Form 8-K

In its Report on Form 8-K dated November 5, 1999,  the Company  reported that it
has entered into a definitive  agreement with Eastern  Enterprises  ("Eastern"),
pursuant to which  KeySpan will acquire all of the  outstanding  common stock of
Eastern.

In its Report on Form 8-K dated September 16, 1999, the Company reported

          (1)that it intends to begin a process to review strategic alternatives
          for The Houston  Exploration  Company,  in which the Company has a 64%
          share ownership.

          (2)that it  currently  believes  that its earnings for the year ending
          December 31, 1999, will exceed most securities analysts' estimates.



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

*Filed Herewith





<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: November 10, 1999                      /s/ Gerald Luterman
                                             --------------------------
                                             Gerald Luterman
                                             Senior Vice President and
                                             Chief Financial Officer


Date: November 10, 1999                      /s/ Ronald S. Jendras
                                             -----------------------
                                             Ronald S. Jendras
                                             Vice President, Controller
                                             and Chief Accounting Officer