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 March 31, 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 1-1416

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

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

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

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

                                      NONE 
        (Former name, former address and former fiscal year, if changed
                               since last report)

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

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

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

   Class of Common Stock                Outstanding at May 3, 1999
      $.01 par value                            141,349,252


<PAGE>




                   MARKETSPAN CORPORATION AND SUBSIDIARIES

                                     INDEX


Part I. FINANCIAL INFORMATION                                    Page No.

Item I.     Financial Statements

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

            Condensed Consolidated Statement of Income -
            Three Months Ended March 31, 1999 and 1998                5

            Condensed Consolidated Statement of Cash Flows -
            Three Months Ended March 31,1999 and 1998                 6

            Notes to Condensed Consolidated Financial
            Statements                                                7

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

Item 3.     Quantitative and Qualitative Disclosures
            About Market Risk                                         30

Part II.    OTHER INFORMATION

            Item 1 - Legal Proceedings                                30

            Item 6 - Exhibits and Reports on Form 8-K                 33


            Signature                                                 34



                                      2

<PAGE>
<TABLE>
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (IN THOUSANDS OF DOLLARS)


<CAPTION>


                                                                     MARCH 31, 1999        DECEMBER 31, 1998
                                                                  --------------------    ------------------
                                                                     (UNAUDITED)              (AUDITED)
ASSETS

CURRENT ASSETS
  <S>                                                         <C>                  <C>              
  Cash and temporary cash investments                         $        951,338     $         942,776
  Customer accounts receivable                                         302,400               142,307
  Accrued revenues                                                     158,062               178,529
  Other accounts receivable                                            158,163               230,479
  Allowance for uncollectible accounts                                 (24,827)              (20,026)
  Special deposits                                                     120,826               145,684
  Gas in storage, at average cost                                       57,611               145,277
  Materials and supplies, at average cost                               59,038                74,193
  Other                                                                 66,283                72,818
                                                              -----------------    ------------------
                                                                     1,848,894             1,912,037
                                                              -----------------    ------------------

EQUITY INVESTMENTS                                                     349,353               341,346
                                                              -----------------    ------------------

PROPERTY
  Electric                                                           1,111,958             1,109,199
  Gas                                                                3,284,819             3,257,726
  Common                                                               347,597               345,007
  Accumulated depreciation                                          (1,506,594)           (1,480,038)
  Gas exploration and production, at cost                            1,029,673               994,104
  Accumulated depletion                                               (465,057)             (447,733)
                                                              -----------------    ------------------
                                                                     3,802,396             3,778,265
                                                              -----------------    ------------------

DEFERRED CHARGES
  Regulatory assets                                                    289,339               279,524
  Goodwill                                                             202,233               201,887
  Other                                                                383,916               382,043
                                                              -----------------    ------------------
                                                                       875,488               863,454
                                                              -----------------    ------------------
TOTAL ASSETS                                                  $      6,876,131     $       6,895,102
                                                              =================    ==================


</TABLE>

See accompanying notes to the Condensed Consolidated Financial Statements.



                                        3



<PAGE>

<TABLE>
                      CONDENSED CONSOLIDATED BALANCE SHEET
                            (IN THOUSANDS OF DOLLARS)


<CAPTION>

                                                                             MARCH 31, 1999       DECEMBER 31, 1998
                                                                         -------------------    --------------------
                                                                              (UNAUDITED)              (AUDITED)



LIABILITIES AND CAPITALIZATION

CURRENT LIABILITIES
<S>                                                                      <C>                     <C>            
  Current maturities of long-term debt                                   $           398,000     $       398,000
  Accounts payable and accrued expenses                                              453,299             519,288
  Dividends payable                                                                   66,095              66,232
  Taxes accrued                                                                       56,712              69,742
  Customer deposits                                                                   29,964              29,774
  Interest accrued                                                                    17,735              19,965
                                                                             ----------------    ----------------
                                                                                   1,021,805           1,103,001
                                                                             ----------------    ----------------

DEFERRED CREDITS AND OTHER LIABILITIES
  Regulatory liabilities                                                              26,521              53,137
  Deferred federal income tax                                                        107,526              71,549
  Pensions, claims & other reserves                                                  459,699             457,459
  Other                                                                               72,674              50,457
                                                                             ----------------    ----------------
                                                                                     666,420             632,602
                                                                             ----------------    ----------------

CAPITALIZATION
  Common stock, $.01 par value, authorized 450,000,000 shares;
     outstanding 142,745,254 and 144,628,654 shares,
     respectively, stated at                                                       2,973,388           2,973,388
  Retained earnings                                                                  545,272             474,188
  Accumulated foreign currency adjustment                                              2,358                (952)
  Treasury stock purchased                                                          (477,777)           (423,716)
                                                                             ----------------    ----------------
     Total common equity                                                           3,043,241           3,022,908
  Preferred stock                                                                    447,319             447,973
  Long-term debt                                                                   1,627,638           1,619,067
                                                                             ----------------    ----------------
                                                                                   5,118,198           5,089,948
                                                                             ----------------    ----------------

MINORITY INTEREST IN SUBSIDIARY COMPANY                                               69,708              69,551
                                                                             ----------------    ----------------
TOTAL LIABILITIES AND CAPITALIZATION                                     $         6,876,131     $      6,895,102
                                                                             ================    ================


</TABLE>

See accompanying notes to the Condensed Consolidated Financial Statements.





                                        4

<PAGE>
<TABLE>
                   CONDENSED CONSOLIDATED STATEMENT OF INCOME
                                   (Unaudited)
               (IN THOUSANDS OF DOLLARS ,EXCEPT PER SHARE AMOUNTS)
<CAPTION>


                                                                               THREE MONTHS              Three Months
                                                                                   ENDED                     Ended
                                                                              MARCH 31, 1999            March 31, 1998
                                                                           ----------------------    ----------------------

REVENUES
<S>                                                                     <C>                       <C>                     
Gas Distribution                                                        $                715,830  $                271,894
Gas Exploration and Production                                                            26,520                         -
Electric Services                                                                        174,537                         -
Electric Distribution                                                                          -                   555,682
Energy Related Services                                                                   41,432                         -
                                                                           ----------------------    ----------------------
Total Revenues                                                                           958,319                   827,576
                                                                           ----------------------    ----------------------

OPERATING EXPENSES
Purchased gas                                                                            311,254                   128,401
Fuel and purchased power                                                                       -                   166,024
Operations and maintenance                                                               243,082                   132,162
Depreciation, depletion and amortization                                                  58,186                    44,209
Electric regulatory amortizations                                                              -                   (39,870)
Operating taxes                                                                          103,893                   117,112
                                                                           ----------------------    ----------------------
Total Operating Expenses                                                                 716,415                   548,038
                                                                           ----------------------    ----------------------
OPERATING INCOME                                                                         241,904                   279,538
                                                                           ----------------------    ----------------------

OTHER INCOME AND (DEDUCTIONS)
Income from equity investments                                                             2,972                         -
Interest income                                                                           11,043                     3,714
Minority interest                                                                           (304)                        -
Other                                                                                      2,269                     3,620
                                                                           ----------------------    ----------------------
Total Other Income                                                                        15,980                     7,334
                                                                           ----------------------    ----------------------
INCOME BEFORE INTEREST CHARGES AND INCOME TAXES                                          257,884                   286,872
                                                                           ----------------------    ----------------------

INTEREST CHARGES                                                                          34,584                   100,027
                                                                           ----------------------    ----------------------

INCOME TAXES
     Current                                                                              46,646                    22,573
     Deferred                                                                             33,433                    48,333
                                                                           ----------------------    ----------------------
Total Income Taxes                                                                        80,079                    70,906
                                                                           ----------------------    ----------------------

NET INCOME                                                                               143,221                   115,939
Preferred stock dividend requirements                                                      8,689                    12,947
                                                                           ----------------------    ----------------------
EARNINGS FOR COMMON STOCK                                               $                134,532  $                102,992

Foreign Currency Adjustment                                                                3,310                         -

                                                                           ======================    ======================
COMPREHENSIVE INCOME                                                    $                137,842  $                102,992
                                                                           ======================    ======================

AVERAGE COMMON SHARES OUTSTANDING (000)                                                  142,981                   121,667

BASIC AND DILUTED EARNINGS PER COMMON SHARE                             $                   0.94  $                   0.85
                                                                           ======================    ======================
</TABLE>


See accompanying notes to the Condensed Consolidated Financial Statements.


                                                                     5

<PAGE>


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

<CAPTION>

                                                                             THREE MONTHS              Three Months
                                                                                 ENDED                     Ended
                                                                            MARCH 31, 1999            March 31, 1998
                                                                         ----------------------    ----------------------
OPERATING ACTIVITIES

<S>                                                                   <C>                       <C>                     
Net Income                                                            $                143,221  $                115,939
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
  Depreciation, depletion and amortization                                              58,186                    44,209
  Electric regulatory amortization                                                           -                   (39,870)
  Deferred income tax                                                                   33,433                    48,333
  Income from equity investments                                                        (2,972)                        -
  Dividends from equity investments                                                      4,296                         -
CHANGES IN ASSETS AND LIABILITIES
  Accounts receivable and accrued revenues                                             (67,635)                   (8,323)
  Materials and supplies, fuel oil and gas in storage                                  102,612                    70,624
  Accounts payable and accrued expenses                                                (85,303)                  (79,788)
  Interest accrued                                                                      (2,230)                  (11,180)
  Special deposits                                                                      24,858                   (28,359)
  Other                                                                                 (5,280)                   17,121
                                                                         ----------------------    ----------------------
Net Cash Provided by  Operating Activities                                             203,186                   128,706
                                                                         ----------------------    ----------------------

INVESTING ACTIVITIES

Capital expenditures                                                                   (86,331)                  (55,736)
Miscellaneous investment                                                                12,438                    (9,289)
                                                                         ----------------------    ----------------------
Net Cash Used in Investing Activities                                                  (73,893)                  (65,025)
                                                                         ----------------------    ----------------------

FINANCING ACTIVITIES

Proceeds from sale of common stock                                                           -                     4,554
Treasury stock purchased                                                               (54,061)                        -
Issuance of long-term debt                                                               7,000                         -
Preferred stock dividends paid                                                          (8,689)                  (12,947)
Common stock dividends paid                                                            (64,360)                  (54,032)
Other                                                                                     (621)                     (332)
                                                                         ----------------------    ----------------------
Net Cash Used in Financing Activities                                                 (120,731)                  (62,757)
                                                                         ----------------------    ----------------------
Net Increase in Cash and Cash Equivalents                                                8,562                       924
                                                                         ======================    ======================
Cash and cash equivalents at beginning of period                      $                942,776  $                179,995
Net Increase in cash and cash equivalents                                                8,562                       924
                                                                         ======================    ======================
Cash and Cash Equivalents at End of Period                            $                951,338  $                180,919
                                                                         ======================    ======================


</TABLE>

See accompanying notes to the Condensed Consolidated Financial Statements.

                                        6


<PAGE>



             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.    ORGANIZATION OF THE COMPANY

      MarketSpan  Corporation,  d/b/a KeySpan Energy(the "Company"),  a New York
      corporation,  is the successor to Long Island Lighting Company  ("LILCO"),
      as a  result  of the  transaction  with the Long  Island  Power  Authority
      ("LIPA")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,  sell  capacity  and  energy to LIPA from the  Company's  generating
      facilities  and  manage  fuel  supplies  for  LIPA to fuel  the  Company's
      generating  facilities through long-term service contracts that range from
      eight to fifteen years.

      In 1998, the Company's Board of Directors authorized filings to permit the
      Company to conduct its business under the name KeySpan Energy. The Company
      has asked its shareholders to approve,  at its May 20, 1999 Annual Meeting
      of Shareholders,



                                      7

<PAGE>




     an amendment to its  certificate of  incorporation  to formally  change the
     name of the Company to KeySpan Corporation.


2.    BASIS OF PRESENTATION

      The  financial   statements  presented  herein  reflect  the  consolidated
      statements of the Company.  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  reflect the results of operations  of the  consolidated
      Company  for three  months  ended March 31, 1999 and of LILCO only for the
      three  months  ended  March 31,  1998.  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 March 31, 1999,
      and the results of its  operations  for the three  months  ended March 31,
      1999 and 1998,  and cash flows for the three  months  ended March 31, 1999
      and 1998.  Certain  reclassifications  were made to conform  prior  period
      financial   statements  with  the  current  period   financial   statement
      presentation. Other than as noted, adjustments were of a normal, recurring
      nature.

      As permitted by the rules and  regulations  of the Securities and Exchange
      Commission ("SEC"), the Condensed Consolidated Financial Statements do not
      include all of the accounting information normally included with financial
      statements  prepared in  accordance  with  generally  accepted  accounting
      principles.  Accordingly,  the Condensed Consolidated Financial Statements
      should be read in  conjunction  with the  financial  statements  and notes
      thereto  included in the Company's Annual Report on Form 10-K for December
      31, 1998.


3.   REVENUES

      The Gas  Distribution  segment of the  Company is  influenced  by seasonal
      weather conditions.  Annual gas revenues are substantially realized during
      the  heating  season  (November  1 to April  30) as a result  of the large
      proportion of heating sales,  primarily  residential,  compared with total
      sales.



                                      8

<PAGE>




      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
      unprofitable,  and  losses  are  usually  incurred  in the  quarter  ended
      September 30.

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

      Electric Services revenues are primarily derived from billings to LIPA for
      management 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 December 31, 1998 Form 10-K.)

      Prior  to  the  LIPA  Transaction,  Electric  Distribution  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.






                                      9

<PAGE>




      As of March 31, 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 March 31,  1999,  the  Company had  recorded  goodwill in the amount of
      $202.2 million,  representing the excess of acquisition cost over the fair
      value  of  net  assets  acquired  related  to  its  purchases  of  certain
      consolidated  subsidiaries.  Goodwill  is  being  amortized  over 20 to 40
      years.  The  Company  has  recorded  goodwill  of $177.0  million,  net of
      accumulated   amortization  of  $3.7  million   relating  to  the  KeySpan
      Acquisition.

      Further,  certain  subsidiaries own as their principal assets investments,
      including  goodwill,  representing  ownership  interests of 50% or less in
      energy-related  businesses that are accounted for under the equity method.
      Goodwill,  at March 31, 1999, was $51.8 million for certain investments in
      North  America and  Northern  Ireland and has been  recorded as a Deferred
      Debit in the consolidated  financial  statements.  The amortization period
      for such goodwill is over 15 and 40 years, respectively.


6.    ENVIRONMENTAL MATTERS

      The  Company  has  recorded a  liability  of  approximately  $130  million
      associated with  investigation  and remedial  obligations  with respect to
      nine of the Company's  former  manufactured  gas plants ("MGP").  Three of
      these MGP sites are  associated  with Brooklyn  Union's  operations or its
      predecessors; six MGP sites are associated with the operations of Brooklyn
      Union of Long  Island or its  predecessors.  With  respect  to the  former
      Brooklyn  Union MGP sites, a total of  approximately  $48 million has been
      accrued  representing the best estimate of remedial costs for one site and
      the minimum range of an estimate for the investigation  and/or remediation
      of the other  sites.  With  respect to  Brooklyn  Union of Long Island MGP
      sites, a total of approximately  $82 million has been accrued as a minimum
      of  an  estimated  range  of  costs  for  the  six  sites  which  will  be
      investigated/remediated  pursuant  to  Administrative  Orders  on  Consent
      ("ACO's") with the New York State Department of Environmental Conservation
      ("DEC").  Two ACO's were executed on March 31, 1999 for Brooklyn  Union of
      Long Island MGP sites.



                                      10

<PAGE>




      One ACO  addressed  two MGP  sites  classified  as "Class II Sites" on the
      State registry of inactive  hazardous waste sites. The other ACO addressed
      the four other MGP sites.  Both ACO'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.  The
      investigation  of the Class II listed  sites  will  proceed  first,  to be
      followed  by the  investigation  of the four  other  sites in three  month
      intervals.

      Under prior rate orders, the Public Service Commission of the State of New
      York  ("NYPSC")  has allowed  recovery of  investigation  costs related to
      certain  Brooklyn  Union MGP  sites.  Therefore,  at March 31,  1999,  the
      Company had reflected a total remaining  regulatory asset of approximately
      $100  million.  The Company  believes  that  current  rate plans in effect
      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 $289.3 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  $170.8 million, or approximately $1.19 per
      share of common stock, which would be classified as an extraordinary item.





                                      11

<PAGE>




8.    BUSINESS SEGMENTS

      The  Company  has six  reportable  segments:  Gas  Distribution,  Electric
      Services,  Gas  Exploration and  Production,  Energy Related  Investments,
      Energy Related Services and Other.  The Gas Distribution  segment consists
      of Brooklyn Union and Brooklyn Union of Long Island. The Electric Services
      segment  consists of  subsidiaries  that own and operate oil and gas fired
      generating  plants, and through long-term  contracts,  manage the electric
      T&D system, the fuel and electric  purchases,  and the off-system electric
      sales for LIPA. The Gas Exploration and Production  reportable  segment is
      engaged in gas and oil exploration and production, and the development and
      acquisition  of  domestic  natural  gas and oil  properties.  Subsidiaries
      included in the Energy  Related  Investments  segment have  investments in
      natural gas  pipelines,  midstream  natural gas  processing  and gathering
      facilities and gas storage  facilities.  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 in the Condensed  Consolidated Income Statement.
      The  Energy  Related  Services  segment  consists  of  subsidiaries   that
      primarily  provide gas and electric  marketing and related  energy systems
      installation,  appliance  service  contracts  and  management  services to
      customers,  primarily in the New York City  metropolitan  area.  The Other
      segment primarily represents  unallocated  administrative  expenses of the
      Company  and  earnings  from  the  investment  of  proceeds  from the LIPA
      Transaction.

      The accounting policies of the segments are the same as those used for the
      preparation  of  the  Condensed  Consolidated  Financial  Statements.  The
      Company's   segments  are  strategic   business  units  that  are  managed
      separately   because  of  their   different   operating   and   regulatory
      environments.  As of March 31,  1999 the total  assets of each  reportable
      segment have not changed materially from those levels reported at December
      31, 1998  except for the Gas  Exploration  and  Production  segment  whose
      assets  increased  by  $14.5  million  due to  the  formation  of  KeySpan
      Exploration  and Production LLC, a Company  subsidiary  engaged in a joint
      venture with THEC. Segment information is as follows:





                                      12

<PAGE>



<TABLE>
<CAPTION>

THREE MONTHS ENDED MARCH 31, 1999                                                                   (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------

                    Gas            Electric       Gas Exploration  Energy Related    Energy Related
                    Distribution   Services       and Production   Investments       Services          Other           Total
------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>         <C>                  <C>             <C>             <C>             <C>           <C>      
Revenue             $715,830    $  174,537           $   26,520     $          -     $    41,432     $     -       $ 958,319
------------------------------------------------------------------------------------------------------------------------------

Cost of Gas          311,254             -                    -                -               -           -         311,254

Operations and
  Maintenance         99,081        92,167                5,959            1,089          43,228       1,558         243,082

Depreciation
  Depletion &
 Amortization         24,255         9,928               17,057              332             769       5,845          58,186

Operating Taxes       72,453        28,991                   33                7               3       2,406         103,893

 Intercompany
  Billings             3,049        10,645                    -                -               -     (13,694)              -
------------------------------------------------------------------------------------------------------------------------------
Total Expenses      $510,092    $  141,731           $   23,049      $     1,428     $    44,000     $(3,885)      $ 716,415
------------------------------------------------------------------------------------------------------------------------------
Operating Income    $205,738    $   32,806           $    3,471      $    (1,428)    $    (2,568)    $ 3,885       $ 241,904
==============================================================================================================================
</TABLE>


<TABLE>
<CAPTION>


THREE MONTHS ENDED MARCH 31, 1998                      (In Thousands of Dollars)
--------------------------------------------------------------------------------
                              Gas            Electric
                           Distribution      Distribution            Total
--------------------------------------------------------------------------------
<S>                      <C>                 <C>                 <C>       
Revenue                  $     271,894       $      555,682      $  827,576
--------------------------------------------------------------------------------
Cost of Gas and Fuel           128,401              166,024         294,425

Operations and
  Maintenance                   32,079              100,083         132,162

Depreciation & Amortization     10,705               33,504          44,209

Electric Amortization                -              (39,870)        (39,870)

Operating Taxes                 24,709               92,403         117,112
--------------------------------------------------------------------------------
Total Expense            $     195,894       $      352,144      $  548,038
--------------------------------------------------------------------------------
Operating Income         $      76,000       $      203,538      $  279,538
================================================================================
</TABLE>





                                      13

<PAGE>




9.   SHAREHOLDER RIGHTS PLAN

      On March  30,  1999 the  Board  of  Directors  of the  Company  adopted  a
      Shareholder  Rights Plan (the "Plan") designed to protect  shareholders in
      the  event of a  proposed  takeover  of the  Company.  The Plan  creates a
      mechanism  that  would  dilute  the  ownership  interest  of  a  potential
      unauthorized  acquirer.  The Plan establishes one preferred stock purchase
      "right" for each  outstanding  share of common  stock to  shareholders  of
      record on April 14,  1999.  Each right,  when  exercisable,  entitles  the
      holder to purchase  1/100th of a share of Series D Preferred  Stock,  at a
      price of $95.00.  The rights  generally become  exercisable  following the
      acquisition of more than 20 percent of the Company's  common stock without
      the  consent  of the  Company's  Board of  Directors.  Prior  to  becoming
      exercisable, the rights are redeemable by the Board of Directors for $0.01
      per right. If not so redeemed, the rights will expire on March 30, 2009.


10.   NEW FINANCIAL ACCOUNTING STANDARDS

      In June 1998, the Financial  Accounting  Standards  Board ("FASB")  issued
      SFAS  No.  133,   "Accounting  for  Derivative   Instruments  and  Hedging
      Activities." This Statement 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 will adopt SFAS No. 133 in the first quarter of fiscal
      year 2000. The Company does not expect any material  earnings  effect from
      adoption  of this  statement  as it  presently  utilizes  derivatives  for
      hedging activities.


11.  CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

      In January  1999,  the Company  entered into a definitive  agreement  with
      Consolidated Edison Company of New York, Inc. ("Con Ed"), to purchase, for
      approximately  $597 million,  subject to  adjustment,  the  2,168-megawatt
      Ravenswood  electric  generating  facility  located in Long  Island  City,
      Queens,  New York.  Consummation of this transaction is subject to various
      regulatory approvals, the timing of which cannot be determined.

      As a means of financing this acquisition, the Company anticipates entering
      into a lease  agreement  with a special  purpose,  unaffiliated  financing
      entity that will acquire a



                                      14

<PAGE>




      portion of the facility  directly from Con Ed and lease it to a subsidiary
      of the Company.  The Company will be required to guarantee all payment and
      performance  obligations  of its  subsidiary  under the  lease.  The lease
      program  is being  established  in order for the  Company to finance up to
      $425  million of the  acquisition  cost of the facility and is intended to
      qualify  as an  operating  lease  for the  Company's  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 are expected to be provided from cash on hand.




                                      15

<PAGE>




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


Results for the quarter ended March 31, 1999, as detailed  below,  reflected the
operations  of  the  consolidated  Company,   which  includes  all  KSE-acquired
companies,  Brooklyn  Union of Long  Island  and  other  subsidiaries  providing
services to LIPA. However, as required under purchase accounting rules,  results
for the quarter  ended March 31,  1998  reflected  results of LILCO prior to the
KeySpan Acquisition and LIPA Transaction, and do not include results of KSE.


Earnings Summary

Consolidated  earnings for the quarter ended March 31, 1999 were $134.5 million,
or $0.94 per diluted share,  compared to earnings of $103.0 million, or $.85 per
diluted share, in the corresponding  quarter last year. Earnings for the quarter
ended March 31, 1999 included results from all KSE-acquired  companies.  Results
for the  quarter  ended  March 31,  1998,  do not  include  results of KSE. On a
proforma, combined company basis, i.e. combining the results of KSE and LILCO as
previously  reported,  earnings for the quarter ended March 31, 1998 were $183.3
million.

Gas  Distribution  earnings  for the  quarter  ended  March 31, 1999 were $120.7
million,  or $0.84 per diluted share,  compared to $39.5  million,  or $0.33 per
diluted  share,  for the  quarter  ended  March 31,  1998.  The  increase in Gas
Distribution  earnings reflected the inclusion of earnings of Brooklyn Union for
the quarter  ended March 31,  1999.  Gas  Distribution  earnings for the quarter
ended March 31, 1998 reflected  results from Brooklyn Union of Long Island only.
On a proforma,  combined company basis, earnings for the quarter ended March 31,
1998 were $120.3  million.  Comparative  results for the 1999 quarter  reflected
lower net revenues,  i.e. revenues less gas costs and revenue taxes, due to rate
reductions  that were effective on the date of the KeySpan  Acquisition,  offset
primarily by lower operating expenses and lower interest expense.

The Gas Exploration and Production  segment consists  primarily of the Company's
64% equity  interest in THEC,  an  independent  natural gas and oil  exploration
company.  Earnings  associated  with Gas  Exploration  and Production  were $0.5
million for the quarter  ended March 31, 1999.  Earnings  for the quarter  ended
March 31, 1998,  which are not reflected in the financial  statements  presented
herein, were $4.3 million.  Comparative earnings were significantly  affected by
lower gas prices in 1999 and increased  interest  expense of $2.7 million due to
higher levels of debt outstanding.




                                      16

<PAGE>




Earnings from Electric Services were $16.6 million,  or $0.12 per diluted share,
for the quarter  ended March 31, 1999  compared to $63.5  million,  or $0.52 per
diluted share, for the quarter ended March 31, 1998. The change in the Company's
asset  base  and  electric  operations   resulting  from  the  LIPA  Transaction
contributed  to  the  comparative  reduction  in  earnings,  which  now  reflect
service-fee  revenues under various  service  contracts with LIPA. The Company's
operating margins under such arrangements are lower than those experienced prior
to the LIPA Transaction.

The Energy Related  Investments  segment primarily consists of the Company's 20%
investment  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,  called Gulf
Midstream  Services  Partnership  ("GMS").  Earnings from this segment were $0.3
million for the quarter ended March 31, 1999, compared to a loss of $0.7 million
for the quarter ended March 31, 1998.  Results for the quarter  ending March 31,
1998, are not reflected in the financial statements presented herein.

The Company's Energy Related Services segment primarily  includes KeySpan Energy
Management Inc. ("KEM"),  KeySpan Energy Services Inc.  ("KES"),  KeySpan Energy
Solutions,  LLC ("KESol") and KeySpan Fritze, LLC ("Fritze").  Results from this
segment  reflected  a loss of $1.4  million,  or $0.01  per  diluted  share,  as
compared to a loss of $3.7 million for the quarter ended March 31, 1998. Results
for the  quarter  ended  March 31,  1998,  are not  reflected  in the  financial
statements  presented herein . KEM owns,  designs and/or operates energy systems
for commercial and industrial customers and provides  energy-related services to
clients  located  primarily  within  the New York City  metropolitan  area.  KES
markets gas and electricity,  and arranges  transportation and related services,
largely to retail  customers,  including  those served by the  Company's two gas
distribution  subsidiaries.  KESol and  Fritze  provide  various  technical  and
maintenance  services  to  customers  primarily  within  the  Company's  service
territory.  KESol was  established  in April  1998 and Fritze  was  acquired  in
November  1998.  Operating  results  from this  segment  reflected  the benefits
derived from the continued integration of companies acquired during the past two
years.  These benefits were offset by losses incurred by subsidiaries  providing
appliance and repair services,  and gas and electric  marketing  services due to
the start-up  nature of their  operations  in highly  competitive  markets.  The
Company  will  continue  to realign  these  non-utility  operations  to maximize
earnings potential, and where appropriate,  possibly discontinue  non-profitable
activities.





                                      17

<PAGE>




For the quarter ended March 31, 1999, the Other segment  recorded a loss of $2.1
million or $0.01 per diluted share reflecting charges, including preferred stock
dividends,  incurred by the  corporate and  administrative  areas of the Company
that have not been allocated to the various business segments,  offset, in part,
by  interest  income  earned  on  investments  of the  proceeds  from  the  LIPA
Transaction.  Unallocated  administrative  costs for the quarter ended March 31,
1998  were  $0.4  million  and  are not  included  in the  financial  statements
presented herein.


Revenues

GAS DISTRIBUTION
Utility firm gas and  transportation  sales  volumes for the quarter ended March
31, 1999, were 86,539 MDTH, compared to 23,120 MDTH in the corresponding  period
last year. Total gas sales, which includes sales to interruptible and off-system
customers,  were 103,379 MDTH for the quarter ended March 31, 1999,  compared to
30,186 MDTH in the  corresponding  period last year.  The increase  reflects the
inclusion  of  Brooklyn  Union's  gas  customer  base as a result of the KeySpan
Acquisition.  Sales for the quarter  ended March 31, 1998,  as reported,  do not
include sales made by Brooklyn Union.

On a proforma, combined company basis, firm gas and transportation sales volumes
for the quarter ended March 31, 1998,  were 76,093 MDTH and total gas sales were
99,118 MDTH.  The  comparative  increases in firm gas and  transportation  sales
volumes and total gas sales were due to colder weather  experienced this quarter
as compared to the corresponding period last year and gas sales increases due to
customer additions.  Weather, as measured by annual degree days, was 8.2% warmer
than  normal for the quarter  ended  March 31, 1999 as compared to 19.4%  warmer
than normal for the  corresponding  period last year. Firm gas sales  normalized
for weather  were 4% higher in the  quarter  ended March 1999 as compared to the
quarter ended March 1998 reflecting gas sales growth.

Gas  Distribution  revenues  for the  quarter  ended  March 31, 1999 were $715.8
million  compared  to $271.9  million  for the  comparable  period in 1998.  The
increase  in  revenues  of $443.9  million  was  principally  the  result of the
inclusion of Brooklyn Union revenues in 1999. The comparative  March 1998 period
included revenues of Brooklyn Union of Long Island only. On a proforma, combined
company basis,  total Gas Distribution  revenues for the quarter ended March 31,
1998 were $760.0  million.  Set forth below are net gas  revenues on a proforma,
combined company basis:






                                      18

<PAGE>

<TABLE>
<CAPTION>
                                                      (In Millions of Dollars)
--------------------------------------------------------------------------------
                                        Three Months               Three Months
                                           Ended                      Ended
                                       March 31, 1999             March 31, 1998
--------------------------------------------------------------------------------
Gas Distribution
<S>                                       <C>                        <C>   
Revenues                                  $715.8                     $760.0
Cost of Gas                               (311.3)                    (331.7)
Revenue Taxes                              (44.2)                     (46.6)
--------------------------------------------------------------------------------
Net Revenues                              $360.3                     $381.7
================================================================================
</TABLE>

The  decrease in net gas  revenues of $21.4  million was due  primarily  to rate
reductions  which  were  implemented  at the  time of 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. Total rate reductions
for the  quarter  ended  March 31,  1999  amounted  to $14.4  million.  Further,
revenues  derived  from  Brooklyn  Union's  appliance  and repair  services  are
included in Gas  Distribution  revenues for the quarter ended March 31, 1998. In
April 1998, Brooklyn Union "spun-off" its appliance and repair services to KESol
and as a result, Gas Distribution  revenues for the quarter ended March 31, 1999
do not include revenues from such services.  As required by the NYPSC,  Brooklyn
Union of Long Island will cease providing  non-safety  related  appliance repair
services  on July 1, 1999,  and such  services  will then be offered by KESol to
customers within Brooklyn Union of Long Island's service territory. Net revenues
for the  current  quarter  also  included a marginal  increase  due to gas sales
growth.   Net  revenues  as  a  percentage  of  Gas   Distribution   sales  were
approximately 50% for the quarter ended March 31, 1999 and 1998.


GAS EXPLORATION AND PRODUCTION
Gas  Exploration  and  Production  revenues for the quarter ended March 31, 1999
were $26.5  million and solely  reflected the  operations of THEC.  For proforma
comparative  purposes,  revenues  from THEC were $32.9  million  for the quarter
ended March 31, 1998; however, these revenues are not reflected in the financial
statements  presented  herein.  The decrease in THEC revenues of $6.4 million is
due to a decrease in average  realized gas prices.  The effective price realized
(average  wellhead  price received for  production  including  hedging gains and
losses) was $1.61 per MCF in the quarter ended



                                      19

<PAGE>




March 31, 1999 compared to $2.13 per MCF in the  corresponding  quarter of 1998.
The  average  wellhead  price  also was  $1.61  per MCF in the  current  quarter
compared to $2.06 per MCF in the first quarter of 1998.  Gas  production for the
three months ended March 31, 1999 was 16.5 BCFe as compared to 15.4 BCFe for the
three months ended March 31, 1998. At March 31, 1999, THEC had total natural gas
reserves of approximately  480 BCFe primarily in the strategic "supply basin" of
the Gulf of Mexico and Texas.


ELECTRIC SERVICES
Electric  Services  revenues of $174.5  million for the quarter  ended March 31,
1999  represented  revenues  under  various  LIPA  Service  Agreements.  For the
comparable   1998  period,   revenues  of  $555.7  million   included   Electric
Distribution  revenues  of  LILCO  only,  prior  to  giving  effect  to the LIPA
Transaction.

The decrease in electric  revenues of $381.2  million for the three months ended
March 31, 1999 when  compared to the same period in 1998,  was the result of the
LIPA Transaction. Prior to the LIPA Transaction, LILCO provided fully integrated
electric  services  to its  customers.  Included  within  the rates  charged  to
customers  was a return on the  capital  investment  in the  generation  and T&D
assets,  as well as  recovery  of the  electric  business  costs to operate  the
system.  Upon  completion of the LIPA  Transaction,  the nature of the Company's
electric  business has changed from that of owner of an electric  generation and
T&D system, with a significant capital investment, to a new role as owner of the
non-nuclear  generation facilities and as manager of the T&D system now owned by
LIPA. In its new role, the Company's capital investment is significantly reduced
and accordingly, its revenues under the LIPA contracts reflect that reduction.

Revenues resulting from the LIPA Service Agreements included the following:

Revenues  realized under the  Management  Services  Agreement("MSA")  were $99.1
million for the quarter ended March 31, 1999.  These  revenues were derived from
the  performance  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 under the Power Supply  Agreement  ("PSA"),  were $73.0 million for the
quarter  ended March 31,  1999 and were  derived  from the sale of capacity  and
energy to LIPA from the Company's generating facilities at rates approved by the
Federal Energy Regulatory Commission ("FERC").




                                      20

<PAGE>




Revenues  realized  under the  Energy  Management  Agreement  ("EMA")  were $2.4
million for the quarter ended March 31, 1999 and resulted 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.

Projected  results of operations from the Company's  pending  acquisition of the
2,168  megawatt  Ravenswood  electric  generating  facility  should enhance both
Electric  Services  revenues and earnings towards the later part of fiscal 1999.
The Company  currently  anticipates  finalizing  the purchase of the  Ravenswood
facility  late in the  second  quarter  of  1999.  (See  Note  11.  "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 $41.4 million for the
quarter ended March 31, 1999. For proforma comparative  purposes,  revenues from
this segment were $14.8  million for the quarter  ended March 31, 1998;  however
these revenues are not included in the financial  statements  presented  herein.
The increase in  comparative  revenues  for the quarter  ended March 31, 1999 of
$26.6 million was due to additional KEM revenues of $7.5 million,  increased KES
revenues of $3.6 million and the  inclusion  of revenues  from KESol and Fritze.
The increase in revenues  from KEM  reflected  benefits  derived from  companies
acquired  during the past two years,  while the  increase in  revenues  from KES
reflected the growth in the number of customers purchasing energy from KES.


Operating Expenses

Consolidated  operating  expenses,  excluding  the cost of gas and revenue taxes
(i.e., net operating expenses),  were $360.9 million for the quarter ended March
31,  1999 as compared to $407.1  million for the quarter  ended March 31,  1998.
KSE's operating  expenses are not reflected in the financial  statements for the
quarter  ended  March 31,  1998.  On a proforma,  combined  company  basis,  net
operating  expenses  were $573.6  million for the quarter  ended March 31, 1998.
Below is a comparison of net operating expenses by major segment for the quarter
ended March 31, 1999 compared to the corresponding  quarter last year, including
costs for 1998 that are not  reflected  in the  financial  statements  presented
herein.







                                      21

<PAGE>




GAS DISTRIBUTION
Net operating expenses were $154.6 million, or 22% of Gas Distribution revenues,
for the quarter  ended March 31, 1999 as compared to $173.4  million,  or 23% of
Gas Distribution  revenues,  for the quarter ended March 31, 1998 on a proforma,
combined  company  basis.  The decrease of $18.8 million is due to a significant
reduction in operations  and  maintenance  expense  reflecting,  primarily,  the
benefits  derived  from  cost  reduction  measures  and  operating  efficiencies
employed during the past few years. Such measures included, but were not limited
to,  the early  retirement  program  completed  in 1998,  and  similar  measures
employed in prior years by Brooklyn Union. Further,  Brooklyn Union's "spin-off"
of non-safety  related appliance repair services to KESol in 1998 contributed to
the reduction in operations and maintenance  expense for the quarter ended March
31, 1999. Brooklyn Union of Long Island will cease providing  non-safety related
appliance repair services on July 1, 1999.

The Company is committed to realizing the forecasted $1 billion of net operating
synergy  savings (over a ten-year  period)  already  being  reflected in utility
tariff rates and contracts with LIPA;  however, no assurances can be given as to
what savings will be obtained.

GAS EXPLORATION AND PRODUCTION
Gas  Exploration and Production  operating  expenses for the quarter ended March
31, 1999 were $23.0 million, or 87% of Gas Exploration and Production  revenues,
as compared to $25.9 million, or 79% of Gas Exploration and Production revenues,
for the corresponding  period last year. Operating expenses associated with this
segment for the quarter  ended March 31, 1998 are not reflected in the financial
statements  presented herein. The comparative  decrease in expenses is 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 Securities
and Exchange Commission applicable to gas exploration and development operations
accounted for under the full cost method. As a result, THEC's depletion rate for
the quarter ended March 31, 1999 was $1.04 per MCFe of production as compared to
$1.25 per MCFe of production for the quarter ended March 31, 1998. Expenses as a
percentage  of  revenues  has  increased  in 1999 due to lower  gas  prices  and
associated revenues as previously discussed.

ELECTRIC SERVICES
Operating  expenses were $141.7  million for the quarter ended March 31, 1999 as
compared to $352.1 million for the quarter ended March 31, 1998. The decrease in
operating  expenses  was due  primarily  to the  elimination  of  electric  fuel
expense.  As a result of the LIPA Transaction,  and in accordance with the terms
of the EMA, LIPA is



                                      22

<PAGE>




responsible for paying directly the cost of fuel and purchased  power.  Further,
depreciation expense decreased by $23.6 million and operating taxes decreased by
$63.4 million. 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.  Further,  Electric  Service revenues largely
are no longer  subject to state revenue taxes since  electric  operations are no
longer  regulated.  Offsetting  these  decreases  was the  effect  on  operating
expenses  for the quarter  ended March 31, 1998 from the change in the method of
amortizing  the  Rate  Moderation  Component  ("RMC").  The  change  in the  RMC
calculation  had the effect of reducing  operating  expenses by $42.7 million in
the quarter  ended March 31, 1998. A comparison  of the  percentage  of electric
operating  expenses to electric revenues for the two quarters is not meaningful,
since the LIPA  Transaction  has  changed the nature of the  Company's  electric
business substantially.

ENERGY RELATED SERVICES
Operating  expenses for the quarter ended March 31, 1999 were $44.0 million,  as
compared  to $20.5  million  for the quarter  ended  March 31,  1998.  Operating
expenses  associated  with this segment are not  reflected in the quarter  ended
March 31, 1998 reported herein.  The comparative  increase in operating expenses
was  due  to  the  formation  and  commencement  of  operations  of  KESol,  the
acquisition  of Fritze in November  1998 and the  integration  of  operations of
other acquired  companies during the past few years and increased  purchased gas
costs of KES.  The  increases in operating  expenses  significantly  reduced the
benefits derived from increased revenues previously discussed.


Other Income and Deductions

Other income for the quarter ended March 31, 1999 included,  primarily, earnings
from  the  investment  of the  proceeds  from the LIPA  Transaction  and  equity
earnings from  subsidiaries  comprising the Energy Related  Investment  segment.
Equity earnings from the Energy Related  Investment segment are not reflected in
the results for the March 31, 1998 quarter reported herein.


Other Expenses

Interest  expense of $34.6  million for the quarter  ended  March 31,  1999,  as
compared to $100.0  million for the quarter  ended March 31,  1998,  reflected a
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,



                                      23

<PAGE>




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. As a
result,  outstanding  debt at March 31, 1999 was  approximately  $2.0 billion as
compared to  approximately  $4.5 billion (LILCO only) at March 31, 1998.  Income
tax expense  reflects the higher level of pre-tax  income for the quarter  ended
March 31, 1999 as compared to the corresponding quarter last year.



Liquidity - Financial Condition and Dividends

Cash flow from operating  activities  reflects  strong results from core utility
operations and the benefits from the integration of KSE-acquired companies. Cash
flow from  operating  activities  does not  include  results  from  KSE-acquired
companies for the three months ended March 31, 1998.

At March 31, 1999, the Company had cash and temporary cash investments of $951.3
million and had available  unsecured  bank lines of credit of $300  million.  In
addition,  THEC has an available line of credit with a commercial  bank that was
amended to provide for a maximum commitment of $250 million,  subject to certain
conditions and  limitations.  During the quarter ended March 31, 1999,  THEC had
borrowings  of $7.0 million from this  facility,  at which time $140 million was
outstanding.  Subsequent  to March 31,  1999,  THEC  borrowed an  additional  $5
million, bringing borrowings under this facility to $145.4 million.

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

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  permitted the
Company to use an additional $500 million of cash for the purchase



                                      24

<PAGE>




of common shares. As of May 3, 1999, the Company repurchased 17.5 million of its
common shares for $513.9 million.

The  Company  intends  to  use a  combination  of  existing  cash  balances  and
internally  generated cash from operations to the maximum extent  practicable to
satisfy dividend  requirements and on-going enhancements to its gas distribution
system.  The  Company  expects to access the  financial  markets  during 1999 to
satisfy  approximately $400 million of maturing debt obligations.  Further, as a
means of financing the  acquisition of the  2,168-megawatt  Ravenswood  electric
generating  facility,  the Company  anticipates  entering into a lease agreement
with a special  purpose,  unaffiliated  financing  entity  that  will  acquire a
portion of the facility directly from Con Ed and lease it to a subsidiary of the
Company.  The lease  program is being  established  in order for the  Company to
finance up to $425 million of the estimated $597 million acquisition cost of the
facility.  The balance of the funds  needed to acquire the facility are expected
to be provided from cash on hand.  (See Note 11.  "Contractual  Obligations  and
Contingencies"  to the  Condensed  Consolidated  Financial  Statements  for more
details on the proposed lease agreement.)

The Company is currently  evaluating  its capital  structure  to  determine  the
appropriate  levels of debt and  equity  and  anticipates  that this  evaluation
process will be completed toward the latter part of 1999. At this point in time,
however, the Company cannot determine the outcome of this evaluation process.

On March 30, 1999, the Board of Directors  declared a quarterly cash dividend of
$0.445  per share on its  outstanding  common  stock  payable  on May 1, 1999 to
shareholders  of record on April 14,  1999.  The Company is  currently  paying a
dividend at an annual rate of $1.78 per common  share.  The  Company's  dividend
policy is reviewed annually by the Board of Directors.  The amount and timing of
all dividend payments is subject to the discretion of the Board of Directors and
will  depend  upon  business  conditions,   results  of  operations,   financial
conditions and other factors.


Gas Distribution - Rate Matters

By  orders  dated  February  5, 1998 and April  14,  1998 the NYPSC  approved  a
Stipulation and Agreement ("Stipulation") among Brooklyn Union, LILCO, the Staff
of the  Department  of  Public  Service  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  December 31, 1998 Form
10-K.)




                                      25

<PAGE>





Environmental Matters

The Company is subject to various  Federal,  State and local laws and regulatory
programs  related  to  the   environment.   Ongoing   environmental   compliance
activities,  which  have  not  been  material,  are  charged  to  operation  and
maintenance   activities.   The  Company  estimates  the  minimum  cost  of  its
MGP-related  environmental cleanup activities will be approximately $130 million
and has recorded a related liability for such amount.  Further,  as of March 31,
1999,  the  Company  has  expended  a total  of  $14.2  million.  (See  Note 6.,
"Environmental Matters" to the Condensed Consolidated Financial Statements.)


Year 2000 Issues

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

System Readiness

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

The critical areas of operations are being addressed  through a business process
review  methodology.  Each of the Company's critical business processes is being
reviewed  to:  identify  and  inventory  sub-components;  assess  for year  2000
compliance;  establish  repair  plans  as  necessary;  and  test in a year  2000
environment.  The inventory  phase for both the IT systems and non-IT systems is
complete. The total assessment phase is 100% complete for the IT systems, and as
of March 31, 1999, over 83% complete for non-IT systems.

Hardware,  software  and embedded  systems are being tested and  certified to be
year 2000 ready.  As of March 31, 1999,  repair was 84% complete and testing was
39% complete for IT systems. Non-IT



                                      26

<PAGE>




systems  were 62%  repaired  and 25%  tested.  Components  needed to support the
critical  business  processes  and  associated  business  contingency  plans are
expected to be year 2000 ready by July 1, 1999.

Vendors and business partners needed to support the critical business  processes
are also being  reviewed for their year 2000  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.

Risk Scenarios and Contingency Plans

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



                                      27

<PAGE>




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 are being  developed,
where appropriate,  for loss of critical system elements.  The Company presently
estimates that  contingency  plans regarding its electric  facilities  should be
completed by July 1999.

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

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

The  Company  believes  that,  with   modifications  to  existing  software  and
conversions  to new  hardware  and  software,  the year 2000 issue will not pose
significant  operational  problems for its computer  systems.  However,  if such
modifications  and  conversions  are not made, or are not completed on time, and
contingency plans fail, the





                                      28

<PAGE>




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 $36 million to address the
year 2000 issue.  As of March 31, 1999,  $19.3  million had been expended on the
project.  The largest  percentage  expended is  attributable  to the assessment,
repair and testing of  corporate  IT  supported  computer  software and in-house
written applications, which total $15.2 million. In 1999, the IT year 2000 costs
are  expected to be 8.3% of the IT budget.  The year 2000 issue has not directly
resulted in delaying any IT projects.  Presently,  the Company expects that cash
flow from  operations  and cash on-hand will be sufficient to fund the year 2000
project expenditures.

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.



                                      29

<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.  Except for 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.  Nevertheless,  this  risk  exposure  is
relatively immaterial in relation to the Company's overall financial condition.






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



                                      30

<PAGE>




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.  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, and a
settlement  fairness hearing has been scheduled for June 30, 1999. If that Court
approves  the  settlement,  the  parties  will then make an  application  to the
federal  court for an order and final  judgment,  dismissing  the three  federal
court actions, including the federal court derivative action, based, among other
things, on the binding effect of the state court judgment.

In addition to the above-mentioned actions, a class action lawsuit has also been
filed in the New York State  Supreme  Court,  Suffolk  County,  by the County of
Suffolk,  on behalf  of itself  and other  Suffolk  County  ratepayers,  against
LILCO's former officers and/or directors. The County of Suffolk alleges that the
Payments  were  improper,  and seeks to recover the  Payments for the benefit of
Suffolk County ratepayers. The Company moved to consolidate this action with the
above-mentioned consolidated action in October 1998. On May 4, 1999, the parties
submitted a stipulation to the



                                      31

<PAGE>




court which, if approved, would discontinue this action without prejudice.

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, the plaintiffs amended their complaint. The
amended  complaint  contains  allegations  relating to the Payments and adds the
recipients  of the  Payments as  defendants.  In January  1999,  the Company was
served  with the  amended  complaint.  The  Company  intends to file a motion to
dismiss the 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.







                                      32

<PAGE>




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

*(10.1)  Generating  Plant and Gas Turbine Asset Purchase and Sale Agreement for
         Ravenswood Generating Plants and Gas Turbines,  dated as of January 28,
         1999, by and between the Company and Consolidated Edison Company of New
         York, Inc.

(10.2)   Exploration  Agreement,  dated as of March 15, 1999, by and between The
         Houston Exploration Company and KeySpan Exploration and Production, LLC
         (filed as an exhibit to the Houston Exploration Company's Form 10-Q for
         the quarter ended March 31, 1999 and incorporated herein by reference).

*(27)    Financial Data Schedule on Schedule U-T for the quarter ended March 31,
         1999.

        ------------------
         * Filed herewith.



(b)   Reports on Form 8-K

In its Report on Form 8-K dated February 4, 1999,  the Company  reported that it
had entered  into an agreement  with  Consolidated  Edison  Company of New York,
Inc., to acquire the 2,168 megawatt Ravenswood electric generation facility.

In its Report on Form 8-K dated February 12, 1999, the Company  reported that it
had  issued  a press  release  concerning,  among  other  things,  the  year end
operating results of The Houston Exploration Company, in which the Company has a
64% share ownership.

In its Report on Form 8-K dated March 30, 1999,  the Company  reported  that its
Board of  Directors  had  adopted  a  Shareholder  Rights  Plan to  protect  the
interests of its shareholders in the event of a proposed takeover of the Company
not approved by the Company's Board of Directors.









                                      33

<PAGE>



                    MARKETSPAN CORPORATION AND SUBSIDIARIES



                                   SIGNATURE



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



                                        MARKETSPAN CORPORATION
                                             (Registrant)

Date May 14, 1999                       /s/ Ronald S. Jendras          
                                        ------------------------------
                                       Ronald S. Jendras
                                       Vice President, Controller
                                       and Chief Accounting Officer