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, 2002
                               -------------------------------------------------
                                       OR
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---
EXCHANGE ACT OF 1934

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

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

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

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

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

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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

   Class of Common Stock                          Outstanding at April 17, 2002
---------------------------                      ------------------------------
      $.01 par value                                      140,722,725


<PAGE>



                      KEYSPAN CORPORATION AND SUBSIDIARIES

                                      INDEX
                                      -----

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

Item 1. Financial Statements

           Consolidated Balance Sheet -
           March 31, 2002 and December 31, 2001                             3

           Consolidated Statement of Income -
           Three Months Ended March 31, 2002 and 2001                       5

           Consolidated Statement of Cash Flows -
           Three Months Ended March 31, 2002 and 2001                       6

           Notes to Consolidated Financial Statements                       7

Item 2. Management's Discussion and Analysis Of Financial
           Condition and Results of Operations                             23

Item 3. Quantitative and Qualitative Disclosures
           About Market Risk                                               43

                           Part II. OTHER INFORMATION

Item 1. Legal Proceedings                                                  46

Item 6. Exhibits and Reports on Form 8-K                                   47

Signatures                                                                 48












                                        2

<PAGE>


<TABLE>
                                                      CONSOLIDATED BALANCE SHEET
                                                                (Unaudited)
                                                       (In Thousands of Dollars)


<CAPTION>
                                                                              March 31, 2002                    December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                              <C>
ASSETS

Current Assets
    Cash and cash equivalents                                          $                 190,701       $                  159,252
    Customer accounts receivable                                                       1,576,142                        1,344,898
    Allowance for uncollectible accounts                                                 (86,839)                         (72,299)
    Gas in storage, at average cost                                                      155,043                          334,999
    Materials and supplies, at average cost                                              104,548                          105,693
    Other                                                                                 90,848                          125,944
                                                                       -------------------------        -------------------------
                                                                                       2,030,443                        1,998,487
                                                                       -------------------------        -------------------------

Assets Held for Disposal                                                                 191,055                          191,055
Equity Investments and Other                                                             230,503                          223,249
                                                                       -------------------------        -------------------------

Property
    Gas                                                                                5,783,612                        5,704,857
    Electric                                                                           1,703,568                        1,629,768
    Other                                                                                416,206                          400,643
    Accumulated depreciation                                                          (2,588,247)                      (2,533,466)
    Gas exploration and production, at cost                                            2,245,842                        2,200,851
    Accumulated depletion                                                               (838,198)                        (796,722)
                                                                       -------------------------        -------------------------
                                                                                       6,722,783                        6,605,931
                                                                       -------------------------        -------------------------

Deferred Charges
    Regulatory assets                                                                    448,873                          458,191
    Goodwill, net of amortization                                                      1,785,340                        1,782,826
    Other                                                                                454,473                          529,867
                                                                       -------------------------        -------------------------
                                                                                       2,688,686                        2,770,884
                                                                       -------------------------        -------------------------

Total Assets                                                           $              11,863,470        $              11,789,606
                                                                       =========================        =========================
</TABLE>



        See accompanying Notes to the Consolidated Financial Statements.



                                                                  3

<PAGE>


<TABLE>
                                                      CONSOLIDATED BALANCE SHEET
                                                              (Unaudited)
                                                      (In Thousands of Dollars)


<CAPTION>
                                                                              March 31, 2002                    December 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                            <C>
LIABILITIES AND CAPITALIZATION

Current Liabilities
    Current redemption of long term debt                              $                     1,478      $                     993
    Accounts payable and accrued expenses                                                 761,534                      1,091,430
    Commercial paper                                                                    1,038,503                      1,048,450
    Dividends payable                                                                      63,606                         63,442
    Taxes accrued                                                                          84,676                         50,281
    Customer deposits                                                                      36,460                         36,151
    Interest accrued                                                                      137,836                         93,962
                                                                       --------------------------       ------------------------
                                                                                        2,124,093                      2,384,709
                                                                       --------------------------       ------------------------

Deferred Credits and Other Liabilities
    Regulatory liabilities                                                                 46,107                         39,442
    Deferred income tax                                                                   784,669                        598,072
    Postretirement benefits and other reserves                                            712,158                        694,680
    Other                                                                                 185,780                        207,992
                                                                       --------------------------       ------------------------
                                                                                        1,728,714                      1,540,186
                                                                       --------------------------       ------------------------

Capitalization
    Common stock, $.01 par value, authorized
       450,000,000 shares; outstanding 140,570,579 and
       137,251,386 shares stated at                                                     2,991,307                      2,995,797
    Retained earnings                                                                     602,990                        452,206
    Other comprehensive income                                                            (30,475)                         4,483
    Treasury stock purchased                                                             (527,826)                      (561,884)
                                                                       --------------------------       ------------------------
      Total common shareholders' equity                                                 3,035,996                      2,890,602
    Preferred stock                                                                        84,077                         84,077
    Long-term debt                                                                      4,693,403                      4,697,649
                                                                       --------------------------       ------------------------
Total Capitalization                                                                    7,813,476                      7,672,328
                                                                       --------------------------       ------------------------

Minority Interest in Subsidiary Companies                                                 197,187                        192,383
                                                                       --------------------------       ------------------------
Total Liabilities and Capitalization                                   $               11,863,470       $             11,789,606
                                                                       ==========================       ========================
</TABLE>


        See accompanying Notes to the Consolidated Financial Statements.





                                        4

<PAGE>


<TABLE>
                                                   CONSOLIDATED STATEMENT OF INCOME
                                                             (Unaudited)
                                         (In Thousands of Dollars, Except Per Share Amounts)

<CAPTION>
                                                                      Three Months Ended        Three Months Ended
                                                                        March 31, 2002            March 31, 2001
----------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                         <C>
Revenues
Gas Distribution                                                  $              1,222,966   $               1,753,644
Electric Services                                                                  314,685                     343,371
Energy Services                                                                    241,559                     319,093
Gas Exploration                                                                     74,714                     132,011
Energy Investments                                                                  17,636                      26,969
                                                                  ------------------------   -------------------------
Total Revenues                                                                   1,871,560                   2,575,088
                                                                  ------------------------   -------------------------
Operating Expenses
Purchased gas for resale                                                           649,360                   1,197,349
Fuel and purchased power                                                            84,372                     143,300
Operations and maintenance                                                         493,563                     503,883
Depreciation, depletion and amortization                                           125,997                     131,164
Operating taxes                                                                    120,391                     141,990
                                                                  ------------------------   -------------------------
Total Operating Expenses                                                         1,473,683                   2,117,686
                                                                  ------------------------   -------------------------

Operating Income                                                                   397,877                     457,402
                                                                  ------------------------   -------------------------

Other Income and (Deductions)
Minority interest                                                                   (4,431)                    (15,411)
Other income                                                                        12,617                      20,113
                                                                  ------------------------   -------------------------
Total Other Income                                                                   8,186                       4,702
                                                                  ------------------------   -------------------------
Income Before Interest Charges
  and Income Taxes                                                                 406,063                     462,104
                                                                  ------------------------   -------------------------
Interest Charges                                                                    72,612                      93,303
                                                                  ------------------------   -------------------------
Income Taxes
    Current                                                                        (84,159)                    110,743
    Deferred                                                                       202,979                      33,944
                                                                  ------------------------   -------------------------
Total Income Taxes                                                                 118,820                     144,687
                                                                  ------------------------   -------------------------
Net Income                                                                         214,631                     224,114
Preferred stock dividend requirements                                                1,476                       1,476
                                                                  ------------------------   -------------------------
Earnings from Continuing Operations                                                213,155                     222,638
Income from Discontinued Operations                                                      -                         661
                                                                  ------------------------   -------------------------
Earnings for Common Stock                                         $                213,155   $                 223,299
                                                                  ========================   =========================
Basic Earnings Per Share from Continuing Operations                                   1.52                        1.63
Basic Earnings Per Share from Discontinued Operations                                    -                           -
                                                                  ------------------------   -------------------------
Basic Earnings Per Share                                          $                   1.52   $                    1.63
                                                                  ========================   =========================
Diluted Earnings Per Share                                        $                   1.51   $                    1.61
                                                                  ========================   =========================
Average Common Shares Outstanding (000)                                            140,039                     136,961
Average Common Shares Outstanding - Diluted (000)                                  141,012                     138,503
</TABLE>


        See accompanying Notes to the Consolidated Financial Statements.




                                        5

<PAGE>


<TABLE>
                                                 CONSOLIDATED STATEMENT OF CASH FLOWS
                                                             (Unaudited)
                                                      (In Thousands of Dollars)

<CAPTION>
                                                                            Three Months                  Three Months
                                                                               Ended                          Ended
                                                                           March 31, 2002                March 31, 2001
---------------------------------------------------------------------------------------------------------------------------

<S>                                                                                <C>                     <C>
Operating Activities
Net Income                                                           $               214,631   $             224,114
Adjustments to reconcile net income to  net cash
provided by (used in) operating activities
    Depreciation, depletion and amortization                                         125,997                 131,164
    Deferred income tax                                                              202,979                  33,944
    Income from equity investments                                                    (4,154)                 (3,956)
Changes in assets and liabilities
    Accounts receivable                                                             (216,704)               (140,655)
    Materials and supplies, fuel oil and gas in storage                              181,101                 215,626
    Accounts payable and accrued expenses                                           (295,501)               (405,816)
    Interest accrued                                                                  43,874                  43,124
    Other                                                                             80,326                 125,182
                                                                     -----------------------   ---------------------
Net Cash Provided by Operating Activities                                            332,549                 222,727
                                                                     -----------------------   ---------------------
Investing Activities
Capital expenditures                                                                (244,153)               (125,909)
Proceeds from sale of assets                                                               -                  18,458
Other                                                                                      -                  (1,268)
                                                                     -----------------------   ---------------------
Net Cash Used in Investing Activities                                               (244,153)               (108,719)
                                                                     -----------------------   ---------------------
Financing Activities
Issuance of treasury stock                                                            34,058                  30,292
Issuance of long-term debt                                                            10,401                 182,000
Payment of long-term debt                                                            (25,356)               (102,000)
Issuance / (Payment) of commercial paper                                              (9,947)               (160,407)
Preferred stock dividends paid                                                        (1,476)                 (1,476)
Common stock dividends paid                                                          (62,207)                (61,215)
Other                                                                                 (2,420)                   (461)
                                                                     -----------------------   ---------------------
Net Cash (Used in) Financing Activities                                              (56,947)               (113,267)
                                                                     -----------------------   ---------------------
Net increase  in Cash  and Cash Equivalents                          $                31,449   $                 741
                                                                     =======================   =====================
Cash and cash equivalents at beginning of period                     $               159,252   $              83,329
Net increase  in cash and cash equivalents                                            31,449                     741
                                                                     -----------------------   ---------------------
Cash and Cash Equivalents at End of Period                           $               190,701   $              84,070
                                                                     =======================   =====================
</TABLE>
Cash equivalents are short-term marketable securities purchased with maturities
of three months or less that were carried at cost which approximates fair value.

        See accompanying Notes to the Consolidated Financial Statements.








                                        6

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

KeySpan  Corporation  (referred to in the Notes to the  Financial  Statements as
"KeySpan",  "we",  "us",  and "our") is a registered  holding  company under the
Public Utility Holding Company Act of 1935, as amended ("PUHCA"). We operate six
utilities that distribute  natural gas to approximately 2.5 million customers in
New York City, Long Island, Massachusetts and New Hampshire, making us the fifth
largest  gas  distribution  company in the United  States and the largest in the
Northeast.  We also own and  operate  electric  generating  plants in Nassau and
Suffolk  Counties  on Long Island and in Queens  County in New York City.  Under
contractual   arrangements,   we  provide  power,   electric   transmission  and
distribution services, billing and other customer services for approximately one
million  electric  customers of the Long Island Power  Authority  ("LIPA").  Our
other  subsidiaries are involved in gas and oil exploration and production;  gas
storage;  wholesale and retail gas and electric  marketing;  appliance  service;
heating,  ventilation  and air  conditioning  installation  and services;  large
energy-system ownership, installation and management;  engineering services; and
fiber optic  services.  We also invest and  participate in the  development  of,
natural gas pipelines,  electric generation and other  energy-related  projects,
domestically and internationally. (See Note 2 "Business Segments" for additional
information on each operating segment.)

1.    BASIS OF PRESENTATION

In our opinion,  the accompanying  unaudited  Consolidated  Financial Statements
contain all adjustments necessary to present fairly our financial position as of
March 31,  2002,  and the results of our  operations  for the three months ended
March 31, 2002 and March 31,  2001,  as well as cash flows for the three  months
ended March 31, 2002 and March 31, 2001. The accompanying  financial  statements
should be read in conjunction  with the  consolidated  financial  statements and
notes included in our Annual Report on Form 10-K for the year ended December 31,
2001. The December 31, 2001  financial  statement  information  has been derived
from the 2001 audited financial statements.  Income from interim periods may not
be indicative of future results. Certain  reclassifications were made to conform
prior period financial  statements with the current period  financial  statement
presentation.  Other  than as noted,  adjustments  were of a  normal,  recurring
nature.

Basic  earnings per share  ("EPS") is  calculated  by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
No dilution for any  potentially  dilutive  securities is included.  Diluted EPS
assumes the conversion of all potentially  dilutive securities and is calculated
by dividing net income,  as adjusted,  by the sum of the weighted average number
of shares of common stock outstanding plus all potentially dilutive securities.











                                        7

<PAGE>


<TABLE>
Under the requirements of Statement of Financial  Accounting  Standards  (SFAS")
No. 128, "Earnings Per Share" our basic and diluted EPS are as follows:
<CAPTION>
                                                                                   (In Thousands of Dollars, Except Per Share)
-------------------------------------------------------------------------------------------------------------------------------
                                                                            Three Months Ended          Three Months Ended
                                                                              March 31, 2002              March 31, 2001
----------------------------------------------------------------------  --------------------------- ---------------------------
<S>                                                                                       <C>                         <C>
Earnings for common stock                                               $                   213,155 $                   223,299
   Interest savings on convertible preferred stock                                              142                         142
   Houston Exploration dilution (options)                                                       (96)                       (569)
----------------------------------------------------------------------  --------------------------- ---------------------------
Earnings for common stock - adjusted                                                        213,201                     222,872
----------------------------------------------------------------------  --------------------------- ---------------------------
Weighted average shares outstanding (000)                                                   140,039                     136,961
Add dilutive securities:
    Options                                                                                     729                       1,298

    Convertible preferred stock                                                                 244                         244
----------------------------------------------------------------------  --------------------------- ---------------------------
Total weighted average shares outstanding - assuming dilution                               141,012                     138,503
----------------------------------------------------------------------  --------------------------- ---------------------------
Basic Earnings (Loss) Per Share                                         $                      1.52 $                      1.63
----------------------------------------------------------------------  --------------------------- ---------------------------
Diluted Earnings Per Share                                              $                      1.51 $                      1.61
----------------------------------------------------------------------  --------------------------- ---------------------------
</TABLE>
2.    BUSINESS SEGMENTS

We have four reportable segments:  Gas Distribution,  Electric Services,  Energy
Services and Energy Investments.

The Gas Distribution segment consists of our six gas distribution  subsidiaries.
KeySpan Energy Delivery New York ("KEDNY") provides gas distribution services to
customers in the New York City Boroughs of Brooklyn,  Queens and Staten  Island.
KeySpan Energy Delivery Long Island ("KEDLI") provides gas distribution services
to customers in the Long Island  Counties of Nassau and Suffolk and the Rockaway
Peninsula of Queens County. The remaining gas distribution subsidiaries,  Boston
Gas Company,  Colonial Gas Company,  Essex Gas Company and  EnergyNorth  Natural
Gas,  Inc.,  collectively  referred to as KeySpan  Energy  Delivery  New England
("KEDNE"),  provide gas distribution  service to customers in Massachusetts  and
New Hampshire.

The  Electric  Services  segment  consists  of  subsidiaries  that:  operate the
electric  transmission  and  distribution  system owned by LIPA; own and provide
capacity to and produce energy for LIPA from our generating  facilities  located
on Long  Island;  and  manage  fuel  supplies  for LIPA to fuel our Long  Island
generating facilities.  These services are provided in accordance with long-term
service  contracts  having  remaining terms that range from six to twelve years.
The Electric  Services  segment also includes  subsidiaries  that own, lease and
operate the 2,200 megawatt Ravenswood electric generation facility  ("Ravenswood
facility"), located in Queens, New York. We sell all of the energy, capacity and
ancillary  services  related  to  the  Ravenswood   facility  to  the  New  York
Independent  System Operator  ("NYISO") energy markets.  Currently,  our primary
electric generation customers are LIPA and the NYISO energy markets.





                                        8

<PAGE>



The Energy  Services  segment  includes  companies  that provide  energy-related
services to customers  located  within the New York City  metropolitan  area, as
well as, Rhode Island,  Pennsylvania,  Massachusetts and New Hampshire,  through
the following three lines of business: (i) Home Energy Services,  which provides
residential  customers  with  service  and  maintenance  of energy  systems  and
appliances,  as well as the retail  marketing of natural gas and  electricity to
residential  and small  commercial  customers;  (ii) Business  Solutions,  which
provides  professional  engineering-consulting  and design of energy systems for
commercial  and  industrial  customers,   including  installation  of  plumbing,
heating,  ventilation  and air  conditioning  equipment;  and (iii)  Fiber Optic
Services,  which  provides  various  services  to  carriers  of  voice  and data
transmission on Long Island and in New York City.

The Energy  Investments  segment  consists of our gas exploration and production
investments, as well as certain other domestic and international  energy-related
investments.  Our gas exploration and production subsidiaries are engaged in gas
and oil  exploration  and  production,  and the  development  and acquisition of
domestic natural gas and oil properties.  These  investments  consist of our 67%
equity interest in The Houston Exploration Company ("Houston  Exploration"),  an
independent  natural  gas  and oil  exploration  company,  as  well  as  KeySpan
Exploration and Production,  LLC, our wholly owned subsidiary engaged in a joint
venture with Houston Exploration.

Subsidiaries in this segment also hold a 20% equity interest in the Iroquois Gas
Transmission  System  LP, a  pipeline  that  transports  Canadian  gas supply to
markets  in the  Northeastern  United  States;  a 50%  interest  in the  Premier
Transmission  Pipeline  and a 24.5%  interest in Phoenix  Natural  Gas,  both in
Northern  Ireland;  and investments in certain  midstream  natural gas assets in
Western Canada through  KeySpan  Canada.  With the exception of KeySpan  Canada,
which is  consolidated  in our  financial  statements,  these  subsidiaries  are
accounted  for under the equity  method.  Accordingly,  equity income from these
investments is reflected in Other Income and  (Deductions)  in the  Consolidated
Statement of Income.

The  accounting  policies  of the  segments  are the same as those  used for the
preparation of the Consolidated Financial Statements. Our segments are strategic
business units that are managed separately because of their different  operating
and regulatory environments.  Operating results of our segments are evaluated by
management on a earnings  before interest and taxes ("EBIT") basis. At March 31,
2002, the total assets of each  reportable  segment have not changed  materially
from those levels  reported at December 31, 2001.  In the first quarter of 2002,
we reclassified KeySpan Energy Supply, a subsidiary that provides management and
procurement  services for fuel supply and management of energy sales,  primarily
for and from the Ravenswood  facility,  from the Energy Services  segment to the
Electric  Services  segment.  We also  reclassified  the first quarter of 2001to
reflect this change.  Due to the anticipated sale of Midland  Enterprises  Inc.,
our  marine  barge  business,   this  subsidiary  is  reported  as  discontinued
operations  in 2002 and 2001.  The  reportable  segment  information,  excluding
Midland, is as follows:






                                        9

<PAGE>




<TABLE>
                                                                                                   (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                                                                            Energy Investments
                                                                     ------------------------------
<CAPTION>
                                Gas          Electric      Energy    Gas Exploration        Other
                            Distribution     Services     Services    and Production     Investments    Eliminations    Consolidated
-------------------------- --------------- ------------- ---------- ------------------ --------------- -------------- --------------
<S>                          <C>              <C>        <C>            <C>             <C>              <C>           <C>
Three Months Ended
March 31, 2002

Unaffiliated Revenue          1,222,966        314,685    241,559         74,714          17,636               -        1,871,560
Intersegment Revenue                  -             25          -              -               -            (25)                -
Earnings Before Interest        329,654         65,647    (9,198)         15,672           4,894           (606)          406,063
  and Taxes


Three Months Ended
March 31, 2001

Unaffiliated Revenue          1,753,644        343,371    319,093        132,011          26,969               -        2,575,088
Intersegment Revenue                  -             25          -              -               -            (25)                -
Earnings Before Interest        330,681         65,581    (6,379)         65,516           9,253         (2,548)          462,104
  and Taxes
-------------------------- --------------- ------------- ---------- ------------------  -------------- -------------- --------------
</TABLE>
Eliminating items include intercompany interest income and expense, the
elimination of certain intercompany accounts, as well as activities of our
corporate and administrative areas.

Electric Services revenues from the NYISO and LIPA of $314.7 million and $343.4
million for the three months ended March 31, 2002 and 2001 represent
approximately 17% and 13% of our consolidated revenues, respectively.
























                                       10

<PAGE>



3. COMPREHENSIVE INCOME

The table below indicates the components of comprehensive income.
<TABLE>
<CAPTION>
                                                                                               (In Thousands of Dollars)
--------------------------------------------------------------------------------------------------------------------------
                                                                   Three Months                     Three Months
                                                                       Ended                           Ended
                                                                  March 31, 2002                   March 31, 2001
---------------------------------------------------------  -----------------------------  --------------------------------
<S>                                                                            <C>                               <C>
Net Income                                                 $                     214,631  $                        224,775
---------------------------------------------------------  -----------------------------  --------------------------------
Other comprehensive income (loss), net of tax
    Net (gains) losses on derivative instruments                                 (7,287)                            13,608
    Reclassification adjustment for other gains
         reclassified to net income                                                    -                           (3,242)
    Foreign currency translation adjustments                                     (1,713)                           (9,682)
   Unrealized gains ( losses) on marketable securities                           (1,041)                             2,617
   Accrued unfunded pension obligation                                           (1,132)                                 -
   Unrealized gains (losses) on derivative
        financial  instruments                                                  (23,785)                          (12,657)
---------------------------------------------------------  -----------------------------  --------------------------------
Other comprehensive income (loss)                                               (34,958)                           (9,356)
---------------------------------------------------------  -----------------------------  --------------------------------
Comprehensive income                                       $                     179,673  $                        215,419
---------------------------------------------------------  -----------------------------  --------------------------------
Related tax (benefit) expense
    Net (gains) losses on derivative instruments                                 (3,924)                             7,328
    Reclassification adjustment for other gains
           reclassified to net income                                                  -                           (1,746)
    Foreign currency translation adjustments                                       (923)                           (5,213)
    Unrealized gains (losses) on marketable securities                             (560)                             1,409
   Accrued unfunded pension obligation                                             (610)                                 -
    Unrealized gains (losses) on derivative
         financial  instruments                                                 (12,807)                           (6,816)
---------------------------------------------------------  -----------------------------  --------------------------------
Total tax expense (benefit)                                $                    (18,824)  $                        (5,038)
---------------------------------------------------------  -----------------------------  --------------------------------
</TABLE>


4.    ENVIRONMENTAL MATTERS

New York Sites.  Within the State of New York we have identified 28 manufactured
gas plant ("MGP") sites and related  facilities which were historically owned or
operated by KeySpan subsidiaries or such companies'  predecessors.  Twenty seven
of these former sites,  some of which are no longer owned by us, were associated
with our regulated gas businesses,  KEDNY and KEDLI, and have been identified to
both the  Department  of  Environmental  Conservation  ("DEC") for  inclusion on
appropriate  site  inventories  and  listing  with the New York  Public  Service
Commission  ("NYPSC").  The  remaining  former  MGP  site was  acquired  when we
purchased the Ravenswood  facility from Consolidated Edison Company of New York.
Thirteen  sites are  currently the subject of  Administrative  Orders on Consent
("ACOs") with the DEC.



                                       11

<PAGE>



We presently estimate the remaining  environmental  cleanup cost of our New York
MGP sites  will be $154.2  million,  which  amount  has been  accrued by us as a
reasonable estimate of probable cost for known sites.  Expenditures  incurred to
date by us with respect to these MGP-related activities total $37.1 million.

With  respect to  remediation  costs,  the KEDNY and KEDLI rate plans  generally
provide for the recovery of  investigation  and remediation  costs.  Under prior
rate  orders,  KEDNY has offset  certain  monies due to  ratepayers  against its
estimated  environmental cleanup costs for MGP sites. At March 31, 2002, we have
reflected a regulatory  asset of $122.5 million for our New York/Long Island MGP
sites.

We are  also  responsible  for  environmental  obligations  associated  with the
Ravenswood  electric generating  facility.  The extent of our liability does not
include  liabilities  arising from disposal of waste at off-site locations prior
to the  acquisition  closing and any monetary  fines  arising from  Consolidated
Edison's  pre-closing  conduct.  Based on  information  currently  available for
environmental  contingencies related to the Ravenswood facility acquisition,  we
have accrued a $5 million liability.

New England Sites. Within the Commonwealth of Massachusetts and the State of New
Hampshire, we are aware of 76 former MGP sites and related facilities within the
existing or former service territories of KEDNE.

We may have or share responsibility under applicable  environmental laws for the
remediation of 10 MGP sites and related facilities  associated with the historic
operations  of  EnergyNorth.  EnergyNorth  has received  notice of its potential
responsibility  for  contamination  at two former MGP sites and,  together  with
other  potentially   responsible  parties,  has  received  notice  of  potential
responsibility for contamination associated with four other sites.

We  presently   estimate  the   remaining   cost  of  New  England   MGP-related
environmental  cleanup  activities will be $52.8 million,  which amount has been
accrued  by us as a  reasonable  estimate  of  probable  cost for  known  sites.
Expenditures  incurred since November 8, 2000 with respect to these  MGP-related
activities total $14.7 million.

The  Massachusetts  Department  of  Telecommunications  and  Energy  and the New
Hampshire Public Utilities  Commission have issued rate orders which provide for
the recovery of site  investigation and remediation  costs, and accordingly,  at
March 31, 2002,  we have  reflected a regulatory  asset of $63.6 million for the
KEDNE MGP sites.  Colonial  Gas Company and Essex Gas Company are not subject to
the  provisions  of  Statement  of Financial  Accounting  Standards  ("SFAS") 71
"Accounting  for the Effects of Certain Types of Regulation"  and therefore have
recorded no regulatory assets. However, rate plans currently in effect for these
subsidiaries provide for the recovery of investigation and remediation costs.






                                       12

<PAGE>



Eastern  Enterprises  Sites. We are aware of three  non-utility sites associated
with the historic  operations of Eastern  Enterprises,  for which we may have or
share  environmental  remediation  responsibility  or ongoing  maintenance:  the
former  Philadelphia Coke site located in Pennsylvania;  the former  Connecticut
Coke site  located in New Haven,  Connecticut;  and the former  Everett Coal Tar
Processing Facility (the "Everett Facility") located in Massachusetts.

The Everett Facility is the principle site.  Honeywell  International,  Inc. and
Beazer East,  Inc.  (both former owners and operators of the Everett  Facility),
together with KeySpan have entered into an ACO with the Massachusetts Department
of Environmental  Protection for the investigation and development of a remedial
response plan for the site.

We presently estimate the remaining cost of our environmental cleanup activities
for the three non- utility  sites will be  approximately  $42.1  million,  which
amount has been accrued by us a reasonable  estimate of probable costs for known
sites;  however the actual remediation cost for these sites may be substantially
higher. Expenditures incurred since November 8, 2000 with respect to these sites
total $0.4 million.

We believe that in the aggregate,  the accrued  liability for  investigation and
remediation  of the New  York  and New  England  sites  and  related  facilities
identified  above are  reasonable  estimates  of likely  cost  within a range of
reasonable,  foreseeable  costs.  We may be  required  to  investigate  and,  if
necessary, remediate each of these, or other currently unknown, former sites and
related facility sites, the cost of which is not presently  determinable but may
be material to our  financial  position,  results of  operations  or  liquidity.
Remediation costs for each site may be materially  higher than noted,  depending
upon  remediation  experience,  selected  end  use for  each  site,  and  actual
environmental conditions encountered.

See our Annual  Report on Form 10-K for the year ended  December 31, 2001 Note 8
to  those  Consolidated  Financial  Statements   "Contractual   Obligations  and
Contingencies" for further information on environmental matters.

5. LONG-TERM DEBT

At December 31, 2001 we had an existing $1 billion shelf registration  statement
on file with the Securities and Exchange Commission  ("SEC"),  with $500 million
available for issuance.  In February 2002, we updated our shelf registration for
the issuance of an additional $1.2 billion of securities,  thereby giving us the
ability  to issue  up to $1.7  billion  of  debt,  equity  or  various  forms of
preferred  stock.  Currently,  we have the authority  under PUHCA to issue up to
$1.0  billion  of this  amount.  We have filed an  application  with the SEC for
additional authorization.




                                       13

<PAGE>

6. DERIVATIVE FINANCIAL INSTRUMENTS

Commodity  Contracts and Electric Derivative  Instruments:  From time to time we
utilize derivative financial  instruments,  such as futures,  options and swaps,
for the  purpose  of hedging  exposure  to  commodity  price risk and to fix the
selling  price on a portion  of our peak  electric  energy  sales.  Our  hedging
objectives and strategies have remained substantially unchanged from year-end.

Houston  Exploration  utilizes  collars,  as well as, over- the- counter ("OTC")
swaps to hedge future sales prices on a portion of its natural gas production to
achieve a more  predictable  cash flow and reduce its exposure to adverse  price
fluctuations of natural gas. As of March 31 2002, Houston Exploration has hedged
approximately  65%  of its  estimated  2002  yearly  production  and  20% of its
estimated 2003 yearly  production.  Houston  Exploration  uses standard New York
Mercantile  Exchange  ("NYMEX")  futures prices and published  volatility in its
Black-Scholes   calculation  to  value  its  outstanding  derivatives.   Houston
Exploration  recorded a benefit  of $17.0  million in  Revenues  for  derivative
instruments that settled during the first quarter of 2002.

We also  employ  standard  NYMEX  gas  futures  contracts,  as well as oil  swap
derivative contracts to fix the purchase price for a portion of the fuel used at
the Ravenswood  facility.  We use standard NYMEX futures prices to value the gas
futures contracts and industry published oil indices for number 6 grade fuel oil
to value the oil swap contracts. These contracts extend through 2003. During the
first quarter of 2002,  we realized a loss of $3.5 million on the  settlement of
derivative  instruments  and  recorded  this  loss as an  increase  to Fuel  and
Purchased Power expense.

Our gas  and  electric  marketing  subsidiary,  as well as our gas  distribution
operations,  have fixed rate gas sales  contracts  and  utilize  standard  NYMEX
futures  contracts to lock-in a price for future natural gas  purchases.  We use
standard NYMEX futures  prices to value the  outstanding  contracts.  During the
first  quarter of 2002, we realized a loss of $7.8 million on  derivatives  that
settled  during this period and  recorded  this loss as an increase to Purchased
Gas for Resale.

We have  also  engaged  in the use of  derivative  swap  instruments  to fix the
selling price on a portion of our estimated 2002 summer and winter peak electric
energy  sales  from the  Ravenswood  facility  to  protect  against a  potential
degradation in market prices. We have financially  settled tolling  arrangements
under which we have effectively "locked-in" a profit on a portion of 2002 sales.
We currently have hedge  positions for  approximately  50% of our estimated 2002
summer peak electric profits from the Ravenswood facility. We use NYISO-location
zone  published  indices and standard  NYMEX  prices to value these  outstanding
derivatives.  During  the first  quarter  of 2002,  we  realized  a gain of $5.6
million on the settlement of certain  derivative  instruments  and recorded this
gain in Revenues.  Further,  KeySpan Canada  employs  electric swap contracts to
lock-in the purchase price on the purchase of electricity  needed to operate its
gas processing plants.  These contracts are not exchange traded and we use local
published indices to value these outstanding options. We realized a loss of $0.4
million on the settlement of certain swap derivative instruments.

All of our commodity  contracts  and electric  derivative  instruments  detailed
above are cash-flow hedges and qualify for hedge accounting. Periodic changes in
the market value of derivatives  which meet the definition of a cash-flow  hedge
are  recorded  as  comprehensive  income,  subject  to  effectiveness,  and then
included in net income to match the underlying hedged transactions.



                                       14

<PAGE>



The following tables set forth selected financial data associated with these
derivative financial instruments noted above that were outstanding at March 31,
2002.
<TABLE>
<CAPTION>
                             Year of        Volumes                                         Fixed           Current       Fair Value
       Type of Contract     Maturity          mmcf         Floor $       Ceiling $         Price $          Price $         ($000)
-------------------------  ------------  -------------- -------------  --------------  ---------------  ---------------  -----------
              Gas
<S>                          <C>            <C>            <C>             <C>          <C>              <C>                <C>
Collars                       2002           44,000         3.56            5.14              -           3.28 - 3.87        13,869
                              2003            7,300         3.30            4.07              -           3.49 - 3.97        (1,023)
Swaps -Short Natural Gas      2002            8,250           -              -              3.01          3.28 - 3.87        (3,674)
                              2003           14,600           -              -              3.19          3.49 - 3.97        (7,043)
Swaps - Long Natural Gas      2002            6,920           -              -           2.24 - 3.72      3.28 - 3.87         2,460
                              2003            2,070           -              -           3.08 - 3.77      3.49 - 3.97           613
-------------------------  ------------  -------------- -------------  --------------  ---------------  ---------------  -----------
                                             83,140                                                                           5,202
-------------------------  ------------  -------------- -------------  --------------  ---------------  ---------------  -----------
</TABLE>

<TABLE>
<CAPTION>
                                     Year of           Volumes                                                            Fair Value
       Type of Contract             Maturity           Barrels            Fixed Price $            Current Price $          ($000)
------------------------------  -----------------  ----------------- ------------------------  ----------------------  -------------
             Oil
<S>                                  <C>                <C>              <C>                      <C>                        <C>
Swaps - Long Fuel Oil                 2002               191,438          19.85 - 26.40            22.70 - 24.55               420
                                      2003               345,389          20.02 - 26.72            21.84 - 23.06               132
------------------------------  -----------------  ----------------- ------------------------  ----------------------  -------------
                                                         536,827                                                               552
------------------------------  -----------------  ----------------- ------------------------  ----------------------  -------------
</TABLE>


<TABLE>
<CAPTION>
                            Year of                                                    Current         Estimated        Fair Value
    Type of Contract        Maturity         MWh            Fixed Profit /Price $      Price $         Profit $           ($000)
-----------------------  -------------- ----------------  ------------------------- -------------  -----------------  -------------
       Electricity
<S>                          <C>            <C>               <C>                      <C>           <C>                    <C>
Tolling Arrangements          2002           624,000             4.75 - 47.50              -          1.00 - 51.62              825
Swaps                         2002            58,752            54.84 - 57.03           31.39              -                 (1,380)
                              2003            70,080            54.84 - 57.03           29.69              -                 (1,765)
-----------------------  -------------- ----------------  ------------------------- -------------  -----------------  -------------
                                             752,832                                                                         (2,320)
-----------------------  -------------- ----------------  ------------------------- -------------  -----------------  -------------
</TABLE>
Non-firm Gas Sales Derivative Instruments: Utility tariffs applicable to certain
large-volume  customers  permit  gas to be sold at  prices  established  monthly
within a specified range expressed as a percentage of prevailing  alternate fuel
oil prices.  We use gas swap contracts,  with  offsetting  positions in oil swap
contracts of equivalent  energy value, with third parties to hedge the cash flow
variability of specified portions of gas purchases and sales. All positions that
were outstanding at December 31, 2001 settled during the first quarter of 2002.




                                       15

<PAGE>



The final settlement of these positions during the first quarter of 2002 did not
have a material  effect on our  results of  operations.  We intend to enter into
additional  derivative   instruments  of  this  nature  during  2002  if  market
conditions so warrant.

Firm  Gas  Sales  Derivative  Instruments  -  Regulated  Utilities:  We  utilize
derivative  financial  instruments to "lock-in" the purchase price for a portion
of our future natural gas purchases. Our strategy is to minimize fluctuations in
firm gas sales prices to our regulated firm gas sales  customers in our New York
service  territory.  All positions  that were  outstanding  at December 31, 2001
settled  during the first quarter of 2002.  Since these  derivative  instruments
were not designed as hedges and were employed to support our gas sales prices to
regulated  firm  gas  sales  customers,  the  accounting  for  these  derivative
instruments  was subject to SFAS 71.  Therefore,  changes in the market value of
these derivatives were recorded as a Regulatory Asset or Regulatory Liability on
the  Consolidated  Balance  Sheet.  Gains or losses on the  settlement  of these
contracts  were  initially  deferred and then refunded to or collected  from our
firm gas sales customers during the appropriate winter heating season consistent
with  regulatory  requirements.  We intend to enter into  additional  derivative
instruments  of this nature for the  remainder of 2002 if market  conditions  so
warrant.

Interest  Rate  Swaps:  We also  have  interest  rate swap  agreements  in which
approximately  $1.4 billion of fixed rate debt have  effectively been changed to
floating rate debt.  For the term of the  agreements,  we will receive the fixed
coupon rate  associated  with these bonds and pay the counter parties a variable
interest rate that is reset on a weekly and/or  quarterly  basis as appropriate.
These bonds are fair- value  hedges and qualify for hedge  accounting.  The swap
agreements  associated  with the Medium Term Notes,  as  displayed  in the table
below,  qualify for "short-cut"  hedge accounting  treatment under SFAS 133. The
fair-value hedge associated with a Gas Facilities  Revenue Bond does not qualify
for  "short-cut"  hedge  accounting  treatment.  Through the  utilization of our
interest rate swap  agreements,  we reduced  recorded  interest expense by $11.6
million during the first quarter of 2002.  Further,  we recorded a first quarter
benefit of $1.3  million as a result of the fair  value  measurements.  The fair
values  of these  derivative  instruments  are  provided  to us by  third  party
appraisers  and  represent  the present  value of future  cash-flows  based on a
forward interest rate curve for the life of the derivative instrument.  The fair
values at March 31, 2002, as indicated in the table below, reflect an assumption
of higher interest rates in the future.















                                       16

<PAGE>



The table below summarizes selected financial data associated with these
derivative financial instruments that were outstanding at March 31, 2002.
<TABLE>
<CAPTION>

                                                                                                     Average
                                     Maturity Date of       Notional Amount      Fixed Rate       Variable Rate        Fair Value
                Bond                       Swaps                ($000)            Received             Paid              ($000)
----------------------------------  -------------------  -------------------- ----------------  ------------------  ----------------
<S>                                          <C>               <C>               <C>                <C>                 <C>
Gas Facilities Revenue Bonds                  2024                  90,000        5.540%             1.270%                   10
Medium Term Notes                             2010                 500,000        7.625%             4.320%               (6,327)
Medium Term Notes                             2006                 500,000        6.150%             3.680%              (13,985)
Medium Term Notes                             2023                 270,000        8.200%             3.390%              (16,377)
----------------------------------  -------------------  -------------------- ----------------  ------------------  ----------------
                                                                 1,360,000                                               (36,679)
----------------------------------  -------------------  -------------------- ----------------  ------------------  ----------------
</TABLE>

Additionally,  we have a swap agreement that effectively  exchanges $270 million
of outstanding  commercial  paper with fixed-rate debt. This swap is a cash-flow
hedge and qualifies for hedge accounting under SFAS 133. We recorded  additional
interest  expense  associated  with this swap of $0.7  million  during the first
quarter of 2002 and there was no impact on  earnings  from  ineffectiveness.  At
March 31, 2002,  the fair value of this swap,  which was  reflected as an asset,
was $0.4 million.

Weather  Derivative:  The utility  tariffs  associated  with our New England gas
distribution  operations  do not contain a weather  normalization  clause.  As a
result,  fluctuations  from normal  weather may have a  significant  positive or
negative  effect on the results of these  operations.  To mitigate the effect of
weather fluctuations on our financial position and cash flows, we entered into a
weather swap in October 2001. This derivative  hedged  approximately  15% of our
weather  related  risk for the  November  2001 - March 2002  winter  season.  In
January 2002, we settled all our remaining  weather  derivatives  and recorded a
gain of $0.3  million  in Other  Income.  We  intend  to enter  into  additional
derivative  instruments  of this  nature  during  2002 if market  conditions  so
warrant.

We are exposed to credit risk in the event of  nonperformance by counter parties
to derivative contracts, as well as nonperformance by the counter parties of the
transactions  hedged  against.  We believe  that the credit risk  related to the
above  noted  contracts  is no greater  than that  associated  with the  primary
contracts which they hedge, as these contracts are with major  investment  grade
financial  institutions,  and that  elimination of the price risk lowers overall
business risk.



7.   WORKFORCE REDUCTION PROGRAMS

As a result of the Eastern  acquisition,  we  implemented  early  retirement and
severance programs in an effort to reduce our workforce.  In 2000, we recorded a
$22.7 million liability  associated with these programs.  This severance program
is targeted to reduce the workforce by 500  employees and will continue  through
2002.  In 2001,  we reduced this  liability by $4.1 million as a result of lower
than  anticipated  costs per employee.  At March 31, 2002, we paid $12.4 million
for these programs and had a remaining liability of $6.2 million.



                                       17

<PAGE>




8.  RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2002, we adopted SFAS 141, "Business  Combinations",  and SFAS 142
"Goodwill  and  Other  Intangible  Assets".   The  key  concepts  from  the  two
interrelated  Statements  include  mandatory  use of the  purchase  method  when
accounting for business combinations, discontinuance of goodwill amortization, a
revised  framework for testing goodwill  impairment at a "reporting unit" level,
and new criteria for the  identification  and  potential  amortization  of other
intangible assets.  Other changes to existing  accounting  standards involve the
amount of goodwill to be used in determining the gain or loss on the disposal of
assets, and a requirement to test goodwill for impairment at least annually. The
annual impairment test is to be performed within six months of adopting SFAS 142
with any  resulting  impairment  reflected  as  either a  change  in  accounting
principle,  or a charge  to  operations  in the  financial  statements.  We have
completed our analysis for our Gas  Distribution  and Energy Services  reporting
units, determining that no impairment exists. The results of our analysis on our
Energy  Investments  reporting  units is not  complete at this time,  and we are
unable to determine the impact, if any, this analysis may have on our results of
operations or financial condition.

For the three months ended March 31, 2001, goodwill amortization was recorded in
each segment as follows:  Gas  Distribution  $8.9 million;  Energy Services $2.1
million;  Energy  Investments  $0.5 million;  and at the Parent holding  company
level for $1.1 million.  As required by SFAS 142, below is a  reconciliation  of
reported net income for the three months ended March 31, 2001 and  pro-forma net
income,  for the  same  period,  adjusted  for the  discontinuance  of  goodwill
amortization.

<TABLE>
<CAPTION>
                                                     Three Months                  Three Months
                                                        Ended                         Ended
                                                    March 31, 2002                March 31, 2001
-------------------------------------------  ----------------------------  ----------------------------
<S>                                                             <C>                           <C>
Earnings available for common stock          $                    213,155  $                    222,638
     Add back: goodwill amortization                                    -                        12,551
-------------------------------------------  ----------------------------  ----------------------------
Adjusted net income                          $                    213,155  $                    235,189
-------------------------------------------  ----------------------------  ----------------------------

Basic earnings per share                     $                       1.52  $                       1.63
     Add back: goodwill amortization                                    -                          0.09
-------------------------------------------  ----------------------------  ----------------------------
Adjusted basic earnings per share            $                       1.52  $                       1.72
-------------------------------------------  ----------------------------  ----------------------------

Diluted earnings per share                   $                       1.51  $                       1.61
     Add back: goodwill amortization                                    -                          0.09
-------------------------------------------  ----------------------------  ----------------------------
Adjusted diluted earnings per share          $                       1.51  $                       1.70
-------------------------------------------  ----------------------------  ----------------------------
</TABLE>




                                       18

<PAGE>



In July of 2001, the FASB issued SFAS No. 143,  "Accounting for Asset Retirement
Obligations".  The  Standard  requires  entities  to record  the fair value of a
liability  for an  asset  retirement  obligation  in the  period  in which it is
incurred. When the liability is initially recorded, the entity will capitalize a
cost by increasing the carrying  amount of the related  long-lived  asset.  Over
time, the liability is accreted to its then present value,  and the  capitalized
cost is depreciated  over the useful life of the related asset.  Upon settlement
of the  liability,  an entity  either  settles the  obligation  for its recorded
amount or incurs a gain or loss upon  settlement.  The standard is effective for
fiscal years beginning after June 15, 2002, with earlier application encouraged.
We are currently  evaluating the impact, if any, that this Statement may have on
our results of operations and financial condition.

SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was effective  January 1, 2002,  and addresses  accounting and reporting for the
impairment or disposal of long-lived  assets.  SFAS No. 144 supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to Be  Disposed  Of" and APB Opinion  No. 30,  "Reporting  the Results of
Operations-Reporting  the Effects of Disposal of a Segment of a Business."  SFAS
No. 144  retains  the  fundamental  provisions  of SFAS No. 121 and  expands the
reporting of discontinued operations to include all components of an entity with
operations that can be  distinguished  from the rest of the entity and that will
be  eliminated  from  the  ongoing  operations  of  the  entity  in  a  disposal
transaction. As of March 31, 2002, implementation of this Statement did not have
a significant effect on our results of operations and financial condition.

9. KEYSPAN GAS EAST CORPORATION SUMMARY FINANCIAL INFORMATION

KEDLI,  a wholly  owned  subsidiary  of KeySpan,  established  a program for the
issuance, from time to time, of up to $600 million aggregate principal amount of
medium term notes,  which are  unconditionally  guaranteed by us. On February 1,
2000, KEDLI issued $400 million of 7.875% medium term notes due 2010. In January
2001,  KEDLI issued an additional  $125 million of medium term notes at 6.9% due
January 15, 2008. The following condensed  financial  statements are required to
be  disclosed  by the SEC and are those of KEDLI and KeySpan as guarantor of the
medium term notes.
















                                       19

<PAGE>



<TABLE>
<CAPTION>
Statement of Income
                                                                                                          (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                                       Three Months Ended March 31, 2002                           Three Months Ended March 31, 2001
---------------------  --------------------------------------------------------------------  ---------------------------------------


                      Guarantor        KEDLI    Eliminations  Consolidated   Guarantor     KEDLI      Eliminations   Consolidated
----------------------------------  ----------- ------------ -------------  ------------  ----------  --------------  -------------
<S>                     <C>            <C>          <C>         <C>           <C>           <C>           <C>            <C>
Revenues             $   1,552,613  $   318,947 $          -  $  1,871,560  $  2,144,590  $  430,498  $          -    $   2,575,088
                     -------------  ----------- ------------ -------------  ------------  ----------  --------------  -------------
Operating Expenses
Purchased gas              506,493      142,867            -       649,360       939,219     258,130             -        1,197,349
Fuel and purchased
    power                   84,372            -            -        84,372       143,300           -             -          143,300
Operations and
    maintenance            481,562       12,001            -       493,563       488,739      15,144             -          503,883
Intercompany expense       (18,209)      18,209            -             -       (21,544)     21,544             -                -
Depreciation and
    amortization           105,756       20,241            -       125,997       112,134      19,030             -          131,164
Operating taxes             95,005       25,386            -       120,391       112,004      29,986             -          141,990
                     -------------  ----------- ------------ -------------  ------------  ----------  --------------  -------------
Total Operating
    Expenses             1,254,979      218,704            -     1,473,683     1,773,852     343,834             -        2,117,686
                     -------------  ----------- ------------ -------------  ------------  ----------  --------------  -------------
Operating Income           297,634      100,243            -       397,877       370,738      86,664             -          457,402
Other Income and
      (Deductions)          10,455        2,902       (5,171)        8,186         9,279       2,991        (7,568)           4,702
                     -------------  ----------- ------------ -------------  ------------  ----------  --------------  -------------
Income Before
    Interest Charges
    and Income Taxes       308,089      103,145       (5,171)      406,063       380,017      89,655        (7,568)         462,104
Interest Expense            62,581       15,202       (5,171)       72,612        83,631      17,240        (7,568)          93,303
Income Taxes                81,739       37,081            -       118,820       119,636      25,051             -          144,687
                     -------------  ----------- ------------ -------------  ------------  ----------  --------------  -------------
Earnings Available
  for Common Stock   $     163,769  $    50,862 $          - $     214,631  $    176,750  $   47,364    $        -    $     224,114
                     =============  =========== ============ =============  ============  ==========  ==============  =============

</TABLE>






































                                       20

<PAGE>

<TABLE>
<CAPTION>
Balance Sheet

                                                                                                         (In Thousands of dollars)
----------------------------------------------------------------------------------------------------------------------------------
                                                    March 31, 2002                              December 31, 2001
----------------------------------------------------------------------------------------------------------------------------------


                            Guarantor     KEDLI     Eliminations   Consolidated  Guarantor      KEDLI     Eliminations  Consolidated
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
<S>                          <C>           <C>         <C>           <C>         <C>           <C>           <C>         <C>
ASSETS
Current Assets
  Cash and temporary cash
  investments               $  190,701   $        -  $         -   $    190,701  $  159,252    $       -  $         -    $  159,252

  Accounts receivable, net   1,547,282      169,195     (227,174)     1,489,303   1,540,082      233,013     (500,496)    1,272,599
  Other current assets         225,670      124,769            -        350,439     454,319      112,317            -       566,636
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
                             1,963,653      293,964     (227,174)     2,030,443   2,153,653      345,330     (500,496)    1,998,487
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
Assets Held for Disposal       191,055            -            -        191,055     191,055            -            -       191,055
Equity Investments             763,365            -     (532,862)       230,503     756,111            -     (532,862)      223,249
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
Property
  Gas                        4,124,564    1,659,048            -      5,783,612   4,074,894    1,629,963             -    5,704,857
  Other                      4,365,616            -            -      4,365,616   4,231,262            -             -    4,231,262
  Accumulated depreciation
  and depletion             (3,124,232)    (302,213)           -     (3,426,445) (3,035,788)    (294,400)            -   (3,330,188)
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
                             5,365,948    1,356,835            -      6,722,783   5,270,368    1,335,563             -    6,605,931
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
Deferred Charges             2,503,757      184,929            -      2,688,686   2,571,029      199,855             -    2,770,884
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
Total Assets               $10,787,778   $1,835,728   $ (760,036)   $11,863,470  $10,942,216  $1,880,748  $ (1,033,358) $11,789,606
                            =========== =========== =============  ============  ===========  ==========  ============= ============


LIABILITIES AND
CAPITALIZATION
Current Liabilities
  Accounts payable
  and accrued expenses    $    683,922  $    77,612    $       -     $  761,534     $975,873  $  115,557     $       -  $ 1,091,430

  Commercial paper           1,038,503            -            -      1,038,503    1,048,450           -             -    1,048,450
  Other current
    liabilities                241,433       82,623            -        324,056      220,985      23,844             -      244,829
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
                             1,963,858      160,235            -      2,124,093    2,245,308     139,401             -    2,384,709
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
Intercompany Accounts
   Payable                           -       51,270      (51,270)             -            -     324,592      (324,592)            -
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------

Deferred Credits and
Other Liabilities
   Deferred income tax         612,320      172,349            -        784,669      593,300       4,772             -      598,072
   Other deferred credits
   and liabilities             854,564       89,481            -        944,045      841,662     100,452             -      942,114
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
                             1,466,884      261,830            -      1,728,714    1,434,962     105,224             -    1,540,186
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
Capitalization
  Common shareholders'
   equity                    2,907,369      661,489     (532,862)     3,035,996    2,812,837     610,627      (532,862)   2,890,602
  Preferred stock               84,077            -            -         84,077       84,077           -             -       84,077
  Long-term debt             4,168,403      700,904     (175,904)     4,693,403    4,172,649     700,904      (175,904)   4,697,649
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------
Total Capitalization         7,159,849    1,362,393     (708,766)     7,813,476    7,069,563   1,311,531      (708,766)   7,672,328
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------

Minority Interest in
  Subsidiary Companies         197,187            -            -        197,187      192,383           -             -      192,383
--------------------------- ----------- ----------- -------------  ------------  -----------  ----------- ------------- ------------

Total Liabilities and
   Capitalization         $ 10,787,778  $ 1,835,728    $(760,036)  $ 11,863,470  $10,942,216  $1,880,748   $(1,033,358) $11,789,606
                            =========== =========== =============  ============  ===========  =========== ============= ============
</TABLE>




                                       21

<PAGE>


<TABLE>
<CAPTION>
Statement of Cash Flows                                                                                   (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------------------
                                             Three Months Ended March 31, 2002              Three Months Ended March 31, 2001
------------------------------------  ---------------------------------------------  -----------------------------------------------



                                       Guarantor       KEDLI       Consolidated       Guarantor       KEDLI        Consolidated
-----------------------------------  ---------------  -----------  ---------------- ----------------  -----------  ----------------
<S>                                       <C>           <C>              <C>               <C>         <C>               <C>
Operating Activities
Net Cash Provided by
  Operating Activities               $       30,059  $   302,490  $        332,549 $        161,893  $    60,834  $        222,727
                                     --------------  -----------  ---------------- ----------------  -----------  ----------------
Investing Activities
   Capital expenditures                    (214,985)     (29,168)         (244,153)        (114,218)     (11,691)         (125,909)
   Other                                          -            -                 -           17,190            -            17,190
                                     --------------  -----------  ---------------- ----------------  -----------  ----------------
Net Cash Used in
      Investing Activities                 (214,985)     (29,168)         (244,153)         (97,028)     (11,691)         (108,719)
                                     --------------  -----------  ---------------- ----------------  -----------  ----------------
Financing Activities
   Issuance of treasury stock                34,058            -            34,058           30,292            -            30,292
   Issuance of long-term  debt               10,401            -            10,401           57,000      125,000           182,000
   Payment of long-term debt                (25,356)           -           (25,356)        (102,000)           -          (102,000)
   Payment of commercial paper               (9,947)           -            (9,947)        (160,407)           -          (160,407)
   Preferred stock dividends paid            (1,476)           -            (1,476)          (1,476)           -            (1,476)
   Common  stock dividends paid             (62,207)           -           (62,207)         (61,215)           -           (61,215)
   Net intercompany accounts payable        273,322     (273,322)                -          174,143     (174,143)                -
   Other                                     (2,420)           -            (2,420)            (461)           -              (461)
                                     --------------  -----------  ---------------- ----------------  -----------  ----------------
Net Cash Provided by
   (Used in) Financing Activities    $      216,375  $ (273,322)  $        (56,947)         (64,124)     (49,143)         (113,267)
                                     --------------  -----------  ---------------- ----------------  -----------  ----------------
Net Increase
   in Cash and Cash Equivalents      $       31,449  $         -  $         31,449  $           741  $         -   $           741
                                     ==============  ===========  ================ ================  ===========  ================
Cash and Cash Equivalents
    at Beginning of Period           $      159,252  $         -  $        159,252  $        83,329  $         -   $        83,329
Net Increase
    in Cash and Cash Equivalents     $       31,449  $         -  $         31,449  $           741  $         -   $           741
                                     --------------  -----------  ---------------- ----------------  -----------  ----------------
Cash and Cash Equivalents
    at End of Period                 $      190,701  $         -  $        190,701  $        84,070  $         -   $        84,070
                                     ==============  ===========  ================ ================  ===========  ================

</TABLE>




                                       22

<PAGE>



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

Consolidated Review of Results
------------------------------

The following is a summary of transactions  affecting comparative earnings and a
discussion of material  changes in revenues and expenses during the three months
ended  March 31,  2002,  compared  to the three  months  ended  March 31,  2001.
Capitalized terms used in the following  discussion,  but not otherwise defined,
have the same  meaning as when used in the Notes to the  Consolidated  Financial
Statements included under Item 1. References to "KeySpan", "we", "us", and "our"
mean KeySpan Corporation, together with its consolidated subsidiaries.

Consolidated  earnings  from  continuing  operations  for the three months ended
March 31, 2002 were  $213.2  million,  or $1.52 per share,  compared to earnings
from continuing  operations of $222.6  million,  or $1.63 per share for the same
period last year.  Average common shares outstanding for the quarter ended March
31, 2002  increased 2.2 % compared to the same period last year  reflecting  the
re-issuance  of shares held in treasury  pursuant to dividend  reinvestment  and
employee  benefit  plans.  This increase in average  common  shares  outstanding
reduced  first  quarter  2002  earnings  per  share  by  $0.04  compared  to the
corresponding period in 2001.

On January 24, 2002, we announced that we have entered into an agreement to sell
Midland Enterprises Inc. ("Midland"), our marine barge business. In anticipation
of this divestiture,  which we expect to close in the second quarter of 2002, we
have reported  Midland's  operations as discontinued for 2002 and 2001. (See our
Annual  Report on Form 10K for the year ended  December 31, 2001 Item 7, as well
as Note 10 to those Consolidated Financial Statements "Discontinued  Operations"
for further disclosures  regarding the potential sale of Midland.) In the fourth
quarter of 2001, we recorded an estimated loss on the sale of Midland as well as
an estimate  for  Midland's  results of  operations  for the first six months of
2002. As a result, there should be no significant reported results of operations
for  Midland  during  2002.  At the time of the  actual  sale of Midland we will
adjust the loss  provision  recorded in 2001 if necessary,  based upon the final
sales price under the sales agreement.  Earnings  available for common stock for
the first  quarter  of 2001,  which  includes  results  of both  continuing  and
discontinued operations were $223.3 million or $1.63 per share. Diluted earnings
per  share  were  $1.51  in for the  first  quarter  of 2002 and  $1.61  for the
corresponding period of 2001.

Earnings before interest and taxes ("EBIT") decreased by $56.0 million,  or 12%,
for the first  quarter of 2002 compared to the  corresponding  period last year.
This  decrease  was  attributable  almost  entirely  to the  results  of our gas
exploration  and  production  subsidiaries,  which were  adversely  impacted  by
significantly lower realized gas prices in the first quarter of 2002 compared to
the same quarter last year.  EBIT results for the first  quarter of 2002 for our
other lines of business  were  comparable to EBIT results for the same period in
2001.  The adverse impact of  significantly  warmer weather on EBIT from our gas
distribution  operations was offset, for the most part, by the discontinuance of
goodwill amortization, lower operations and maintenance costs, as well as the



                                       23

<PAGE>



benefits of  conversions  to natural gas.  EBIT from  Electric  services for the
first quarter of 2001 was comparable  with EBIT results for the same period last
year.  (See  "Review  of  Operating  Segments"  and  Note 2 to the  Consolidated
Financial  Statements  "Business  Segments"  for a detailed  discussion  of EBIT
results for each of our lines of business.)

Partially  offsetting the comparative  decrease in EBIT was a $20.7 million,  or
22%,  decrease in interest  expense.  The average  interest rate on  outstanding
commercial  paper was  approximately  330 basis  points  lower  during the first
quarter 2002 compared to the same period last year. Further,  average commercial
paper borrowings for the first quarter of 2002 were approximately 14% lower than
the first quarter of 2001.  In addition,  we have a number of interest rate swap
agreements in which we have effectively changed fixed rate debt to floating rate
debt.  As a result of these  derivative  instruments,  we have reduced  interest
expense,  on a  comparative  basis,  by  $10.9  million.  (See  Note  6  to  the
Consolidated  Financial  Statements  "Derivative  Financial  Instruments " for a
description of these instruments.)

The decrease in income tax expense generally reflects the lower level of pre-tax
income for the first quarter of 2002, compared to the corresponding  period last
year.  During the first  quarter of 2002,  we recorded an adjustment to deferred
income  taxes of $177.7  million  reflecting  a decrease in the tax basis of the
assets acquired at the time of the KeySpan / Long Island Lighting Company merger
that was  completed  in May  1998.  This  adjustment  was a result  of a revised
valuation  study  recently  concluded  and the filing of an amended  tax return.
Concurrent  with the deferred tax  adjustment,  we reduced  current income taxes
payable by $183.2 million, resulting in a $5.5 million income tax benefit.

Overall  consolidated  earnings  are  seasonal in nature due to the  significant
contribution to earnings of our gas  distribution  operations.  As a result,  we
expect to earn  approximately  60%, and 30% to 35% of our yearly earnings in the
first and fourth quarters,  respectively and breakeven or marginally  profitable
earnings are anticipated to be achieved in the second and third quarters.

Consistent  with the guidance  issued in December 2001,  KeySpan's 2002 earnings
from core operations  (defined for this purpose as all operations other than gas
exploration and production)  are forecasted to be  approximately  $2.40 to $2.45
per  share.  KeySpan's  2002  earnings  forecast  for  its gas  exploration  and
production  operations is  approximately  $0.20 - $0.30 per share,  based on the
most recent  guidance  issued by Houston  Exploration.  For the first quarter of
2002,  earnings from core operations  were $1.46 per share,  and $0.06 per share
from  our gas  exploration  and  production  operations.  Houston  Exploration's
earnings  forecast  may vary  significantly  during the year due to, among other
things, changing energy market conditions.

Pursuant to Securities and Exchange  Commission  rules for gas  exploration  and
production  companies which use the "full cost"  accounting  method, a quarterly
"ceiling test"  calculation is required using commodity  prices as of the end of
the reporting  period. As a result,  depending on the then prevailing  commodity
prices,  our gas  exploration  and  production  subsidiaries  may be required to
recognize a non-cash  impairment charge at the end of any given future reporting
period.



                                       24

<PAGE>



Review of Operating Segments
----------------------------


Gas Distribution

KeySpan Energy Delivery New York ("KEDNY") provides gas distribution  service to
customers in the New York City Boroughs of Brooklyn,  Queens and Staten  Island,
and KeySpan  Energy  Delivery Long Island  ("KEDLI")  provides gas  distribution
service to customers  in the Long Island  Counties of Nassau and Suffolk and the
Rockaway Peninsula of Queens County.  Boston Gas Company,  Colonial Gas Company,
Essex Gas Company,  and EnergyNorth  Natural Gas Inc., each doing business under
the name KeySpan Energy Delivery New England ("KEDNE"), provide gas distribution
service to customers in Massachusetts and New Hampshire.

The table below highlights certain significant financial data and operating
statistics for the Gas Distribution segment for the periods indicated.
<TABLE>
<CAPTION>
                                                                                     (In Thousands of Dollars)
---------------------------------------------------------------------------------------------------------------
                                                           Three Months Ended           Three Months Ended
                                                              March 31, 2002              March 31, 2001
-----------------------------------------------------  ---------------------------  ---------------------------
<S>                                                                     <C>                          <C>
Revenues                                               $                 1,222,966  $                 1,753,644
Cost of gas                                                                613,584                    1,105,308
Revenue taxes                                                               38,295                       56,479
-----------------------------------------------------  ---------------------------  ---------------------------
Net Revenues                                                               571,087                      591,857
-----------------------------------------------------  ---------------------------  ---------------------------
Operating expenses
  Operations and maintenance                                               145,539                      158,872
  Depreciation and amortization                                             63,018                       68,583
  Operating taxes                                                           38,000                       37,976
-----------------------------------------------------  ---------------------------  ---------------------------
Total Operating Expenses                                                   246,557                      265,431
-----------------------------------------------------  ---------------------------  ---------------------------
Operating Income                                                           324,530                      326,426
Other Income and (Deductions)                                                5,124                        4,255
-----------------------------------------------------  ---------------------------  ---------------------------
Earnings Before Interest and Taxes                     $                   329,654  $                   330,681
-----------------------------------------------------  ---------------------------  ---------------------------
Firm gas sales (MDTH)                                                      107,274                      126,816
Firm transportation (MDTH)                                                  29,998                       34,240
Transportation - Electric
      Generation   (MDTH)                                                   13,359                        4,378
Other sales (MDTH)                                                          37,901                       25,515
Warmer than normal -  New York                                               18.0%                        1.0%

Warmer (Colder) than normal - New  England                                   16.0%                       (1.0)%
-----------------------------------------------------  ---------------------------  ---------------------------
</TABLE>
           An MDTH is 10,000 therms (British Thermal Units) and reflects the
           heating content of approximately one million cubic feet of gas. A
           therm reflects the heating content of approximately 100 cubic feet of
           gas. One billion cubic feet (BCF) of gas equals approximately 1,000
           MDTH.




                                       25

<PAGE>



Net Revenues

Net gas revenues  (revenues less the cost of gas and  associated  revenue taxes)
associated  with  both our New  York  and New  England  based  gas  distribution
operations  were  adversely  impacted  by the  significantly  warmer than normal
weather experienced  throughout the Northeastern United States. Based on heating
degree days,  weather for the first  quarter of 2002 was the warmest in the past
30 years,  and  approximately  18% warmer than last year in our New York and New
England  service  territories.  The  significantly  warmer than  normal  weather
resulted  in a decrease of $20.8  million,  or 4%, in net gas  revenues  for the
three  months ended March 31, 2002,  compared to the  corresponding  period last
year.

KEDNY and KEDLI each  operate  under a utility  tariff  that  contains a weather
normalization  adjustment that largely  offsets  variations in firm net revenues
due to  fluctuations  in normal weather  patterns.  These weather  normalization
adjustments,  resulted in a $32.8 million benefit to net gas revenues during the
first  quarter  of 2002.  Nevertheless,  net  revenues  from firm gas  customers
(residential,  commercial  and  industrial  customers)  in our New York  service
territory  decreased by $8.2 million for the first  quarter of 2002  compared to
the same period last year,  primarily as a result of lower customer  consumption
due to the  extremely  warm  weather,  offset,  in part,  by the  benefits  from
conversions to natural gas.

Net  revenues  from firm gas  customers  in our New  England  service  territory
decreased  by $8.3  million for the first  quarter of 2002  compared to the same
period  last  year  also as a result  of the  extremely  warm  weather.  The gas
distribution  operations  of our New England  based  subsidiaries  do not have a
weather normalization adjustment. Included in net revenues for the first quarter
of 2002, is a benefit of $5.5 million as a result of a favorable ruling from the
Massachusetts  Supreme  Judicial  Court  relating  to the  appeal by Boston  Gas
Company of its  Performance  Based Rate Plan  ("PBR").  The court found that the
"accumulated  inefficiencies"  component of the productivity  factor in the PBR,
imposed by the Massachusetts  Department of  Telecommunications  and Energy, was
not supported by substantial evidence.

Firm gas  distribution  rates in the first  quarter of 2002 , other than for the
recovery of gas costs, have remained substantially  unchanged from rates charged
last year in all of our service territories.

In our large-volume heating markets and other interruptible  (non-firm) markets,
which include large  apartment  houses,  government  buildings and schools,  gas
service is provided  under rates that are  established to compete with prices of
alternative  fuel,  including  No. 2 and No. 6 grade  heating oil. The extremely
warm weather  resulted in a decrease of $4.3 million in net revenues  from sales
to these  markets  during the first quarter of 2002 compared to same period last
year.  The  majority  of  interruptible  profits  earned  by KEDNE and KEDLI are
returned to firm customers as an offset to gas costs.






                                       26

<PAGE>



To  mitigate  the  effect of  fluctuations  in normal  weather  patterns  on our
financial  position and cash flows, we may employ derivative  hedging strategies
for  the  2002/2003  winter  heating  season.  (See  Note 6 to the  Consolidated
Financial Statements "Derivative Financial Instruments for further information.)

We are  committed  to our  expansion  strategies  initiated  during the past few
years. We believe that significant growth opportunities exist on Long Island and
in our New  England  service  territories.  We  estimate  that  on  Long  Island
approximately 35% of the residential and multi-family markets, and approximately
55% of the  commercial  market  currently  use  natural  gas for space  heating.
Further, we estimate that in our New England service  territories  approximately
45% of the residential and multi-family  markets,  and  approximately 30% of the
commercial market currently use natural gas for space heating purposes.  We will
continue to seek growth,  in all our market  segments,  through the expansion of
our gas  distribution  system,  as well as through the conversion of residential
homes  from   oil-to-gas   for  space  heating   purposes  and  the  pursuit  of
opportunities to grow multi- family, industrial and commercial markets.

Sales, Transportation and Other Quantities

Firm gas sales and transportation  quantities  decreased by 15% during the three
months  ended  March 31,  2002,  compared  to the same period in 2001 due to the
extremely warm weather in all our service  territories as previously  mentioned.
Net revenues are not affected by customers  opting to purchase  their gas supply
from other sources,  since delivery  rates charged to  transportation  customers
generally  are  the  same as  delivery  rates  charged  to  full  sales  service
customers.

Transportation   quantities   related  to   electric   generation   reflect  the
transportation  of gas to our  electric  generating  facilities  located on Long
Island. Net revenues from these services are not material.

Other sales quantities include on-system  interruptible  quantities,  off-system
sales quantities  (sales made to customers  outside of our service  territories)
and related  transportation.  We have an agreement  with Coral  Resources,  L.P.
("Coral"),  a subsidiary of Shell Oil Company,  under which Coral assists in the
origination, structuring, valuation and execution of energy-related transactions
on behalf of KEDNY and KEDLI. We also have a portfolio  management contract with
El Paso Energy Marketing,  Inc. ("El Paso"), under which El Paso provides all of
the city gate supply  requirements at market prices and manages certain upstream
capacity, underground storage and term supply contracts for KEDNE.

Operating Expenses

Operating  expenses  decreased by $18.9 million,  or 7%, in the first quarter of
2002 compared to the same period last year,  primarily due to the discontinuance
of goodwill  amortization,  cost saving synergies and the effects of warmer than
normal  weather.  In January 2002, we adopted  Statement of Accounting  Standard
("SFAS") 142 "Goodwill and Other  Intangible  Assets".  The key  requirements of
this Statement include discontinuance of goodwill amortization, a revised



                                       27

<PAGE>



framework   for  testing   goodwill   impairment   and  new   criteria  for  the
identification  of  intangible   assets.   Goodwill   amortization  in  the  gas
distribution  segment for the first quarter of 2001 was $8.9 million and for the
twelve  months  ended  December  31,  2001 was  $35.6  million.  (See  "Critical
Accounting  Policies  and  Assumptions"  for a further  discussion  of  goodwill
valuation.)

Further  contributing to the reduction in comparative  operating  expenses,  are
cost saving  synergies  currently being realized  primarily as a result of early
retirement  and severance  programs  implemented  in the fourth  quarter of 2000
designed to reduce our  workforce  by  approximately  500  employees.  The early
retirement  portion of the  program was  completed  in 2000,  but the  severance
feature is expected to continue  through 2002.  Further,  the warmer than normal
weather  experienced  in the first  quarter of 2002  resulted in less repair and
maintenance  work needed on our gas distribution  infrastructure.  We anticipate
that by year-end,  operating  expenses will be slightly lower than such expenses
incurred in 2001.

Other Matters

To take advantage of the anticipated gas sales growth  opportunities  in the New
York City metropolitan area, in 2000 we formed the Islander East Pipeline,  LLC,
a limited  liability  company in which a KeySpan  subsidiary and a subsidiary of
Duke Energy Corporation each own a 50% equity interest.  Islander East Pipeline,
LLC has received a positive  preliminary  determination  from the Federal Energy
Regulatory  Commission  ("FERC")  to  construct,  own and  operate a natural gas
pipeline facility consisting of approximately 50 miles of interstate natural gas
pipeline  extending  from  Algonquin Gas  Transmission  Company's  facilities in
Connecticut, across the Long Island Sound and connecting with KEDLI's facilities
on Long Island. The Islander East Pipeline, which is expected to begin operating
in 2003,  will transport  260,000 dth daily to the Long Island and New York City
energy markets,  enough fuel to cool and heat 600,000 homes, as well as allow us
to further diversify the geographic  sources of our gas supply. We are currently
evaluating various options for the financing of this pipeline.


















                                       28

<PAGE>



Electric Services

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

Selected  financial data for the Electric  Services  segment is set forth in the
table below for the periods indicated.
<TABLE>
<CAPTION>
                                                                              (In Thousands of Dollars)
-------------------------------------------------------------------------------------------------------
                                                Three Months Ended             Three Months Ended
                                                  March 31, 2002                 March 31, 2001
------------------------------------------ ----------------------------- ------------------------------
<S>                                                            <C>                            <C>
 Revenues                                    $                   314,710   $                    343,396
 Purchased fuel                                                   53,993                         79,327
------------------------------------------ ----------------------------- ------------------------------
Net Revenues                                                     260,717                        264,069
------------------------------------------ ----------------------------- ------------------------------
Operating expenses
  Operations and maintenance                                     148,119                        144,774
  Depreciation                                                    13,733                         12,574
  Operating taxes                                                 37,371                         43,304
------------------------------------------ ----------------------------- ------------------------------
Total Operating Expenses                                         199,223                        200,652
------------------------------------------ ----------------------------- ------------------------------
Operating Income                                                  61,494                         63,417
Other Income and (Deductions)                                      4,153                          2,164
------------------------------------------ ----------------------------- ------------------------------
Earnings Before Interest and Taxes           $                    65,647   $                     65,581
------------------------------------------ ----------------------------- ------------------------------
Electric sales (MWH)*                                          1,091,000                      1,023,000
Capacity (MW)*                                                     2,200                          2,200
------------------------------------------ ----------------------------- ------------------------------
</TABLE>
     *Reflects the operations of the Ravenswood facility only.

Net Revenues

Total  electric net revenues  decreased  slightly in the first  quarter of 2002,
compared to the same quarter of 2001.  Lower  comparative  net revenues from the
Ravenswood  facility were mostly offset by higher  comparative net revenues from
the LIPA service  agreements.  Net revenues  from the  Ravenswood  facility were
$16.2  million,  or18% lower during the first  quarter of 2002,  compared to the
same period in 2001,  reflecting  a 30% decrease in electric  energy  prices and
lower  capacity  sales,  offset,  in part,  by a 7% increase  in electric  sales
quantities.  Realized  energy  prices and capacity  sales for the quarter  ended
March 31,  2002  were  adversely  impacted  by a more  competitive  the New York
Independent  System  Operator  ("NYISO")  energy  markets  and  an  increase  in
available capacity in New York City.

The pricing for both energy sales and the sale of certain ancillary  services to
the NYISO  energy  markets is still  evolving  and the FERC has adopted  several
price mitigation  measures which are subject to rehearing and possible  judicial
review.  The final  resolution of these issues and their effect on our financial
position,  results of  operations  and cash flows can not be  determined at this
time.




                                       29

<PAGE>



(See  our  Annual  Report  on Form 10K Item  7A.  Quantitative  and  Qualitative
Disclosures About Market Risk for a further discussion of these matters.)

Revenues from the LIPA service agreements increased by $12.8 million, or 7%, for
the first  quarter of 2002  compared to the same  period last year.  Included in
revenues  for 2002,  are billings to LIPA for certain  third party  construction
costs  that were  significantly  higher  than such  billings  last  year.  These
revenues have no impact on net income since we record a similar  amount of costs
in  operating  expense.  Excluding  these  third  party  construction  billings,
revenues for the quarter ended March 31, 2002  associated  with the LIPA service
agreements  were  comparable to such revenues earned during the same period last
year.

Operating Expenses

Operating  expenses for the quarter ended March 31, 2002 were  comparable to the
same period last year.

Other Matters

We are in the process of constructing two 79 MW electric  generating  facilities
on Long Island that will serve LIPA in the summer of 2002. Capital  expenditures
to construct these facilities are estimated to be approximately $200 million. We
are currently  evaluating various options for the financing of these facilities.
(See  the  discussion  under  "Capital  Expenditures  and  Financing"  for  more
information on our financing plans for 2002.) Further,  we are progressing  with
our plans to build a new 250 MW cogeneration facility at the Ravenswood facility
site. The new facility is expected to commence  operations in late 2003 or early
2004. The capacity and energy produced from this plant is anticipated to be sold
into the NYISO  energy  markets.  We are also  progressing  through  the  siting
process  before the New York State Board on Electric  Generation  Siting and the
Environment  with our proposal to build a similar 250 MW combined cycle electric
generating  facility on Long Island.  This facility is  anticipated  to commence
operations  in late 2004 or early 2005.  We  anticipate  that 50% of the plant's
capacity will be under long-term  contract to LIPA.  Construction of the two 250
MW  facilities  is not expected to begin until late 2002 or early 2003.  At that
time we will evaluate various options for the financing of those facilities.  In
the normal  course of  reviewing  our  operations,  we  routinely  evaluate  the
acquisition of electric generating facilities,  primarily in the Northeast.  Any
such  facilities  we may acquire  will likely be  financed  initially  with cash
on-hand or short-term borrowings.

Under the Generation Purchase Right Agreement ("GPRA"), LIPA had the right for a
one-year  period,  beginning on May 28, 2001,  to acquire all of our Long Island
based generating assets formerly owned by LILCO at fair market value at the time
of the  exercise of such right.  By  agreement  dated March 29,  2002,  LIPA and
KeySpan  amended the GPRA to provide for a new six month option period ending on
May 28,  2005.  The other  terms of the option  reflected  in the GPRA  remained
unchanged.





                                       30

<PAGE>



In return for  providing  LIPA an extension  of the GPRA,  KeySpan and LIPA have
agreed to an extension of 31 months for the Management  Services Agreement under
which  KeySpan  manages  the  day-to-day  operations,  maintenance  and  capital
improvements of LIPA's  transmission and distribution  system. That extension is
subject to approval by the New York State Public  Authorities  Control Board and
the State Controller.

The extension is the result of a new initiative established by LIPA to work with
KeySpan and others to review Long  Island's  long-term  energy  needs.  LIPA and
KeySpan will jointly  analyze new energy supply  options  including  re-powering
existing  plants,   renewable  energy  technologies,   distributed   generation,
conservation initiatives and retail competition.  The extension allows both LIPA
and KeySpan to explore  alternatives to the GPRA including  re-powering existing
facilities,  the sale of some or all of KeySpan's plants to LIPA, or the sale of
some or all of these plants to other private operators.

Energy Services

The Energy Services segment primarily  includes  companies that provide services
through  three  lines of business  to clients  located  within the New York City
metropolitan area, Rhode Island, Pennsylvania,  Massachusetts and New Hampshire.
The lines of business are: Home Energy Services;  Business Solutions;  and Fiber
Optic Services.

The  table  below  highlights  selected  financial  information  for the  Energy
Services segment.
<TABLE>
<CAPTION>
                                                                                (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------

                                                        Three Months Ended               Three Months Ended
                                                          March 31, 2002                   March 31, 2001
------------------------------------------------  ------------------------------- --------------------------------
<S>                                                                     <C>                              <C>
Revenues                                            $                     241,559   $                      319,093
Less: cost of gas and fuel                                                 66,155                          153,283
------------------------------------------------  ------------------------------- --------------------------------
Net revenues                                                              175,404                          165,810
Other operating expenses                                                  184,762                          172,622
------------------------------------------------  ------------------------------- --------------------------------
Operating  Loss                                                            (9,358)                          (6,812)
Other Income and (Deductions)                                                 160                              433
------------------------------------------------  ------------------------------- --------------------------------
Loss Before Interest and Taxes                      $                      (9,198)  $                       (6,379)
------------------------------------------------  ------------------------------- --------------------------------
</TABLE>
Net revenues  increased by 6% during the first  quarter of 2002  compared to the
same period last year;  lower revenues were offset by lower natural gas and fuel
costs.  EBIT  results  for the  three  months  ended  March 31,  2002,  however,
decreased  compared  to the same  period  last year.  Home  Energy and  Business
Solutions  operations were adversely impacted by the general  "down-turn" in the
New York  metropolitan  economy.  In addition,  the  extremely  warm weather has
reduced the number of service  calls and repair  orders  received  this  quarter
compared to the same period last year.

In 2001, we discontinued the general  contracting  activities  related to one of
our  subsidiaries,  the former Roy Kay  companies,  based upon our view that the
general contracting  business is not a core competency of these companies.  (See
our Annual  Report on Form 10K for the year ended  December  31, 2001 Item 7 and
Note 11 to those  Consolidated  Financial  Statements  "Roy Kay Operation" for a




                                       31

<PAGE>



more detailed  discussion.)We  are completing the contracts  entered into by the
former Roy Kay companies and, for the first quarter of 2002, we incurred an EBIT
loss of $1.5 million  associated with the  discontinuance of this business.  For
the three months ended March 31, 2001,  we incurred an EBIT loss of $7.9 million
associated  with the operations of the former Roy Kay  companies.  Excluding the
results of the former Roy Kay companies,  the Energy Services segment  reflected
an EBIT loss of $7.7 million for the first quarter of 2002, compared to positive
EBIT of $1.5  million for the same period last year for the reason  noted above.
This  quarter's  results  also  benefitted  from  the  elimination  of  goodwill
amortization, which for the first quarter of 2001 amounted to $2.1 million.

Energy Investments

The Energy  Investment  segment  consists of our gas  exploration and production
operations as well as certain other  domestic and  international  energy-related
investments.  Our gas exploration and production subsidiaries are engaged in gas
and oil  exploration  and  production,  and the  development  and acquisition of
domestic natural gas and oil properties.  These  investments  consist of our 67%
equity interest in Houston Exploration,  as well as our wholly-owned subsidiary,
KeySpan Exploration and Production, LLC.

This segment also consists of KeySpan  Canada;  our 20% interest in the Iroquois
Gas  Transmission  System LP  ("Iroquois");  and our 50% interest in the Premier
Transmission Pipeline and 24.5% interest in Phoenix Natural Gas.

Selected  financial data and operating  statistics for our gas  exploration  and
production  activities  are set forth in the  following  table  for the  periods
indicated.
<TABLE>
<CAPTION>
                                                                                    (In Thousands of Dollars)
-------------------------------------------------------------------------------------------------------------
                                                    Three Months Ended              Three Months Ended
                                                      March 31, 2002                  March 31, 2001
---------------------------------------------  ----------------------------  --------------------------------
<S>                                                                <C>                              <C>
Revenues                                       $                     74,714  $                        132,011
Depletion and amortization expense                                   41,446                            33,633
Other operating expenses                                             13,443                            19,162
---------------------------------------------  ----------------------------  --------------------------------
Operating Income                                                     19,825                            79,216
Other Income and (Deductions)*                                       (4,153)                          (13,700)
---------------------------------------------  ----------------------------  --------------------------------
Earnings Before Interest and Taxes*            $                     15,672  $                         65,516
---------------------------------------------  ----------------------------  --------------------------------
Natural gas and oil production (Mmcf)                                25,670                            23,777
Natural gas price (per Mcf) realized           $                       2.89  $                           5.53
Natural gas price  (per Mcf) unhedged          $                       2.20  $                           6.85
Proved reserves at year-end (BCFe)                                      647                               593
---------------------------------------------  ----------------------------  --------------------------------
</TABLE>
          *Operating  income above  represents  100% of our gas  exploration and
          production  subsidiaries' results for the periods indicated.  Earnings
          before interest and taxes,  however,  is adjusted to reflect  minority
          interest.  Gas reserves and  production  are stated in BCFe and Mmcfe,
          which includes equivalent oil reserves.





                                       32

<PAGE>



Earnings Before Interest and Taxes

The decrease in EBIT of $49.8 million for the three months ended March 31, 2002,
compared to the corresponding  period last year, reflects a significant decrease
in  revenues  and,  to a smaller  degree,  an  increase  in  operating  expenses
associated  with higher  production  volumes.  Revenues for the first quarter of
2002,  compared to the first  quarter of 2001,  were  adversely  impacted by the
significant decline in comparative average realized gas prices (average wellhead
price  received for  production  including  hedging  gains and losses).  Average
realized gas prices  decreased 48% for the first quarter of 2002,  compared with
the  corresponding  period last year. The adverse  effect on revenues  resulting
from the  decline in average  realized  gas  prices was  partially  offset by an
increase of 8% in production  volumes  during the first quarter of 2002 compared
to the same period last year.

The  average  realized  gas price in the first  quarter  of 2002 was 131% of the
average  unhedged  natural gas price  compared  to 81% for the first  quarter of
2001. Houston Exploration entered into derivative financial positions in 2001 to
hedge a substantial portion of its anticipated 2002 production. These derivative
instruments are designed to provide Houston  Exploration with a more predictable
cash flow,  as well as to reduce its exposure to adverse price  fluctuations  in
natural gas. The settlement of derivative  instruments  during the first quarter
of 2002  resulted in a benefit to revenues  of $17  million.  (See Note 6 to the
Consolidated  Financial  Statements,   "Derivative  Financial  Instruments"  for
further information.)

Natural gas prices continue to fluctuate and the risk that we may be required to
write-down our full cost pool increases when natural gas prices are depressed or
if we have significant downward revisions in our estimated proved reserves.

At December 31, 2001, our gas  exploration and production  subsidiaries  had 647
BCFe of net proved  reserves  of natural  gas, of which  approximately  72% were
classified as proved developed.

Selected  financial data and operating  statistics for our other  energy-related
investments are set forth in the following table for the periods indicated.
<TABLE>
<CAPTION>
                                                                                         (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------
                                                    Three Months Ended                  Three Months Ended
                                                      March 31, 2002                      March 31, 2001
-------------------------------------------  ---------------------------------  ----------------------------------
<S>                                                                   <C>                                 <C>
Revenues                                     $                          17,636  $                           26,969
Operation and maintenance expense                                       14,056                              17,265
Other operating expenses                                                 3,029                               3,763
-------------------------------------------  ---------------------------------  ----------------------------------
Operating Income                                                           551                               5,941
Other Income and (Deductions)                                            4,343                               3,312
-------------------------------------------  ---------------------------------  ----------------------------------
Earnings Before Interest and Taxes           $                           4,894  $                            9,253
-------------------------------------------  ---------------------------------  ----------------------------------
</TABLE>






                                       33

<PAGE>



The decrease in EBIT of $4.4 million, or 47%, is primarily due to the operations
of  KeySpan   Canada  and  losses   incurred  from  certain   technology-related
investments.  KeySpan Canada experienced lower per unit sales prices, as well as
lower  quantities  of sales of natural  gas liquids in the first  quarter  2002,
compared to 2001,  as a result of  generally  lower oil  prices.  The pricing of
natural gas liquids is directly related to oil prices.

We do not consider the businesses contained in the Energy Investments segment to
be part of our core asset group.  We have stated in the past that we may sell or
otherwise  dispose of all or a portion of our  non-core  assets.  Except for the
sale of Midland Enterprises as previously discussed, we can not predict when, or
if, any such sale or  disposition  may take  place,  or the effect that any such
sale or disposition may have on our financial position, results of operations or
cash flows.

Liquidity

The  increase  in cash  flow from  operations  for the  first  quarter  of 2002,
compared to the  corresponding  period last year, is primarily  attributable  to
lower  interest  and income tax  payments.  As  previously  mentioned,  interest
payments  decreased  this  quarter,  compared  to last  year,  due to the use of
derivative financial  instruments to hedge a portion of our exposure to interest
rate risk, as well as to lower interest rates on outstanding  commercial  paper.
Further,  state and local tax payments  were lower for the first quarter of 2002
compared  to the  same  period  last  year  since we are  currently  in a refund
position  with  regards  to such  payments.  Operating  cash  flow  from our gas
exploration  and production  activities,  however,  were  adversely  impacted by
significantly lower realized gas prices this quarter compared to the same period
last year.  (See Note 6 to the  Consolidated  Financial  Statements  "Derivative
Financial Instruments" for an explanation of the interest rate hedges.)

At March 31, 2002, we had cash and temporary cash investments of $190.7 million.
During  the three  months  ended  March 31,  2002,  we repaid  $9.9  million  of
commercial  paper and, at March 31, 2002,  $1.0 billion of commercial  paper was
outstanding at a weighted average annualized  interest rate of 2.07%. We had the
ability to borrow up to an  additional  $361 million at March 31, 2002 under the
terms of our credit facility. Under this facility, our consolidated indebtedness
may not exceed 68% of our consolidated  capitalization  at the end of any fiscal
quarter.  At March 31, 2002,  our  consolidated  indebtedness  was 64.75% of our
consolidated  capitalization.  Violation  of this  covenant  could result in the
termination of the credit  facility,  and the required  repayment of amounts due
thereunder.

Houston  Exploration has an unsecured line of credit with a commercial bank that
provides for a maximum  commitment of $250 million,  subject to a borrowing base
limitation  of $250  million.  During the three  months  ended  March 31,  2002,
Houston  Exploration  borrowed  $9.0 million under this facility and repaid $4.0
million;  at March 31, 2002,  $149 million  remained  outstanding  at a weighted
average  annualized   interest  rate  of  3.19%.  At  March  31,  2002,  Houston
Exploration had available  borrowings of $101 million.  Also, KeySpan Canada has
two revolving loan agreements with financial institutions in Canada.  Repayments
under these agreements totaled approximately



                                       34

<PAGE>



$20  million  for the three  months  ended March 31,  2002.  At March 31,  2002,
approximately  $155 million was  outstanding  at a weighted  average  annualized
interest rate of 2.99%.  KeySpan  Canada  currently has available  borrowings of
approximately $49 million.

KeySpan has fully and  unconditionally  guaranteed  $525 million of medium- term
notes issued by KEDLI under  KEDLI's  current shelf  registration,  as well as a
$125  million   revolving   credit   agreement   associated  with  its  Canadian
subsidiaries.  Both the medium- term notes and credit agreement are reflected on
the Consolidated Balance Sheet.

Further,  KeySpan has: (i) guaranteed  $167.9 million of surety bonds associated
with certain  construction  projects  currently  being performed by subsidiaries
within the Energy Services  segment;  (ii) guaranteed  certain supply contracts,
margin  accounts and purchase  orders for certain  subsidiaries in the aggregate
amount of $81.1  million;  and (iii)  guaranteed  the $425 million  Master Lease
Agreement Liability associated with the lease of the Ravenswood facility.  These
guarantees are not recorded on the Consolidated  Balance Sheet. The guarantee of
the medium- term notes expires in 2010,  while the other  guarantees  have terms
that do not extend  beyond  2005;  however  the Master  Lease  Agreement  can be
extended to 2009.  At this point in time,  we have no reason to believe that our
subsidiaries  will default on their  current  obligations.  However,  we can not
predict when or if any  defaults may take place or the impact such  defaults may
have on our  consolidated  results of  operations,  financial  condition or cash
flows.  See the  discussion of the Ravenswood  lease under the heading  "Capital
Expenditures and Financing" for a description of the leasing arrangement.

We  satisfy  our  seasonal  working  capital   requirements   primarily  through
internally generated funds and the issuance of commercial paper. In addition, we
anticipate  realizing  approximately  $165 million in proceeds  from the sale of
Midland in 2002. We believe that these  sources of funds are  sufficient to meet
our  seasonal  working  capital  needs.  In addition,  we use treasury  stock to
satisfy the requirements of our employee common stock, dividend reinvestment and
benefit plans.

Capital Expenditures and Financing

Construction Expenditures

The table below sets forth our construction expenditures by operating segment
for the periods indicated:

                                                   (In Thousands of Dollars)
----------------------------------------------------------------------------
                         Three Months Ended          Three Months Ended
                           March 31, 2002              March 31 ,2001
--------------------  -------------------------  ---------------------------
Gas Distribution      $                  84,366  $                    46,066
Electric Services                        88,544                       10,289
Energy Investments                       67,697                       65,768
Energy Services                           3,546                        3,786
--------------------  -------------------------  ---------------------------
                      $                 244,153  $                   125,909
--------------------  -------------------------  ---------------------------




                                       35

<PAGE>


Construction  expenditures related to the Gas Distribution segment are primarily
for the renewal and  replacement  of mains and services and for the expansion of
the gas distribution system. Construction expenditures for the Electric Services
segment reflect primarily costs to maintain our electric  generating  facilities
and  costs  to  expand  the  Ravenswood  facility  and  construct  new  electric
generating facilities as previously noted.  Construction expenditures related to
the Energy  Investments  segment primarily reflect costs associated with our gas
exploration  and  production   activities.   These  costs  are  related  to  the
development  of  properties  in  Southern  Louisiana  and in the Gulf of Mexico.
Expenditures  also include  development  costs associated with our joint venture
with Houston Exploration, as well as costs related to Canadian affiliates.

The amount of future  construction  expenditures is reviewed on an ongoing basis
and can be affected by timing, scope and changes in investment opportunities.

Financing

At December 31, 2001, we had an existing $1 billion shelf registration statement
on file with the Securities and Exchange Commission  ("SEC"),  with $500 million
available for issuance.  In February 2002, we updated our shelf registration for
the issuance of an additional $1.2 billion of securities,  thereby giving us the
ability  to issue  up to $1.7  billion  of  debt,  equity  or  various  forms of
preferred stock.  Currently,  we have the authority under Public Utility Holding
Company Act ("PUHCA") to issue up to $1.0 billion of this amount.  We have filed
an application with the SEC for additional authorization.

In order to take advantage of opportunities  currently available,  we anticipate
issuing at least $400 million of MED's Equity Units in May 2002  consisting of a
purchase  contract  for our  common  stock and a  six-year  note.  The  purchase
contract  commits us three years from the date of issue of the MEDS equity units
to issue,  and  investors  to  purchase,  a number of shares of our common stock
based on a formula  tied to the value of our common  stock at that  time.  These
instruments  will be  recorded as  long-term  debt on our  Consolidated  Balance
Sheet,  but rating agencies will consider a portion of the instruments as equity
for  purposes  of  calculating   debt-to-equity  ratios.  We  expect  to  reduce
outstanding commercial paper with the proceeds from this issuance. We anticipate
that  these  securities  will  not be  considered  convertible  instruments  for
purposes of applying FAS 128 "Earnings Per Share" calculations,  unless or until
such  time  as the  market  value  of  our  common  stock  reaches  a  threshold
appreciation price which will be higher than our current per share market value.
Interest payments will, however, reduce net income and earnings per share.

The Emerging  Issues Task Force of the Financial  Accounting  Standards Board is
considering proposals related to accounting for certain securities and financial
instruments,  including  securities  such  as  the  Equity  Units.  The  current
proposals being considered  include  rulemaking that, if adopted,  would endorse
the method of accounting discussed above.  Alternatively,  other proposals being
considered  could result in the common shares issuable  pursuant to the purchase
contract to be deemed  outstanding  and included in the  calculation  of diluted
earnings  per share,  and could  result in  periodic  "marking to market" of the
purchase  contracts,  causing  periodic  charges or  credits to income.  If this
latter approach were adopted,  our diluted earnings per share could increase and
decrease  from  quarter to quarter to reflect the lesser and  greater  number of
shares issuable upon satisfaction of the purchase contract.

We  currently  anticipate  that the SEC will  issue  an  order  relating  to our
application for additional  authorization to issue securities under PUHCA by the
latter  part of this year.  Until that time,  we will  continue  to finance  the
construction of our two new electric  peaking-power plants and the Islander East
Pipeline  through the  issuance  of  commercial  paper.  At the time of such SEC
approval,  we  intend  to issue  approximately  $150 to $200  million  of either
taxable or tax-exempt debt securities, the proceeds of which, it is anticipated,
will  be  used  to  re-pay  outstanding  commercial  paper.  We may  also  issue
additional long-term debt towards the latter part of 2002 to replace outstanding
commercial paper, if market conditions are favorable.



                                       36

<PAGE>





We will continue to evaluate our capital  structure  and financing  strategy for
2002 and  beyond.  We  believe  that  our  current  sources  of  funding  (i.e.,
internally  generated  funds,  the issuance of  additional  securities  as noted
above,  and the  availability  of  commercial  paper),  together  with  the cash
proceeds  from the  sale of  Midland,  are  sufficient  to meet our  anticipated
working capital needs for the foreseeable future.

As noted,  as part of our strategy to maintain an optimal level of floating rate
debt, we have several interest rate swap agreements on a portion of our existing
fixed rate  medium-term and long-term debt that  effectively  change the debt to
floating rate debt. These swap agreements  qualify for hedge accounting and were
completed with several major  financial  institutions  in order to reduce credit
risk. (See Note 6 to the Consolidated Financial Statements "Derivative Financial
Instruments" for additional information on these swap agreements.)

We also have an  arrangement  with a special  purpose  financing  entity through
which we lease a portion of the Ravenswood facility.  We acquired the Ravenswood
facility  from  Consolidated  Edison  on June 18,  1999 for  approximately  $597
million.  In order to reduce our initial  cash  requirements,  we entered into a
lease  agreement  with a special  purpose,  unaffiliated  financing  entity that
acquired a portion of the facility directly from Consolidated  Edison and leased
it to our subsidiary. We have guaranteed all payment and performance obligations
of our  subsidiary  under the lease.  The lease  represents  approximately  $425
million of the  acquisition  cost of the  facility,  which is the amount of debt
that would have been recorded on our Consolidated  Balance Sheet had the special
purpose  financing entity not been utilized and conventional debt financing been
employed.  Further, we would have recorded an asset in the same amount.  Monthly
lease payments  represent  interest  only.  The lease  qualifies as an operating
lease for financial  reporting  purposes  while  preserving our ownership of the
facility for federal and state income tax purposes.

The initial term of the lease expires on June 20, 2004 and may be extended until
June 20, 2009. In June 2004 , we have the right to either  purchase the facility
or terminate the lease and dispose of the facility for an amount generally equal
to the original  acquisition  cost, $425 million,  plus the present value of the
lease  payments  that would have  otherwise  been paid through June 20, 2009. In
June 2009, when the lease terminates,  we may purchase the facility in an amount
generally  equal to the original  acquisition  cost or surrender the facility to
the lessor.  At this time,  we believe  that the fair market value of the leased
assets is well in excess of the original acquisition cost.

The Financial  Accounting  Standards Board (the "Board") is currently  reviewing
issues related to special purpose entities.  It is anticipated that in mid 2002,
the Board will issue for public comment  guidance  regarding the accounting for,
and  disclosure  of special  purpose  entities.  It is  expected  that the final
guidance will be issued in the summer of 2002, and be effective January 1, 2003.
It is possible  that we may be  required  to  classify  the lease under which we
operate the Ravenswood facility as $425 million of indebtedness.



                                       37

<PAGE>



This  classification  would increase the amount of our indebtedness for purposes
of calculating our financial  covenants under our credit  agreement  expiring on
September 19, 2002 and,  accordingly,  if these covenants were then  applicable,
would reduce our available borrowing capacity.  We anticipate  negotiating a new
credit  agreement prior to the expiration of the existing credit  agreement.  At
this time,  however,  we are unable to determine what the  requirements  will be
under the final guidance,  if and when an accounting Standard is issued, as well
as the actual impact on our results of operations and financial position.

The ratings on our  long-term  debt have  remained  unchanged  from December 31,
2001.  Moody's Investor Services rated: (i) KeySpan's  long-term debt at A3; and
(ii) KEDNY's, KEDLI's, Boston Gas Company's and Colonial Gas Company's long-term
debt at A2.  Standard and Poor's rating agency rated:  (i) the long-term debt of
KeySpan,  KeySpan Generation,  Boston Gas Company and Colonial Gas Company at A;
and (ii) KEDNY's and KEDLI's long-term debt at A+.

Our  contractual  cash  obligations  and  associated  maturities  have  remained
basically unchanged from December 31, 2001.

The table below reflects maturity schedules for our cash contractual obligations
at March 31, 2002:
<TABLE>
<CAPTION>
                                                                                               (In Thousands of Dollars)
------------------------------------------------------------------------------------------------------------------------

Contractual Obligations
                                         Total             1-3 Years             4-5 Years            After 5 Years
----------------------------------  ----------------  -------------------  --------------------- -----------------------
<S>                                      <C>                    <C>                   <C>                     <C>
Long-Term Debt                      $      4,796,584  $            11,149  $           1,227,333 $             3,558,102
Capital Lease Obligations                     15,007                2,851                  2,176                   9,980
Operating Leases                             633,313              261,953                165,441                 205,919
----------------------------------  ----------------  -------------------  --------------------- -----------------------
Total Contractual
Cash Obligations                    $      5,441,514  $           275,953  $           1,394,950 $             3,770,611
----------------------------------  ----------------  -------------------  --------------------- -----------------------
Commercial Paper                    $      1,038,503            Revolving
----------------------------------  ----------------  -------------------  --------------------- -----------------------
</TABLE>

Discussions of Critical Accounting Policies and Assumptions

In preparing our financial  statements,  the  application of certain  accounting
policies  requires  difficult,   subjective  and/or  complex   judgements.   The
circumstances  that make these judgements  difficult,  subjective and/or complex
have to do with the need to make estimates  about the impact of matters that are
inherently  uncertain.  Actual effects on our financial  position and results of
operations may vary  significantly  from expected  results if the judgements and
assumptions  underlying  our  estimates  prove to be  inaccurate.  The  critical
accounting policies requiring such subjectivity are discussed below.





                                       38

<PAGE>



Percentage of Completion Accounting

Significant  reliance is placed upon  estimates of future job costs in computing
revenue and subsequent  net income under the percentage of completion  method of
revenue  recognition  for the designing,  building and  installation of heating,
ventilation and air-conditioning  systems by subsidiaries in our Energy Services
segment.  This  accounting  method measures the percentage of costs incurred and
accrued to date for each contract to the estimated total costs for each contract
at completion.  These estimates are based upon available information at the time
of review,  and changes in  estimates  resulting in  additional  future costs to
complete  projects can result in reduced margins or loss  contracts.  Provisions
for estimated losses on uncompleted contracts are made in the period such losses
are  determined.  Changes  in job  performance,  job  conditions  and  estimated
profitability are recognized in the period the revisions are determined.

Valuation of Goodwill

On January 1, 2002, we adopted SFAS 141, "Business  Combinations",  and SFAS 142
"Goodwill  and  Other  Intangible  Assets".   The  key  concepts  from  the  two
interrelated  Statements  include  mandatory  use of the  purchase  method  when
accounting for business combinations, discontinuance of goodwill amortization, a
revised  framework for testing goodwill  impairment at a "reporting unit" level,
and new criteria for the  identification  and  potential  amortization  of other
intangible assets.

Other changes to existing  accounting  standards  involve a requirement  to test
goodwill for impairment at least annually.  The initial impairment test is to be
performed  within six months of adopting SFAS 142 with any resulting  impairment
reflected as either a change in accounting principle,  or a charge to operations
in the financial statements, as appropriate.

We  record  goodwill  on  purchase  transactions,  representing  the  excess  of
acquisition  cost over the fair value of net  assets  acquired.  In testing  for
goodwill  impairment  under  SFAS  142,  significant  reliance  is  placed  upon
estimated  future cash flows.  Cash flow estimates are determined based upon our
projected market  conditions and demand for our products and services.  A change
in the fair value of our  investments  could cause a  significant  change in the
carrying value of goodwill.

We have  completed  our analysis for our Gas  Distribution  and Energy  Services
reporting  units,  determining  that no  impairment  exists.  The results of our
analysis for our Energy Investments reporting unit is not complete at this time,
and we are unable to determine the impact, if any, this analysis may have on our
results of operations or financial condition.

Valuation of Derivative Instruments

We employ derivative instruments to hedge a portion of our exposure to commodity
price risk and  interest  rate risk,  as well as to fix the  selling  price on a
portion of our electric energy sales from the Ravenswood  facility.  A number of
our derivative  instruments  are exchange  traded and,  accordingly,  fair value
measurements are generally based on standard New York Mercantile Exchange



                                       39

<PAGE>



("NYMEX") quotes. However, the oil derivative instruments we employ to hedge the
purchase price on a portion of the oil used to fuel the Ravenswood  facility are
not exchange traded. We use industry  published oil indices for No. 6 grade fuel
oil to value  these  oil swap  contracts.  We have  also  engaged  in the use of
derivative  swap  instruments  to fix the  selling  price  on a  portion  of our
electric  energy sales from the Ravenswood  facility.  Further,  we have tolling
arrangements  under which we have effectively  "locked-in" a profit on a portion
of electric sales. In addition, our Canadian subsidiary uses swap instruments to
lock-in the purchase price on the purchase of electricity  needed to operate its
gas processing plants.  These  arrangements are also non-exchange  traded and we
use  NYISO-location  zone and local published indices to value these outstanding
derivatives.  For collar  transactions  relating to natural gas sales associated
with our gas  exploration  and  production  subsidiaries,  we use standard NYMEX
quotes,  as well as Black-  Scholes  valuations  to calculate  the fair value of
these instruments.  Finally, we also have interest rate swap agreements in which
approximately $1.4 billion of fixed rate debt have been effectively converted to
floating rate debt. The fair values of these derivative instruments are provided
to us by third party  appraisers  and  represent  the present value of estimated
future  cash-flows  based on a forward  interest  rate curve for the life of the
derivative  instrument.  All fair value  measurements,  whether calculated using
standard NYMEX quotes or other valuation techniques,  are subjective and subject
to fluctuations in commodity prices,  interest rates and overall economic market
conditions and, as a result,  our fair value measurements may not be precise and
can  fluctuate  significantly  from  period  to  period.  (See  Note  6  to  the
Consolidated  Financial  Statements  "Derivative  Financial  Instruments"  for a
further description of the instruments.)

Regulation and Rate Matters

Gas Matters

In March 2002, we notified the  Massachusetts  Department of  Telecommunications
and Energy  ("DTE")  that we may file a rate  proceeding  for Boston Gas Company
during the second quarter of 2002. The Performance Based Ratemaking Plan ("PBR")
in effect for  Boston Gas will  expire on October  31,  2002.  We are  currently
evaluating  various  options  available to us,  including but not limited to, an
extension of the existing plan or proposing a new rate plan.

For an additional  discussion of our current gas  distribution  rate agreements,
see our Annual Report on Form 10-K for the year ended December 31, 2001, Item 7.

Securities and Exchange Commission Regulation

KeySpan and its  subsidiaries  are subject to the  jurisdiction of the SEC under
PUHCA. The rules and regulations under PUHCA generally limit the operations of a
registered  holding company to a single integrated  public utility system,  plus
additional  energy-related  businesses.  In addition,  the principal  regulatory
provisions of PUHCA: (i) regulate certain transactions among affiliates within a
holding company system  including the payment of dividends by such  subsidiaries
to a holding company;  (ii) govern the issuance,  acquisition and disposition of
securities and assets by a holding company and its subsidiaries; (iii) limit the



                                       40

<PAGE>



entry by registered  holding  companies and their  subsidiaries  into businesses
other than electric and/or gas utility businesses; and (iv) require SEC approval
for certain utility mergers and acquisitions.

The SEC's order issued on November 8, 2000, in connection  with our  acquisition
of Eastern and ENI,  provides us with,  among other things,  authorization to do
the  following  through  December  31, 2003 (the  "Authorization  Period"):  (a)
subject to an aggregate amount of $5.1 billion,  (i) maintain existing financing
agreements,  (ii) issue and sell up to $1.5 billion of additional  securities in
compliance with certain defined  parameters,  (iii) issue additional  guarantees
and other forms of credit support in an aggregate  amount of $2.0 billion at any
time  in  addition  to  any  such  securities,  guarantees  and  credit  support
outstanding or existing as of November 8, 2000, and (iv) amend, review,  extend,
supplement or replace any of the foregoing;  (b) issue shares of common stock or
reissue shares of common stock held in treasury under dividend  reinvestment and
stock-based  management  incentive  and  employee  benefit  plans;  (c) maintain
existing  and  enter  into  additional  hedging  transactions  with  respect  to
outstanding  indebtedness  in order to manage and minimize  interest rate costs;
(d) invest up to 250% of our consolidated  retained earnings in exempt wholesale
generators and foreign utility  companies;  and (e) pay dividends out of capital
and  unearned  surplus  as well  as  paid-in-capital  with  respect  to  certain
subsidiaries, subject to certain limitations.

In addition,  we have committed that during the Authorization Period, our common
equity will be at least 30% of our consolidated  capitalization  and each of our
utility  subsidiaries'  common  equity  will be at  least  30% of such  entity's
capitalization.  At March 31, 2002 our consolidated common equity was 35% of our
consolidated capitalization, including commercial paper.

Environmental Matters

KeySpan  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.  We estimate that the remaining cost of our manufactured
gas plant ("MGP")  related  environmental  cleanup  activities,  including costs
associated with the Ravenswood  facility will be approximately  $212 million and
we have recorded a related  liability for such amount.  We have also recorded an
additional  $42.1 million  liability  representing  the estimated  environmental
cleanup costs related to a former coal tar processing  facility.  Further, as of
March 31, 2002,  we have expended a total of $52.2  million.  (See Note 4 to the
Consolidated Financial Statements, "Environmental Matters.")

Cautionary Statement Regarding Forward-Looking Statements

Certain  statements  contained in this Quarterly  Report on Form 10-Q concerning
expectations,  beliefs, plans, objectives,  goals, strategies,  future events or
performance and underlying  assumptions and other statements that 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  under the captions  "Item 2.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations" and "Item 3.  Quantitative and Qualitative  Disclosures About Market
Risk" relating to our future outlook, anticipated capital expenditures, future



                                       41

<PAGE>



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:

     -    volatility of energy prices in a deregulated  market  environment,  as
          well as in natural gas and fuel used to generate electricity;
     -    fluctuations in weather and in gas and electric prices;
     -    general  economic  conditions,  especially  in  the  Northeast  United
          States;
     -    our ability to successfully reduce our cost structure;
     -    implementation of new accounting standards;
     -    inflationary trends and interest rates;
     -    the   ability   of  KeySpan  to   identify   and  make   complementary
          acquisitions,   as  well  as  the   successful   integration  of  such
          acquisitions;
     -    available sources and cost of fuel;
     -    federal and state regulatory  initiatives  that increase  competition,
          threaten cost and investment recovery,  and impact the rate structures
          of our regulated businesses;
     -    the  exercise  by  LIPA  of its  right  to  acquire  our  Long  Island
          generation  operations  and the  possible  deployment  of the proceeds
          received in connection therewith;
     -    potential  write-down of our investment in natural gas properties when
          natural gas prices are  depressed or if we have  significant  downward
          revisions in our estimated proved gas reserves;
     -    competition  in  general  facing  our   unregulated   Energy  Services
          businesses,  including  but not  limited  to  competition  from  other
          mechanical,  heating,  ventilation and air conditioning  ("HVAC"), and
          engineering  companies  and other  utilities  which are  permitted  to
          engage in such activities;
     -    the degree to which we develop unregulated business ventures,  as well
          as federal  and state  regulatory  policies  affecting  our ability to
          retain and operate such business ventures;
     -    other  risks  detailed  from time to time in other  reports  and other
          documents filed by KeySpan with the Securities and Exchange Commission
          ("SEC").

For any of these  statements,  KeySpan  claims the protection of the safe harbor
for forward-looking  information  contained in the Private Securities Litigation
Reform Act of 1995,  as  amended.  For  additional  discussion  on these  risks,
uncertainties and assumptions, see "Item 2. Management's Discussion and Analysis
of Financial  Condition and Results of Operations" and "Item 3. Quantitative and
Qualitative Disclosures About Market Risk" contained herein.










                                       42

<PAGE>



Item 3. Quantitative and Qualitative Disclosures About Market Risk

We  are  subject  to  various  risks  and  uncertainties   associated  with  our
operations.  The most  significant  of which  involves the  evolution of the gas
distribution and electric  industries towards a more competitive and deregulated
environment.  In addition, we are exposed to commodity price risk, interest rate
risk and, to a much less degree, foreign currency translation risk.

Our exposure to the above  mentioned  market  risks has  remained  substantially
unchanged from December 31, 2001. See our Annual Report on Form 10K for the year
ended December 31, 2001 Item 7A for a discussion of the various risks associated
with our operations.  Below are our derivative instruments  outstanding at March
31, 2002.

Commodity  Contracts and Electric Derivative  Instruments:  From time to time we
utilize derivative financial  instruments,  such as futures,  options and swaps,
for the  purpose  of hedging  exposure  to  commodity  price risk and to fix the
selling  price on a portion  of our peak  electric  energy  sales.  Our  hedging
objectives and strategies have remained substantially unchanged from year-end.

Houston  Exploration  utilizes  collars,  as well as, over- the- counter ("OTC")
swaps to hedge future sales prices on a portion of its natural gas production to
achieve a more  predictable  cash flow and reduce its exposure to adverse  price
fluctuations of natural gas. As of March 31 2002, Houston Exploration has hedged
approximately  65%  of its  estimated  2002  yearly  production  and  20% of its
estimated 2003 yearly  production.  Houston  Exploration  uses standard New York
Mercantile  Exchange  ("NYMEX")  futures prices and published  volatility in its
Black-Scholes   calculation  to  value  its  outstanding  derivatives.   Houston
Exploration  recorded a benefit  of $17.0  million in  Revenues  for  derivative
instruments that settled during the first quarter of 2002.

We also  employ  standard  NYMEX  gas  futures  contracts,  as well as oil  swap
derivative contracts to fix the purchase price for a portion of the fuel used at
the Ravenswood  facility.  We use standard NYMEX futures prices to value the gas
futures contracts and industry published oil indices for number 6 grade fuel oil
to value the oil swap contracts. These contracts extend through 2003. During the
first quarter of 2002,  we realized a loss of $3.5 million on the  settlement of
derivative  instruments  and  recorded  this  loss as an  increase  to Fuel  and
Purchased Power expense.

Our gas and  electric  marketing  subsidiary,  as well as our gas  distribution,
operations  have fixed  rate gas sales  contracts  and  utilize  standard  NYMEX
futures  contracts to lock-in a price for future natural gas  purchases.  We use
standard NYMEX futures  prices to value the  outstanding  contracts.  During the
first  quarter of 2002, we realized a loss of $7.8 million on  derivatives  that
settled  during this period and  recorded  this loss as an increase to Purchased
Gas for Resale.

We have  also  engaged  in the use of  derivative  swap  instruments  to fix the
selling price on a portion of our estimated 2002 summer and winter peak electric
energy  sales  from the  Ravenswood  facility  to  protect  against a  potential
degradation in market prices. We have financially  settled tolling  arrangements
under which we have effectively "locked-in" a profit on a portion of 2002 sales.
We currently have hedge  positions for  approximately  50% of the estimated 2002
summer peak electric  profits  associated with the Ravenswood  facility.  We use
NYISO-location  zone published  indices and standard NYMEX prices to value these
outstanding derivatives. During the first quarter of 2002, we realized a gain of
$5.6 million on the settlement of certain  derivative  instruments  and recorded
this gain in Revenues.



                                       43

<PAGE>



Further,  KeySpan Canada employs electric swap contracts to lock-in the purchase
price on the  purchase  of  electricity  needed to  operate  its gas  processing
plants.  These  contracts  are not  exchange  traded and we use local  published
indices to value these outstanding  options.  We realized a loss of $0.4 million
on the settlement of certain swap derivative instruments.

All of our commodity  contracts  and electric  derivative  instruments  detailed
above are cash-flow hedges and qualify for hedge accounting. Periodic changes in
the market value of derivatives  which meet the definition of a cash-flow  hedge
are  recorded  as  comprehensive  income,  subject  to  effectiveness,  and then
included in net income to match the underlying hedged transactions.

The following  tables set forth selected  financial data  associated  with these
derivative financial  instruments noted above that were outstanding at March 31,
2002.

<TABLE>
<CAPTION>
                              Year of    Volumes                                      Fixed           Current        Fair Value
       Type of Contract      Maturity      mmcf      Floor $      Ceiling $         Price $          Price $          ($000)
--------------------------  ----------  ---------- -----------  --------------  ---------------  ---------------  ---------------
              Gas
<S>                          <C>         <C>         <C>           <C>           <C>              <C>                 <C>
Collars                        2002       44,000      3.56          5.14               -           3.28 - 3.87        13,869
                               2003        7,300      3.30          4.07               -           3.49 - 3.97        (1,023)
Swaps -Short Natural Gas       2002        8,250       -             -                3.01         3.28 - 3.87        (3,674)
                               2003       14,600       -             -                3.19         3.49 - 3.97        (7,043)
Swaps - Long Natural Gas       2002        6,920       -             -            2.24 - 3.72      3.28 - 3.87         2,460
                               2003        2,070       -             -            3.08 - 3.77      3.49 - 3.97           613
--------------------------  ----------  ---------- -----------  --------------  ---------------  ---------------  ---------------
                                          83,140                                                                       5,202
--------------------------  ----------  ---------- -----------  --------------  ---------------  ---------------  ---------------
</TABLE>

<TABLE>
<CAPTION>

                                  Year of           Volumes                                                          Fair Value
       Type of Contract          Maturity           Barrels         Fixed Price $          Current Price $             ($000)
---------------------------  ----------------  ----------------- --------------------  ----------------------  ---------------------
             Oil
<S>                               <C>               <C>            <C>                    <C>                            <C>
Swaps - Long Fuel Oil              2002              191,438        19.85 - 26.40          22.70 - 24.55                  420
                                   2003              345,389        20.02 - 26.72          21.84 - 23.06                  132
---------------------------  ----------------  ----------------- --------------------  ----------------------  ---------------------
                                                     536,827                                                              552
---------------------------  ----------------  ----------------- --------------------  ----------------------  ---------------------
</TABLE>

<TABLE>
<CAPTION>

                            Year of                                                  Current          Estimated        Fair Value
    Type of Contract        Maturity         MWh          Fixed Profit /Price $      Price $          Profit $           ($000)
-----------------------  -------------- --------------  ------------------------- --------------  -----------------  ---------------
       Electricity
<S>                          <C>           <C>              <C>                      <C>            <C>                  <C>
Tolling Arrangements          2002          624,000           4.75 - 47.50              -            1.00 - 51.62            825
Swaps                         2002           58,752          54.84 - 57.03            31.39               -               (1,380)
                              2003           70,080          54.84 - 57.03            29.69               -               (1,765)
-----------------------  -------------- --------------  ------------------------- --------------  -----------------  ---------------
                                            752,832                                                                       (2,320)
-----------------------  -------------- --------------  ------------------------- --------------  -----------------  ---------------
</TABLE>





                                       44

<PAGE>



Non-firm Gas Sales Derivative Instruments: Utility tariffs applicable to certain
large-volume  customers  permit  gas to be sold at  prices  established  monthly
within a specified range expressed as a percentage of prevailing  alternate fuel
oil prices.  We use gas swap contracts,  with  offsetting  positions in oil swap
contracts of equivalent  energy value, with third parties to hedge the cash-flow
variability  of specified  portions of purchases and sales.  All positions  that
were  outstanding at December 31, 2001 settled during the first quarter of 2002.
The final settlement of these positions during the first quarter of 2002 did not
have a material  effect on our  results of  operations.  We intend to enter into
additional  derivative   instruments  of  this  nature  during  2002  if  market
conditions so warrant.

Firm  Gas  Sales  Derivative  Instruments  -  Regulated  Utilities:  We  utilize
derivative  financial  instruments to "lock-in" the purchase price for a portion
of our future natural gas purchases. Our strategy is to minimize fluctuations in
firm gas sales prices to our regulated firm gas sales  customers in our New York
service  territory.  All positions  that were  outstanding  at December 31, 2001
settled  during the first quarter of 2002.  Since these  derivative  instruments
were not designed as hedges and were employed to support our gas sales prices to
regulated  firm  gas  sales  customers,  the  accounting  for  these  derivative
instruments  was subject to SFAS 71.  Therefore,  changes in the market value of
these derivatives were recorded as a Regulatory Asset or Regulatory Liability on
the  Consolidated  Balance  Sheet.  Gains or losses on the  settlement  of these
contracts  were  initially  deferred and then refunded to or collected  from our
firm gas sales customers during the appropriate winter heating season consistent
with  regulatory  requirements.  We intend to enter into  additional  derivative
instruments of this nature during 2002 if market conditions so warrant.

Interest  Rate  Swaps:  We also  have  interest  rate swap  agreements  in which
approximately  $1.4 billion of fixed rate debt have  effectively been changed to
floating rate debt.  For the term of the  agreements,  we will receive the fixed
coupon rate  associated  with these bonds and pay the counter parties a variable
interest rate that is reset on a weekly and/or  quarterly  basis as appropriate.
These bonds are fair- value  hedges and qualify for hedge  accounting.  The swap
agreements  associated  with the Medium Term Notes,  as  displayed  in the table
below,  qualify for "short-cut"  hedge accounting  treatment under SFAS 133. The
fair-value hedge associated with a Gas Facilities  Revenue Bond does not qualify
for  "short-cut"  hedge  accounting  treatment.  Through the  utilization of our
interest rate swap  agreements,  we reduced  recorded  interest expense by $11.6
million during the first quarter of 2002. Further, we recorded,  a first quarter
benefit of $1.3  million as a result of the fair  value  measurements.  The fair
values  of these  derivative  instruments  are  provided  to us by  third  party
appraisers  and  represent  the present  value of future  cash-flows  based on a
forward interest rate curve for the life of the derivative instrument.  The fair
values at March 31, 2002, as indicated in the table below, reflect an assumption
of higher interest rates in the future.














                                       45

<PAGE>



The table below summarizes selected financial data associated with these
derivative financial instruments that were outstanding at March 31, 2002.

<TABLE>
<CAPTION>
                                                                                                   Average
                                   Maturity Date of      Notional Amount      Fixed Rate        Variable Rate          Fair Value
                Bond                     Swaps               ($000)            Received              Paid                ($000)
--------------------------------  -------------------  ------------------- -----------------  ------------------  ------------------
<S>                                      <C>             <C>                   <C>                 <C>                  <C>
Gas Facilities Revenue Bonds              2024               90,000             5.540%              1.270%                    10
Medium Term Notes                         2010              500,000             7.625%              4.320%                (6,327)
Medium Term Notes                         2006              500,000             6.150%              3.680%               (13,985)
Medium Term Notes                         2023              270,000             8.200%              3.390%               (16,377)
--------------------------------  -------------------  ------------------- -----------------  ------------------  ------------------
                                                          1,360,000                                                      (36,679)
--------------------------------  -------------------  ------------------- -----------------  ------------------  ------------------
</TABLE>


Additionally,  we have a swap agreement that effectively  exchanges $270 million
of outstanding  commercial  paper with fixed-rate debt. This swap is a cash-flow
hedge and qualifies for hedge accounting under SFAS 133. We recorded  additional
interest  expense  associated  with this swap of $0.7  million  during the first
quarter of 2002 and there was no impact on  earnings  from  ineffectiveness.  At
March 31, 2002,  the fair value of this swap,  which was  reflected as an asset,
was $0.4 million.

Weather  Derivative:  The utility  tariffs  associated  with our New England gas
distribution  operations  do not contain a weather  normalization  clause.  As a
result,  fluctuations  from normal  weather may have a  significant  positive or
negative  effect on the results of these  operations.  To mitigate the effect of
weather fluctuations on our financial position and cash flows, we entered into a
weather swap in October 2001. This derivative  hedged  approximately  15% of our
weather  related  risk for the  November  2001 - March 2002  winter  season.  In
January 2002, we settled all our remaining  weather  derivatives  and recorded a
gain of $0.3  million  in Other  Income.  We  intend  to enter  into  additional
derivative  instruments  of this  nature  during  2002 if market  conditions  so
warrant.

PART II.  OTHER INFORMATION
---------------------------

Item 1. Legal Proceedings

KeySpan has been  cooperating  in  preliminary  inquiries  regarding  trading in
KeySpan  Corporation  stock by individual  officers of KeySpan prior to the July
17, 2001  announcement  that  KeySpan was taking a special  charge in its Energy
Services  business and  otherwise  reducing its 2001  earnings  forecast.  These
inquiries are being conducted by the U.S.  Attorney's Office,  Southern District
of New York, and the SEC.

As part of its  continuing  inquiry,  on March 5, 2002,  the SEC issued a formal
order of investigation, pursuant to which it will review the trading activity of
certain  company  insiders  from  May 1,  2001  to the  present,  as well as the
Company's compliance with its reporting rules and regulations,  generally during
the period  following the acquisition of the Roy Kay companies  through the July
17th announcement.

Furthermore, KeySpan and certain of its officers and directors are defendants in
a number of class action lawsuits filed in the United States District Court for
the Eastern District of New York after the July 17th announcement.



                                       46

<PAGE>



These  lawsuits  allege,  among other things,  violations of Sections  10(b) and
20(a) of the Securities  Exchange Act of 1934, as amended  ("Exchange  Act"), in
connection with disclosures  relating to or following the acquisition of the Roy
Kay  companies by KeySpan  Services,  Inc., a KeySpan  subsidiary.  Finally,  in
October 2001, a shareholder's  derivative action was commenced in the same court
against certain officers and directors of KeySpan, alleging, among other things,
breaches of fiduciary duty,  violations of the New York Business Corporation Law
and  violations of Section  20(a) of the Exchange  Act. Each of the  proceedings
seeks monetary damages in an unspecified  amount. We are unable to determine the
outcome of these  proceedings and what effect, if any, such outcome will have on
our financial condition, results of operations or cash flows.

Item 6.  Exhibits and Reports on Form 8-K

(a)        Exhibits

3.1*       By-Laws

10.1*      Amendment dated as of March 29, 2002 to Generation Purchase Right
           Agreement by and between KeySpan Corporation, as Seller, and Long
           Island Lighting Company d/b/a LIPA, as Buyer, dated of June 26, 1997.

12.1*      Computation in support of ratio earnings to fixed charges.


b)         Reports on Form 8-K

In our Report on Form 8-K, dated January 24, 2002, we disclosed our consolidated
earnings for the fiscal year ended December 31, 2001.

In our Report on Form 8-K, dated February 26, 2002, we disclosed an adjustment
to our earnings for the fiscal year ended December 31, 2001.

In our Report on Form 8-K, dated March 12, 2002, we disclosed that we had issued
a press release announcing, among other things, that we reached an agreement in
principle with the Long Island LIPA to extend LIPA's option to acquire our Long
Island power plants.

In our Report on Form 8-K, dated April 5, 2002, we disclosed that on March 29,
2002, our Board of Directors, upon recommendation of the Audit Committee,
determined not to renew the engagement of Arthur Andersen LLP as independent
public accountants and appointed Deloitte & Touche as our independent public
accountants.

In our Report on Form 8-K dated April 25, 2002, we disclosed  that we had issued
a press  release  concerning,  among other  things,  our  earnings for the first
quarter ended March 31, 2002.

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




                                       47

<PAGE>


                      KEYSPAN CORPORATION AND SUBSIDIARIES
                                    SIGNATURE

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


                                             KEYSPAN CORPORATION
                                                 (Registrant)







Date: April 26, 2002                          /s/ Gerald Luterman
                                             ------------------------------
                                             Gerald Luterman
                                             Senior Vice President and
                                             Chief Financial Officer


Date: April 26, 2002                          /s/ Ronald S. Jendras
                                             --------------------------------
                                             Ronald S. Jendras
                                             Vice President, Controller
                                             and Chief Accounting Officer



                                       48