---

SECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549

FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES         EXCHANGE ACT OF 1934

# For the quarterly period ended September 30, 2000

OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES         
EXCHANGE ACT OF 1934

For the transition
period from __________ to __________

---

Indicate by check mark whether each 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 [   ]

The number of shares outstanding of each of the issuer's classes
of voting stock, as of October 31, 2000, were as
follows:

Registrant         
                 
              
        
Title       
        
           
                
        Shares Outstanding
Niagara Mohawk Holdings, Inc.        
            Common Stock, $0.01 par value
              160,239,818
Niagara Mohawk Power Corporation          
   Common Stock, $1.00 par value
             
187,364,863
               
                 
                 
              
(all held by Niagara Mohawk
                
               
                
                
Holdings, Inc.)

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NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
                               FORM 10-Q - For the Quarter Ended September 30, 2000

PART I.   FINANCIAL INFORMATION

Glossary of Terms

NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES

                                                 GLOSSARY OF TERMS

PART I

NIAGARA MOHAWK HOLDINGS, INC. AND
 SUBSIDIARY COMPANIESCONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

`Three Months Ended            Nine Months Ended
                                                        September 30,              September 30,
                                                     2000         1999           2000          1999
                                                 -----------   ----------    -----------   -----------
                                                                (in thousands of dollars)
Operating revenues:
  Electric                                       $1,004,847    $ 946,556     $2,827,261    $2,597,743
  Gas                                                90,953       83,009        507,130       465,220
  Other                                               3,804        4,662          5,292         4,719
                                                 -----------   ----------    -----------   -----------
                                                  1,099,604    1,034,227      3,339,683     3,067,682
                                                 -----------   ----------    -----------   -----------
Operating expenses:
  Electricity purchased                             482,441      319,417      1,265,078       714,496
  Fuel for electric generation                       19,103       53,079         48,077       157,183
  Gas purchased                                      45,650       48,803        282,630       220,587
  Other operation and maintenance expenses          189,229      236,337        636,598       674,615
  Amortization/accretion of MRA/IPP buyout costs     93,903       90,553        281,539       271,814
  Depreciation and amortization                      77,492       79,752        233,804       268,677
  Other taxes (Note 1)                               70,672      106,048        209,446       327,070
                                                 -----------   ----------    -----------   -----------
                                                    978,490      933,989      2,957,172     2,634,442
                                                 -----------   ----------    -----------   -----------
Operating income                                    121,114      100,238        382,511       433,240

Other income (deductions)                            (4,173)       7,527         (6,538)        4,113
                                                 -----------   ----------    -----------   -----------
Income before interest charges                      116,941      107,765        375,973       437,353

Interest charges                                    108,249      117,661        329,146       377,896
Preferred dividend requirement of subsidiary          7,871        8,991         23,679        27,039
                                                 -----------   ----------    -----------   -----------
Income (loss) before income taxes                       821      (18,887)        23,148        32,418

Income taxes (Note 1)                                (1,903)        (234)        24,759        25,536
                                                 -----------   ----------    -----------   -----------
Income (loss) before extraordinary item               2,724      (18,653)        (1,611)        6,882

Extraordinary item - Loss from the
 extinguishment of debt, net of
 income taxes (Note 5)                                    -      (13,054)          (909)       (23,804)
                                                 -----------   ----------    -----------   ------------

Net income (loss) (Note 1)                         $  2,724     $(31,707)      $ (2,520)     $ (16,922)
                                                 ===========   ==========    ===========   ============

Average number of shares of common stock
   outstanding (in thousands)                       161,001      187,365        169,782        187,365

Basic and diluted earnings (loss) per
   average share of common stock before
   extraordinary item                               $  0.02      $ (0.10)      $  (0.01)       $  0.04

Extraordinary item per average share of
   common stock                                           -        (0.07)             -          (0.13)
                                                 -----------   ----------    -----------   ------------
Basic and diluted earnings (loss) per average
   share of common stock                            $  0.02      $ (0.17)      $  (0.01)      $  (0.09)
                                                 ===========   ==========    ===========   ============`

The accompanying notes are an integral part of these
 financial statements.

NIAGARA MOHAWK HOLDINGS, INC. AND
 SUBSIDIARY COMPANIES
                                                    CONSOLIDATED BALANCE SHEETS

`September 30,
                                                          2000          December 31,
                                                      (Unaudited)           1999
                                                     -------------      ------------
                                                         (in thousands of dollars)
Utility plant:
 Electric plant                                      $ 7,168,568        $ 7,221,762
 Nuclear fuel                                            647,798            630,321
 Gas plant                                             1,297,007          1,263,168
 Common plant                                            375,349            364,718
 Construction work-in-progress                           295,347            312,322
                                                     ------------       ------------
   Total utility plant                                 9,784,069          9,792,291
 Less - Accumulated depreciation and amortization      4,031,200          3,904,049
                                                     ------------       ------------
   Net utility plant                                   5,752,869          5,888,242
                                                     ------------       ------------

Other property and investments                           576,363            484,735
                                                     ------------       ------------
Current assets:
 Cash, including temporary cash investments
   of $84,173 and $90,029, respectively                  113,679            116,164
 Account receivable (less allowance for doubtful
   accounts of $62,700 and $61,400, respectively)        470,332            373,510
 Materials and supplies, at average cost:
   Oil for production of electricity                       3,713              9,263
   Gas storage                                            69,188             39,166
   Other                                                  89,705             90,605
 Prepaid taxes                                            45,637             21,489
 Other                                                    48,420             24,042
                                                    -------------       ------------
                                                         840,674            674,239
                                                    -------------       ------------
Regulatory assets (Note 3):
 MRA regulatory asset                                  3,417,893          3,686,019
 Swap contracts regulatory asset                         647,544            505,723
 Regulatory tax asset                                    460,873            483,546
 IPP buyout costs                                        243,426            260,873
 Deferred environmental restoration costs (Note 2)       240,000            240,000
 Deferred loss on sale of assets                         175,309            135,229
 Postretirement benefits other than pensions              46,044             48,937
 Unamortized debt expense                                 41,077             44,903
 Other                                                   126,134            112,556
                                                    -------------       ------------
                                                       5,398,300          5,517,786
                                                    -------------       ------------
Other assets                                              82,929            105,433
                                                    -------------       ------------
                                                    $ 12,651,135        $12,670,435
                                                    =============       ============`

The accompanying notes are an integral part of these
 financial statements.

NIAGARA MOHAWK HOLDINGS, INC. AND
 SUBSIDIARY COMPANIESCONSOLIDATED BALANCE SHEETS

`September 30,
                                                                       2000          December 31,
                                                                    (Unaudited)          1999
                                                                  -------------     -------------
                                                                      (in thousands of dollars)
Capitalization (Note 1):
 Common stockholders' equity:
   Common stock - $0.01 par value; authorized 300,000,000 shares;
    issued 187,364,863 shares; outstanding 160,239,818 and
    177,364,863 shares, respectively                                 $   1,874       $    1,874
   Treasury stock, at cost, 27,125,045 and 10,000,000
    shares, respectively                                              (407,193)        (157,167)
   Capital stock premium and expense                                 2,547,554        2,546,630
   Accumulated other comprehensive income                              (29,385)         (26,200)
   Retained earnings                                                   608,432          610,952
                                                                  -------------     ------------
                                                                     2,721,282        2,976,089
 Preferred stock of subsidiary:
   Not subject to mandatory redemption                                 440,000          440,000
   Subject to mandatory redemption                                      53,750           61,370
 Long-term debt                                                      4,712,280        5,042,588
                                                                  -------------     ------------
        Total capitalization                                         7,927,312        8,520,047
                                                                  -------------     ------------
Current liabilities:
   Long-term debt due within one year                                  865,167          613,740
   Sinking fund requirements on redeemable preferred
       stock of subsidiary                                               7,620            7,620
   Accounts payable                                                    322,892          288,223
   Payable on outstanding bank checks                                   18,095           22,067
   Customers' deposits                                                  17,139           15,255
   Accrued taxes                                                        21,003            1,408
   Accrued interest                                                    132,504           67,593
   Accrued vacation pay                                                 34,811           35,334
   Other                                                                87,137           67,068
                                                                  -------------     ------------
                                                                     1,506,368        1,118,308
                                                                  -------------     ------------
Regulatory and other liabilities (Note 3):
   Accumulated deferred income taxes                                 1,560,412        1,568,957
   Liability for swap contracts                                        801,887          663,718
   Employee pension and other benefits                                 219,536          226,223
   Unbilled gas revenues                                                 7,852           14,552
   Other                                                               387,768          318,630
                                                                  -------------     ------------
                                                                     2,977,455        2,792,080
                                                                  -------------     ------------
Commitments and contingencies (Notes 2 and 3):
   Liability for environmental restoration                             240,000          240,000
                                                                  -------------     ------------
                                                                  $ 12,651,135      $12,670,435
                                                                  =============     ============`

The accompanying notes are an integral part of these financial
 statements.

NIAGARA MOHAWK HOLDINGS, INC.
 AND SUBSIDIARY COMPANIESCONSOLIDATED STATEMENTS OF CASH FLOWSIncrease (Decrease) in Cash
(UNAUDITED)

`Nine Months Ended September 30,
                                                                           2000          1999
                                                                       ----------   -------------
                                                                        (in thousands of dollars)
Cash flows from operating activities:
 Net loss                                                              $  (2,520)   $   (16,922)
 Adjustments to reconcile net loss to net cash
 provided by (used in) operating activities:
  Depreciation and amortization                                          233,804        268,677
  Amortization/accretion of MRA/IPP buyout costs                         281,539        271,814
  Amortization of nuclear fuel                                            21,619         21,022
  Extraordinary loss on extinguishment of debt, net of taxes                 887          9,625
  Provision for deferred income taxes                                     14,605        (10,460)
  Net accounts receivable (net of changes in accounts receivable sold)  (103,522)       (95,665)
  Materials and supplies                                                 (27,551)        17,762
  Accounts payable and accrued expenses                                   25,646         46,198
  Accrued interest and taxes                                              84,506        (20,684)
  Changes in MRA and IPP buyout costs regulatory assets                   24,538        (73,202)
  Deferral of MRA interest rate savings                                   16,240         22,941
  Refundable federal income taxes                                              -        130,411
  Changes in other assets and liabilities                                 (5,921)        15,794
                                                                       ----------   ------------
    Net cash provided by operating activities                            563,870        587,311
                                                                       ----------   ------------
Cash flows from investing activities:
  Construction additions                                                (142,197)      (176,183)
  Nuclear fuel                                                           (17,477)       (23,503)
                                                                       ----------   ------------
    Acquisition of utility plant                                        (159,674)      (199,686)
  Materials and supplies related to construction                            (512)         1,399
  Accounts payable and accrued expenses related to construction            6,412         11,549
  Proceeds from the sale of generation assets                             47,500        780,000
  Other investments                                                      (91,923)       (55,578)
  Other                                                                      375         (5,467)
                                                                       ----------   ------------
    Net cash provided by (used in) investing activities                 (197,822)       532,217
                                                                       ----------   ------------
Cash flows from financing activities:
  Reduction in long-term debt                                           (312,241)    (1,125,020)
  Proceeds from long-term debt                                           200,000              -
  Purchase of treasury stock                                             250,026)             -
  Funds held for the repurchase of common stock                                -         (9,394)
  Reduction in preferred stock of subsidiary                              (7,620)        (7,620)
  Other                                                                    1,354         (4,583)
                                                                       ----------   ------------
    Net cash used in financing activities                               (368,533)    (1,146,617)
                                                                       ----------   ------------
Net decrease in cash                                                      (2,485)       (27,089)
Cash at beginning of period                                              116,164        172,998
                                                                       ----------   ------------
Cash at end of period                                                  $ 113,679    $   145,909
                                                                       ==========   ============
Supplemental disclosures of cash flow information:
 Interest paid                                                         $ 235,188    $   387,029
 Income taxes paid (refunded)                                          $  10,669    $  (122,456)

Supplemental schedule of non-cash financing activities:
  On March 18, 1999, Holdings issued 187,364,863 shares of
  common stock in a share-for-share exchange for Niagara Mohawk's
  outstanding common stock.`

The accompanying notes are an integral part of these financial
 statements.

NIAGARA MOHAWK POWER CORPORATION
 AND SUBSIDIARY COMPANIESCONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)

`Three Months Ended     Nine Months Ended
                                                        September 30,           September 30,
                                                      2000        1999        2000        1999
                                                   ---------  ----------  -----------  ----------
                                                              (in thousands of dollars)
Operating revenues:
 Electric                                          $829,785   $ 853,588   $2,428,057   $2,451,220
 Gas                                                 79,752      73,708      462,577      442,558
                                                   ---------  ----------  -----------  -----------
                                                    909,537     927,296    2,890,634    2,893,778
                                                   ---------  ----------  -----------  -----------
Operating expenses:
 Electricity purchased                              303,786     231,462      869,868      575,786
 Fuel for electric generation                        19,103      53,079       48,077      157,183
 Gas purchased                                       34,009      39,672      237,974      198,432
 Other operation and maintenance expenses           182,071     228,082      619,583      659,984
 Amortization/accretion of MRA/IPP buyout costs      93,903      90,553      281,539      271,814
 Depreciation and amortization                       77,360      79,584      233,404      268,255
 Other taxes (Note 1)                                70,533     105,859      208,785      326,570
                                                   ---------  ----------  -----------  -----------
                                                    780,765     828,291    2,499,230    2,458,024
                                                   ---------  ----------  -----------  -----------
Operating income                                    128,772      99,005      391,404      435,754
Other income (deductions)                            (7,170)      4,968      (14,562)      (2,939)
                                                   ---------  ----------  -----------  -----------
Income before interest charges                      121,602     103,973      376,842      432,815

Interest charges                                    108,249     117,661      329,146      377,896
                                                   ---------  ----------  -----------  -----------

Income (loss) before income taxes                    13,353     (13,688)      47,696       54,919

Income taxes (Note 1)                                   106      (3,299)      25,393       22,365
                                                   ---------  ----------  -----------  -----------

Income (loss) before extraordinary item              13,247     (10,389)      22,303       32,554

Extraordinary item - Loss from the extinguishment
  of debt, net of income taxes (Note 5)                   -     (13,054)        (909)     (23,804)
                                                   ---------  ----------  -----------  -----------
Net income (loss) (Note 1)                           13,247     (23,443)      21,394        8,750

Dividends on preferred stock                          7,871       8,991       23,679       27,039
                                                   ---------  ----------   ----------  -----------
Balance available for common stock                 $  5,376    $(32,434)    $ (2,285)     (18,289)
                                                   =========  ==========  ===========  ===========`

The accompanying notese are an integral part of these financial
 statements.

NIAGARA MOHAWK POWER CORPORATION
 AND SUBSIDIARY COMPANIESCONSOLIDATED BALANCE SHEETS

`September 30,
                                                        2000          December 31,
                                                     (Unaudited)         1999
                                                    -------------    ------------
                                                       (in thousands of dollars)
Utility plant:
 Electric plant                                      $ 7,168,568     $ 7,221,762
 Nuclear fuel                                            647,798         630,321
 Gas plant                                             1,297,007       1,263,168
 Common plant                                            375,349         364,718
 Construction work-in-progress                           295,347         312,322
                                                    -------------    ------------
     Total utility plant                               9,784,069       9,792,291
 Less - Accumulated depreciation and amortization      4,031,200       3,904,049
                                                    -------------    ------------
     Net utility plant                                 5,752,869       5,888,242
                                                    -------------    ------------
Other property and investments                           404,397         349,718
                                                    -------------    ------------
Current assets:
 Cash, including temporary cash investments
  of $79,500 and $58,276, respectively                   100,441          72,479
  Accounts receivable (less allowance for doubtful
      accounts of $60,300 and $59,400, respectively)     390,545         331,222
 Materials and supplies, at average cost:
      Oil for production of electricity                    3,713           9,263
      Gas storage                                         65,908          38,252
      Other                                               89,705          90,605
   Prepaid taxes                                          45,637          21,489
   Other                                                  40,651          22,668
                                                    -------------    ------------
                                                         736,600         585,978
                                                    -------------    ------------
Regulatory assets (Note 3):
   MRA regulatory asset                                3,417,893       3,686,019
   Swap contracts regulatory asset                       647,544         505,723
   Regulatory tax asset                                  460,873         483,546
   IPP buyout costs                                      243,426         260,873
   Deferred environmental restoration costs (Note 2)     240,000         240,000
   Deferred loss on sale of assets                       175,309         135,229
   Postretirement benefits other than pensions            46,044          48,937
   Unamortized debt expense                               41,077          44,903
   Other                                                 126,134         112,556
                                                    -------------    ------------
                                                       5,398,300       5,517,786
                                                    -------------    ------------
 Other assets                                             82,228         103,884
                                                    ------------     ------------
                                                    $ 12,374,394     $12,445,608
                                                    =============    ============`

The accompanying notes are an integral part of these
 financial statements.

NIAGARA MOHAWK POWER CORPORATION
 AND SUBSIDIARY COMPANIESCONSOLIDATED BALANCE SHEETS

`September 30,
                                                                       2000          December 31,
                                                                   (Unaudited)           1999
                                                                   ------------      -----------
                                                                      (in thousands of dollars)
Capitalization:
 Common stockholders' equity:
  Common stock - $1.00 par value; authorized 250,000,000 shares;
   issued and outstanding 187,364,863 shares                       $  187,365        $  187,365
  Repurchase of Holdings' common stock, at cost                      (407,193)         (157,167)
  Capital stock premium and expense                                 2,362,063         2,361,139
  Accumulated other comprehensive income                               (4,723)           (5,153)
  Retained earnings                                                   350,570           398,987
                                                                   ------------      -----------
                                                                    2,488,082         2,785,171
                                                                   ------------      -----------
Cumulative preferred stock, authorized 3,400,000 shares,
$100 par value:
 Non-redeemable (optionally redeemable), issued 2,100,000 shares      210,000           210,000
 Redeemable (mandatorily redeemable), issued 168,000 shares
  and 186,000 shares, respectively                                     15,000            16,800
Cumulative preferred stock, authorized 19,600,000 shares,
$25 par value:
 Non-redeemable (optionally redeemable), issued 6,200,000 shares      230,000           230,000
 Redeemable (mandatorily redeemable), issued 1,782,801 shares
  and 2,015,602 shares, respectively                                   38,750            44,570
                                                                   ------------      -----------
                                                                      493,750           501,370
                                                                   ------------      -----------
Long-term debt                                                      4,712,280         5,042,588
                                                                   ------------      -----------
 Total capitalization                                               7,694,112         8,329,129
                                                                   ------------      -----------
Current liabilities:
 Long-term debt due within one year                                   865,167           613,740
 Sinking fund requirements on redeemable preferred stock                7,620             7,620
 Accounts payable                                                     264,667           244,031
 Payable on outstanding bank checks                                    18,095            22,067
 Customers' deposits                                                   17,139            15,255
 Accrued taxes                                                         23,150             6,246
 Accrued interest                                                     132,504            67,593
 Accrued vacation pay                                                  34,811            35,334
 Other                                                                 93,301            66,160
                                                                   ------------      -----------
                                                                    1,456,454         1,078,046
                                                                   ------------      -----------
Regulatory and other liabilities (Note 3):
 Accumulated deferred income taxes                                   1,566,785        1,575,335
 Liability for swap contracts                                          801,887          663,718
 Employee pension and other benefits                                   219,536          226,223
 Unbilled gas revenues                                                   7,852           14,552
 Other                                                                 387,768          318,605
                                                                   ------------      -----------
                                                                     2,983,828        2,798,433
                                                                   ------------      -----------
Commitments and contingencies (Notes 2 and 3):
   Liability for environmental restoration                             240,000          240,000
                                                                   ------------      -----------
                                                                  $ 12,374,394      $12,445,608
                                                                  =============     ============`

The accompanying notes are an integral part of these
 financial statements.

NIAGARA MOHAWK POWER CORPORATION
 AND SUBSIDIARY COMPANIESCONSOLIDATED STATEMENTS OF CASH FLOWSIncrease (Decrease) in Cash
(UNAUDITED)

`Nine Months Ended September 30,
                                                                          2000            1999
                                                                      -----------     ------------
                                                                        (in thousands of dollars)
Cash flows from operating activities:
 Net income                                                           $   21,394     $    8,750
 Adjustments to reconcile net income to net cash
 provided by (used in) operating activities:
  Depreciation and amortization                                          233,404        268,255
  Amortization/accretion of MRA/IPP buyout costs                         281,539        271,814
  Amortization of nuclear fuel                                            21,619         21,022
  Extraordinary loss on extinguishment of debt, net of taxes                 887          9,625
  Provision for deferred income taxes                                     14,600        (10,462)
  Net accounts receivable (net of changes in accounts receivable sold)   (66,023)       (72,990)
  Materials and supplies                                                 (25,185)        19,433
  Accounts payable and accrued expenses                                   14,420         26,975
  Accrued interest and taxes                                              81,815        (21,834)
  Changes in MRA and IPP buyout costs regulatory assets                   24,538        (73,202)
  Deferral of MRA interest rate savings                                   16,240         22,941
  Refundable federal income taxes                                              -        130,411
  Changes in other assets and liabilities                                  6,723         16,776
                                                                      -----------    -----------
   Net cash provided by operating activities                             625,971        617,514
                                                                      -----------    -----------
Cash flows from investing activities:
  Construction additions                                                (142,197)      (176,183)
  Nuclear fuel                                                           (17,477)       (23,503)
                                                                      -----------    -----------
       Acquisition of utility plant                                     (159,674)      (199,686)
  Materials and supplies related to construction                            (512)         1,399
  Accounts payable and accrued expenses related to construction            3,605          6,743
  Proceeds from the sale of generation assets                             47,500        780,000
  Other investments                                                      (54,974)        58,033
  Other                                                                    4,390         (7,632)
                                                                      -----------    -----------
   Net cash provided by (used in) investing activities                  (159,665)       638,857
                                                                      -----------    -----------
Cash flows from financing activities:
  Reductions in long-term debt                                          (312,241)   ($1,125,020)
  Proceeds from long-term debt                                           200,000              -
  Reduction in preferred stock                                            (7,620)        (7,620)
  Corporate restructuring to establish holding company                         -        (89,618)
  Preferred dividends paid                                               (23,679)       (27,039)
  Common stock dividend paid to Holdings                                 (46,132)       (63,718)
  Funds held for the repurchase of common stock                                -         (9,394)
  Repurchase of Holdings' common stock                                  (250,026)             -
  Other                                                                    1,354         (4,583)
                                                                      -----------    -----------
   Net cash used in financing activities                                (438,344)    (1,326,992)
                                                                      -----------    -----------
Net increase (decrease) in cash                                           27,962        (70,621)
Cash at beginning of period                                               72,479        172,998
                                                                      -----------    -----------
Cash at end of period                                                 $  100,441     $  102,377
                                                                      ===========    ===========
Supplemental disclosures of cash flow information:
      Interest paid                                                   $  235,188     $  387,029
      Income taxes paid (refunded)                                    $    9,347     $ (123,799)

Supplemental schedule of non-cash financing activities:
  On March 18, 1999, Niagara Mohawk's outstanding common stock was exchanged on a
  share-for-share basis for Holdings' common stock.`

The accompanying notes are an integral part of these financial
 statements.

NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Holding Company Formation:  On March 18, 1999, Niagara
 Mohawk Power Corporation (Niagara Mohawk) was reorganized into a holding company structure in
 accordance with its Agreement and Plan of Exchange between Niagara Mohawk and Niagara Mohawk Holdings, Inc.
(Holdings).  Holdings was incorporated on April 2, 1998 as a wholly-owned subsidiary of Niagara
 Mohawk.  Niagara Mohawks outstanding common stock was exchanged on a share-for-share basis for
 Holdings common stock.  Niagara Mohawks preferred stock and debt were not exchanged as part
 of the share exchange and continue as obligations of Niagara Mohawk.  Upon the share exchange on March 18,
 1999, shares originally issued to Niagara Mohawk were cancelled.  The reorganization was accounted
 for at net book value.

Subsidiaries:  On March 31, 1999, Niagara Mohawk
 distributed its ownership in the stock of Opinac North America, Inc. (Opinac) as a dividend
 to Holdings, which was accounted for using the net book value of Opinac.  As a result, the net assets
 and accumulated other comprehensive income of Opinac are no longer included in Niagara Mohawks
 consolidated balance sheet.  The dividend completed the holding company structure, with Holdings
 owning 100 percent of the common stock of its two subsidiaries, Niagara Mohawk and Opinac.
  Niagara Mohawk and its subsidiaries manage all regulated activities and comprise 98 percent of the
 assets and 87 percent of the revenues of Holdings.  Opinac and its subsidiaries consist of an energy
 marketing company and have investments in energy related services businesses, an unregulated electric
utility (Canadian Niagra Power Company, Limited, CNP), a developmental stage
 telecommunications company (Telergy, Inc.), and a research and development company (EVonyx, Inc.)
 that has developed and intends to commercialize new fuel cell and battery technology. Opinac accounts
 for its investment in Telergy, Inc. and Evonyx, Inc. using the cost method, and uses
 the equity method to account for its interest in CNP.

Basis of Presentation:  This Quarterly Report on
 Form 10Q is a combined report of Holdings and
 Niagara Mohawk, a regulated electric and gas utility subsidiary.  The Notes to the Consolidated
 Financial Statements apply to both Holdings and Niagara Mohawk unless otherwise stated.
  Holdings consolidated financial statements include the accounts of Holdings and its wholly owned
subsidiaries, including Niagara Mohawk.  Niagara Mohawks consolidated financial statements
 include its accounts as well as those of its wholly owned subsidiaries.

Holdings and Niagara
Mohawk, in the opinion of management, have included all adjustments (which
include normal recurring adjustments) necessary for a fair statement of the
results of operations for the interim periods presented. These financial
statements and notes thereto should be read in conjunction with the audited
financial statements included in Holdings and Niagara Mohawks combined
1999 Annual Report on Form 10-K, and Holdings and Niagara Mohawks 2000
combined quarterly reports on Form 10-Q.

Niagara Mohawks
electric sales tend to be substantially higher in summer and winter months as
related to weather patterns in its service territory; gas sales tend to peak in
the winter. Notwithstanding other factors, Niagara Mohawks quarterly net
income will generally fluctuate accordingly. Therefore, the earnings for the
three-month and nine-month periods ended September 30, 2000 should not be taken
as an indication of earnings for all or any part of the balance of the year.

The closing of the MRA,
which occurred on June 30, 1998, and the implementation of Power Choice on
 September 1, 1998, have depressed and will continue to
substantially depress earnings during the five-year term of Power Choice. The
ability of Niagara Mohawk to improve earnings in the period subsequent to Power
Choice will depend on the outcome of the regulatory process to set prices at
that time and may otherwise be affected by the proposed merger with National
Grid PLC (National Grid). See Part I, Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Merger Agreement with National Grid for a discussion of the proposed
merger. The closing on the sale of the fossil and hydro generation assets at
various times during 1999 and 2000 has also affected the comparability of the
financial statements. See Note 3 for a further discussion of the generation
asset sales.

The income statements and
cash flow statements for Holdings and Niagara Mohawk for the three months and
nine months ended September 30, 1999 reflect the reclassification of the
amortization and accretion associated with certain costs incurred as part of the
MRA and additional IPP contract buyouts from Other Operation and
Maintenance Expenses to Amortization/Accretion of MRA/IPP Buyout
Costs. The following table outlines the components of the line item
Amortization/Accretion of MRA/IPP Buyout Costs:

`Three Months Ended      Nine Months Ended
                                           September 30,            September 30,
                                          2000       1999        2000       1999
                                       ---------  ---------   ---------   ---------
                                                     (in thousands)
Amortization of MRA regulatory asset   $ 96,624   $ 96,624    $289,873    $289,873
Accretion to MRA regulatory asset
    (Senior Discount Note)               (7,452)    (6,857)    (21,748)    (20,011)
Other MRA related amortization           (4,478)    (1,988)    (13,435)     (5,965)
Amortization of other IPP buyout costs    9,209      2,774      26,849       7,917
                                       ---------  ---------   ---------   ---------

                                       $ 93,903   $ 90,553    $281,539    $271,814
                                       =========  =========   =========   =========`

The income statements,
balance sheet and cash flow statements for Holdings and Niagara Mohawk reflect
the accounting and ratemaking treatment proposed by the PSC as a result of May
2000 New York State tax law changes, whereby the gross receipts tax is being
replaced by a state income tax retroactive to January 1, 2000. The PSC requires
deferral and pass back of any net tax reduction savings to customers.
Accordingly, Holdings and Niagara Mohawk have reduced electric and gas revenues
by $11.4 million and $1.9 million, respectively, for the three months ended
September 30, 2000, and $15.4 million and $3.1 million, respectively, for the
nine months ended September 30, 2000 and recorded a corresponding liability to
customers of $18.5 million, which is reflected in the Other current
liabilities line item on the balance sheet for the nine months ended September
30, 2000.

The income statements also
reflect the reclassification of $(6.1) million and $6.0 million for the three
months and nine months ended September 30, 2000, respectively, from the
Other taxes line item to the Income taxes line item.
Niagara Mohawk provides for federal and state income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. The impact of the
application of SFAS No. 109, for the nine months ended September 30, 2000,
resulted in a decrease in accumulated deferred income taxes of $22.7 million.
Holdings and Niagara Mohawk are currently working with the PSC and the New York
State Department of Taxation and Finance to determine how the New York State tax
law changes will be fully implemented for ratemaking purposes. The PSC is
expected to issue a generic order by the end of the year. Holdings and Niagara
Mohawk will revise the accounting on these state tax law changes as necessary
upon the receipt of such order. Holdings and Niagara Mohawk do not anticipate
any earnings impact to result from the implementation of the generic order.

The cash flow statements for Holdings and Niagara Mohawk
 reflect the above-mentioned income statement and balance sheet changes.

The consolidated cash flow
statements for Holdings and Niagara Mohawk have been presented to reflect the
closings of the sales of the fossil and hydro generation assets, such that
certain individual line items are net of the effects of the sales.

Estimates:In order
to conform with GAAP, management is required to use estimates in the preparation
of Holdings and Niagara Mohawks financial statements. Actual results could
differ from those estimates.

Comprehensive Income:Comprehensive income is the change in the equity of a company, not including
those changes that result from shareholder transactions. While the primary
component of comprehensive income is reported net income or loss, the other
components of comprehensive income relate to foreign currency translation
adjustments, additional minimum pension liability recognition and unrealized
gains and losses associated with certain investments held as available for sale.
The primary difference in comprehensive income between Holdings and Niagara
Mohawk is the treatment of Niagara Mohawks preferred dividends and
reported net income or loss. Total comprehensive income (loss) for the three
months and nine months ended September 30, 2000 and 1999 were as follows:

`Three Months Ended   Nine Months Ended
                     September 30,        September 30,
Company:           2000      1999        2000       1999
--------------    ------   --------    --------   --------
                         (in millions of dollars)
Holdings          $ 1.6    $ (31.2)    $ (5.7)    $ (17.7)
Niagara Mohawk     13.5      (23.4)      21.8         5.4`

Accounting for Futures
Contracts:  Prior to the adoption of SFAS No.133, Niagara Mohawk is
accounting for futures contracts and contracts with similar characteristics
according to SFAS No. 80, Accounting for Futures Contracts
(SFAS No. 80). The contracts are hedges of anticipated transactions.
Under hedge accounting, gains or losses from the settlements of the futures
contracts are deferred until the hedged transactions occur. At that time, the
gains or losses and the payments being hedged are recognized in earnings in the
Consolidated Statements of Income.

New Accounting Standard:  In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. Holdings and Niagara Mohawk will
be required to adopt this standard beginning January 1, 2001. SFAS No. 133
requires companies to record all derivatives, as defined by SFAS No. 133, on the
balance sheet as assets or liabilities, measured at fair value.
If certain conditions are met, entities may elect to designate a derivative
 instrument as one of the following:

`o    Fair-value hedge - a hedge of the exposure to changes, attributable to a particular risk,
     in the fair value of (1) a recognized asset or liability or (2) an unrecognized firm
     commitment.
o    Cash-flow hedge - a hedge of the exposure to variability, attributable to a particular
     risk, in the cash flows of (1) a recognized asset or liability or (2) a forecasted
     transaction.`

Gains or losses
resulting from the changes in the fair values of the derivatives will be
accounted for depending on the use of the derivative, whether it qualifies for
hedge accounting, and if the hedge is effective. Effectiveness is defined to
mean that cumulative changes in the value of the hedging instrument should be
between 80 percent and 125 percent of the inverse cumulative changes in the fair
value or cash flows of the hedged item. Where the instrument is exchange traded, the
 fair value of the hedge is determined by reference to published market prices.  Where
the instrument is not exchange traded, fair value is measured by referring to various
 brokers' quotations, published forecasts, or
other available market data.

The effective portion of
gains or losses on derivatives designated and qualifying as cash flow hedges are
deferred in Other Comprehensive Income (OCI) until the hedged
transaction is settled. The ineffective portion of gains or losses on
derivatives designated and qualifying as cash flow hedges is recorded in
earnings. At the time the hedged transaction is settled, the gain or loss is
reclassified into earnings from OCI. Gains or losses on derivatives designated
as hedging the exposure to changes in the fair value of an asset or liability
are recognized in earnings in the period of the change together with the
offsetting gain or loss on the value of the hedged item. The effect is to
reflect in earnings the extent to which the hedged item is ineffective in
achieving offsetting changes in fair value. The gains or losses from derivative
instruments that do not qualify for hedge accounting must be recorded directly
to earnings in the period of the change in value.

In June 2000, the FASB
issued SFAS No.138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, An Amendment of FASB Statement No. 133.  Among the amendments was
the expansion of the normal purchase and sale exclusion to contracts that
implicitly or explicitly permit net settlement and to contracts for which a
market exists that facilitates net settlement. In serving its gas and electric
customers, Niagara Mohawk procures gas and electricity and obtains gas
transportation and electric transmission services in quantities that are
expected to be used or sold over a reasonable period of time in the normal
course of business. Niagara Mohawk estimates amounts to be provided based on
projections of future sales, which consider historical results, economic trends
and the potential for customers to switch to alternative suppliers. At the
inception and throughout the term of these contracts, Niagara Mohawk believes,
based upon past history, that the
contracts will result in physical delivery. As such these contracts
meet the exclusionary criteria under SFAS Nos.133 and 138 and are excluded from
the accounting and disclosure requirements.

Niagara Mohawk has been
assessing potential derivatives, beginning with its commodity portfolio, which
represents a significant portion of its costs. Commodity costs represent 46
percent of total operating expenses for the 9 months ended September 30, 2000. The following
contracts, or groups of contracts, have been identified as derivatives:

`o   IPP indexed swap contracts;
o   Swap contracts with the buyers of Niagara Mohawk's coal and gas fired generating assets (Huntley,
    Dunkirk, Albany);
o   New York Mercantile Exchange ("NYMEX") gas futures purchased to hedge natural gas purchases for customer
    sales requirements;
o   NYMEX gas futures purchased to hedge the natural gas component of the contract payment of the IPP
    indexed swap contracts;
o   Basis swap agreements to hedge the gas transportation portion of the natural gas component of the IPP
    indexed swap contract payments;
o   Swap agreement to hedge the oil price component of the Albany swap contract; and
o   Fixed for floating electricity swaps to hedge the price of NYISO purchases of electricity.`

See Holdings and Niagara
Mohawks combined Form 10-K for fiscal year ended December 31, 1999, Part
II, Item 8. Financial Statements and Supplementary Data - Note 9. Fair Value of
Financial and Derivative Financial Instruments  Swap Contracts
for a further discussion of the terms of each of the financial swap agreements
(IPP, Huntley, Dunkirk, and Albany swap contracts). Also, see Holdings and
Niagara Mohawks combined Form 10-Q for the quarterly period ending June
30, 2000, Part I, Item 3. Quantitative and Qualitative Disclosures About Market
Risks for a discussion on the NYMEX futures contracts purchased to hedge gas
purchases and the natural gas component of the IPP swaps. See Item 3 of this
filing for further discussion on the basis swaps, the Albany oil swap, and the
fixed for floating electric swaps.

Niagara Mohawk believes
that the Huntley and Dunkirk contracts would qualify as cash flow hedges at the
implementation date. They were entered into with the intent to hedge customer
exposure to changes in the market price of electricity. Based on experience to
date, and expectations for the future, the Huntley and Dunkirk contracts are
expected to be
highly effective in achieving offsetting cash flows.

The IPP indexed swap
contracts and the Albany swap contract are not expected to meet the cash flow
hedge criteria of SFAS No. 133, specifically the 80 percent - 125 percent
effectiveness test, because of the significant effect of the gas and oil
indexing adjustments. As such, these contracts would be measured at fair value
on the implementation date of SFAS No. 133 and recorded as liabilities with a
corresponding charge to earnings. However, under the accounting treatment
currently followed in applying SFAS No. 80, Niagara Mohawk believes that the
ratemaking afforded these contracts permits the deferral and amortization of
their above-market value in accordance with SFAS No. 71.  The IPP indexed swaps and the
swap contracts entered into with the sale of the generation assets (Huntley,
Dunkirk, Albany) were negotiated in Power Choice, consistent with the
restructuring of the New York State electricity markets. As long as Niagara
Mohawk expects recovery of the above market costs within the terms of the
existing Power Choice rate agreement, there will be no earnings impact from
periodically marking these contracts to market under SFAS No. 133.

As noted in Note 3, 
Rate and Regulatory Issues and Contingencies, if Niagara Mohawk determines
that its regulatory asset for the swap contracts is not probable of recovery, it
could no longer apply SFAS No. 71 and would be required to record an after-tax,
non-cash charge against income for any remaining unamortized regulatory assets
and liabilities. The IPP swap liability would remain according to SFAS No. 133.

Niagara Mohawk also
believes the NYMEX futures contracts, basis swaps, oil swap, and electricity
swaps will qualify as cash flow hedges of anticipated transactions under SFAS
No. 133. The contracts are designated and documented as hedges at inception and
price movements in the contracts are expected to move inversely with changes in
the projected cash flows of the hedged transactions.

For Niagara Mohawk, TCCs are financial instruments purchased
 to hedge the cost of transmitting power.  When TCCs are purchased along
transmission pathways that Niagara Mohawk uses to supply customers with power, in quantities
that do not exceed existing or projected
load, they operate effectively as hedges of the transmission cost for power.  TCCs can also
 be purchased without a corresponding load
and can expose the entity to market risks.  Niagara Mohawk does not purchase TCCs without
 an expected corresponding load. See Item 3.
Quantitative and Qualitative Disclosures About Market Risks for more discussion on the
 particular risks associated with TCCs.   If
TCCs are classified as derivatives for Niagara Mohawk, they would qualify as hedges of
 anticipated transactions subject to an
evaluation of documentation and effectiveness.  The projected cash flows created by the
 TCCs, the money received or paid because of
owning the TCCs, would be offset by projected cash flows in transmission expenditures,
 the dollar impact of the congestion on the
cost of power to Niagara Mohawk.  Under the adoption of SFAS No. 133, Niagara Mohawk
believes there would not be an earnings impact.

Niagara Mohawk has not reached
 a conclusion as to whether TCCs meet the definition of a derivative under
SFAS No. 133.  Niagara Mohawk, as a nontrading entity, believes
 there would be no impact to earnings whether or not TCCs are considered derivatives.

According to SFAS No. 133, a
contract that does not, in its entirety, meet the definition of a derivative may
contain embedded derivative instruments. The instrument may contain terms that
could affect some of the cash flows in a manner similar to what would be
observed under a derivative. Where such terms exist and where the economic
characteristics and risks of the embedded derivative are not clearly and closely
related to the host contract, the embedded derivative should be separated from
the host contract and accounted for separately under the new standard. Based
upon a review, to date, of the majority of Niagara Mohawks leases and debt
and equity instruments, it does not appear that they contain embedded
derivatives. The identification of embedded derivatives is an area of great
complexity in the application of SFAS No. 133 and Niagara Mohawk will continue
to review the terms of various financial instruments and will apply the standard
as appropriate.

Niagara Mohawk Energy, Inc. ("Niagara Mohawk Energy"):  

Niagara Mohawk Energy uses various forms of financial instruments, including futures,
 forwards, swaps, TCCs, and options.  Niagara
Mohawk Energy's business has evolved beyond an entity whose activities are primarily
 associated only with marketing to one whose
activities also include trading of energy commodities.  Niagara Mohawk Energys
 management intends to continue to engage in both
marketing and trading activities.  Accordingly, under EITF 9810, effective
 October 1, 2000, management is accounting for the portion
of its portfolio designated as trading on a marktomarket basis.

Under EITF 9810, the financial
 instruments recognized as trading activities will be valued at fair value and recorded
 as assets or
liabilities with a corresponding entry to defer the earnings impact.  Future changes in
the fair value of the instruments will be
recorded in earnings as they occur.  The marktomarket value of the portfolio at
 October 1, 2000 was approximately $21 million.
Effective January 1, 2001 with the implementation of SFAS No. 133, the initial
 deferred revenue from the impact of the EITF 9810
accounting will be recognized as a cumulative effect of an accounting change
 for those contracts determined to be derivatives.

Holdings Common
Stock:  During 1999, the PSC approved Niagara Mohawks petition to
purchase up to $800 million of Holdings common stock. Holdings Board
of Directors has approved a program to repurchase 40 million shares through
December 31, 2002. Niagara Mohawk purchased 10 million shares of Holdings
common stock through December 31, 1999 for $157.2 million.

During 1999, Niagara Mohawk
entered into an agreement with an agent to purchase up to five million shares of
Holdings common stock. The agent purchased the five million shares during
1999. Niagara Mohawk, which had the option to settle in cash or shares, elected
to settle in cash on June 21, 2000 for $79 million.

Niagara Mohawk purchased
12,125,045 additional shares for approximately $171.0 million during the first 9
months of 2000, excluding the 5 million shares noted above. Niagara Mohawk has
suspended the program to repurchase Holdings common stock as a result of
the proposed merger (See Note 6. Proposed Merger with National Grid).

## NOTE 2.  
CONTINGENCIES

Environmental issues:The public utility industry typically utilizes and/or generates in its
operations a broad range of hazardous and potentially hazardous wastes and
by-products. Niagara Mohawk believes it is handling identified wastes and
by-products in a manner consistent with federal, state, and local requirements
and has implemented an environmental audit program to identify any potential
areas of concern and aid in compliance with such requirements. Niagara Mohawk is
also currently conducting a program to investigate and remediate, as necessary,
to meet current environmental standards, certain properties associated with
former gas manufacturing and other properties which Niagara Mohawk has learned
may be contaminated with industrial waste, as well as investigating identified
industrial waste sites as to which it may be determined that Niagara Mohawk has
contributed. Niagara Mohawk has also been advised that various federal, state,
or local agencies believe certain properties require investigation and has
prioritized the sites based on available information in order to enhance the
management of investigation and remediation, if necessary.

Niagara Mohawk is currently
aware of 164 sites with which it may be associated, including 83 which are
Niagara Mohawk-owned. With respect to non-owned sites, Niagara Mohawk may be
required to contribute some proportionate share of remedial costs. Although one
party can, as a matter of law, be held liable for all of the remedial costs at a
site, regardless of fault, in practice costs are usually allocated among PRPs.
Niagara Mohawk has denied any responsibility at certain of these PRP sites and
is contesting liability accordingly.

Investigations at each of
the Niagara Mohawk-owned sites are designed to (1) determine if environmental
contamination problems exist; (2) if necessary, determine the appropriate
remedial actions; and (3) where appropriate, identify other parties who should
bear some or all of the cost of remediation. Legal action against such other
parties will be initiated where appropriate. As site investigations are
completed, Niagara Mohawk expects to determine site-specific remedial actions
and to estimate the attendant costs for restoration. However, since
investigations and regulatory reviews are ongoing for most sites, the estimated
cost of remedial action is subject to change.

Estimates of the cost of
remediation and post-remedial monitoring are based upon a variety of factors,
including identified or potential contaminants; location, size and use of the
site; proximity to sensitive resources; status of regulatory investigation and
knowledge of activities at similarly situated sites. Additionally, Niagara
Mohawks estimating process includes an initiative where these factors are
developed and reviewed using direct input and support obtained from the New York
State Department of Environmental Conservation (DEC). Actual Niagara
Mohawk expenditures are dependent upon the total cost of investigation and
remediation and the ultimate determination of Niagara Mohawks share of
responsibility for such costs, as well as the financial viability of other
identified responsible parties since clean-up obligations are joint and several.

As a consequence of site
characterizations and assessments completed to date and negotiations with PRPs,
Niagara Mohawk has accrued a liability in the amount of $240 million, which is
reflected in both Holdings and Niagara Mohawks Consolidated Balance Sheets
at September 30, 2000 and December 31, 1999. The potential high end of the range
is presently estimated at approximately $480 million, including approximately
$235 million in the unlikely event Niagara Mohawk is required to assume 100
percent responsibility at non-owned sites. The probabilistic method was used to
determine the amount to be accrued for 23 of Niagara Mohawks largest
sites. The amount accrued for Niagara Mohawks remaining sites is
determined through feasibility studies or engineering estimates, Niagara
Mohawks estimated share of a PRP allocation or where no better estimate is
available, the low end of a range of possible outcomes is used. In addition,
Niagara Mohawk has recorded a regulatory asset representing the investigation,
remediation and monitoring obligations to be recovered from ratepayers. Power
Choice and the gas rate settlements provide for the continued application of
deferral accounting for variations in spending from amounts provided in rates.
As a result, Niagara Mohawk does not believe that site investigation and
remediation costs will have a material adverse effect on its results of
operations or financial condition.

In November 1999, Niagara
Mohawk submitted a revised feasibility study to the DEC, which included the
land-based portions of Niagara Mohawks Harbor Point site and five
surrounding non-owned sites. The study indicates a range of viable remedial
approaches and associated cost estimates and recommends a selected remedial
alternative. This range consists of a high end of $70 million, with an expected
value calculation of $49 million, which is included in the amounts accrued at
September 30, 2000 and December 31, 1999. The DEC approved this feasibility
study in January 2000 and is expected to prepare and issue a Proposed Remedial
Action Plan (PRAP) in late 2000. The surface water-based portions of
Niagara Mohawks Harbor Point site are subject to continuing feasibility
study evaluations and review by the DEC. In October 2000, the DEC issued a PRAP
on the Utica Harbor/Barge Canal portion of the site. Niagara Mohawk currently
estimates the range of costs for remediation of the surface water bodies to
consist of a high end of $18 million, with an expected value of $11 million,
which is included in the amounts accrued at September 30, 2000 and December 31,
1999. The ranges for the land-based and the surface water bodies portions
represent the total estimated costs to remediate the properties and does not
consider contributions from other PRPs, the amount of which Niagara Mohawk is
unable to estimate.

In May 1995, Niagara Mohawk
filed a complaint pursuant to applicable federal and New York State law in the
U.S. District Court for the Northern District of New York against several
defendants seeking recovery of past and future costs associated with the
investigation and remediation of the Harbor Point and surrounding sites. The New
York State Attorney General moved to dismiss Niagara Mohawks claims
against the state of New York, the New York State Department of Transportation
and the Thruway Authority and Canal Corporation under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA).
Niagara Mohawk opposed this motion. On April 3, 1998, the Court denied the New
York State Attorney Generals motion as it pertains to the Thruway
Authority and Canal Corporation, and granted the motion relative to the state of
New York and the Department of Transportation. In a Memorandum - Decision and
Order, dated September 28, 2000, the Court: 1) denied Niagara Mohawks
CERCLA and New York Navigation Law motions for summary judgment on liability; 2)
denied defendant Beazer East, Inc.s motions for summary judgment under New
York CPLR section 1401 and the New York Navigation Law; and 3) granted defendant
Mohawk Valley Oils (MVO) cross-motions for summary judgment
with respect to Niagara Mohawks CERCLA and New York Navigation Law claims.
The Court further ordered that MVO be dismissed from the case. Niagara Mohawk
has filed a motion seeking leave to appeal the Courts rulings with respect
to MVO. This motion is currently returnable on November 17, 2000. Niagara Mohawk
is engaged in settlement negotiations with the various parties. Should the case
proceed to trial, the court has established February 27, 2001 as the trial ready
date. As a result, Niagara Mohawk cannot predict the outcome of the pending
litigation against the defendants or the allocation of Niagara Mohawks
share of the costs to remediate the Harbor Point and surrounding sites.

## NOTE 3.  
 RATE AND REGULATORY ISSUES AND CONTINGENCIES

Holdings and Niagara
Mohawks financial statements conform to GAAP, including the accounting
principles for rate-regulated entities with respect to its regulated operations.
Niagara Mohawk discontinued application of regulatory accounting principles to
its fossil and hydro generation business as of December 31, 1996. Substantively,
SFAS No. 71 permits a public utility, regulated on a cost-of-service basis, to
defer certain costs, which would otherwise be charged to expense, when
authorized to do so by the regulator. These deferred costs are known as
regulatory assets, which in the case of Niagara Mohawk, are approximately $5.4
billion at September 30, 2000. These regulatory assets are probable of recovery.

Swap contract regulatory
asset:  The swap contract regulatory asset represents the expected future
recovery of the swap contract liabilities. The swap contract liability is the
difference between estimated future market prices and the contract prices for
the notional quantities of power in the restated PPA contracts with the IPPs and
in the financial swaps associated with the PPAs from the sale of the Huntley and
Dunkirk coal-fired and the Albany oil and gas-fired generation plants. The
portion of this regulatory asset associated with the restated IPP contracts will
be amortized over ten years ending in June 2008, in accordance with the MRA and
Power Choice, as notional quantities are settled. The portion of this regulatory
asset associated with the Huntley and Dunkirk PPAs will be amortized over the
remaining term of the swaps through June 2003. During the second quarter of
2000, Niagara Mohawk completed the sale of its Albany oil and gas-fired
generation plant. Niagara Mohawk entered into a financial swap as part of the
sale. Approximately $18.6 million is included in the swap contract regulatory
asset at September 30, 2000 as part of this agreement. The Albany contract
expires on September 30, 2003, and the portion of the swap contract regulatory
asset associated with the agreement will be amortized over the life of the
contract as notional quantities are settled. See Holdings and Niagara
Mohawks combined Form 10-K for fiscal year ended December 31, 1999, Part
II, Item 8. Financial Statements and Supplementary Data - Note 9. Fair Value of
Financial and Derivative Financial Instruments - Swap Contracts for
a further discussion of the terms of each of the financial agreements. The
amount of this regulatory asset will fluctuate as estimates of future market and
contract prices change over the terms of the contracts and will decline as the
remaining contract periods shorten.

Deferred loss on the
sale of assets:  Power Choice requires Niagara Mohawk to divest its
portfolio of fossil and hydro generation assets. During 1999, Niagara Mohawk
completed the sale of its hydroelectric generation plants, its coal-fired
generation plants and its Oswego oil and gas-fired plant for $860 million. These
assets had a combined net book value of approximately $957 million (including
materials, supplies and fuel) at the time of their sale. In addition, there were
purchase price adjustments of approximately $27 million, primarily due to a
lower amount of fuel being delivered to the new owners of the Oswego generation
assets than originally anticipated and provided for in the sales agreement.

On May 12, 2000, Niagara
Mohawk completed the sale of its Albany oil and gas-fired plant to PSEG Power
LLC (PSEG) for $47.5 million. The Albany plant had a net book value
of approximately $36.4 million (including materials, supplies and fuel) at the
time of the sale. Niagara Mohawk could also receive up to an additional $11.5
million if PSEG chooses to pursue the redevelopment of the Albany plant and the
redevelopment is in service by July 1, 2003. The agreement with PSEG includes a
Post Closing Property Tax Adjustment to be settled on the first ten
anniversaries of the closing date. If actual annual property taxes exceed a
predetermined amount, Niagara Mohawk will pay PSEG. If the property taxes are
lower, then PSEG will pay Niagara Mohawk. The predetermined amount is based upon
the taxes paid by Niagara Mohawk at the time of the sale, which should
approximate $6.7 million. During the ten years, the predetermined amount will be
lowered by $0.5 million each year. Niagara Mohawk is pursuing a reduction in the
taxes paid on the facility. The proceeds from the sale of Albany do not include
an amount for the redevelopment fee or the post closing property tax adjustment.

On August 8, 2000, Niagara
Mohawk announced that the Roseton Steam Station (of which Niagara Mohawk owns 25
percent) would be sold to Dynegy Inc. (Dynegy) of Houston, pursuant
to which Niagara Mohawk will receive approximately $80 million. Niagara
Mohawks share of the plant has a net book value of approximately $37.0
million (which includes materials, supplies and fuel) as of September 30, 2000.

The Power Choice agreement
provides for deferral and future recovery of net losses resulting from the sale
of the fossil and hydro generation asset portfolio. As of September 30, 2000,
Niagara Mohawk has recorded a regulatory asset of $175.3 million for the net
loss on the sale of its coal-fired generation plants, its hydro generation
assets, and its oil and gas fired plants at Oswego and Albany, which includes
$4.0 million in employee-related severance costs. The net loss is included in
Niagara Mohawks balance sheet as Deferred Loss on Sale of
Assets. In accordance with Power Choice, Niagara Mohawk will not earn a
return on the deferred loss during the Power Choice period and would have to
request a return to be applicable after the expiration of Power Choice (August
31, 2003), subject to the approval of the PSC. The amount of this regulatory
asset is subject to change as a result of post closing adjustments on the sales,
transaction costs, subsequent costs associated with contract clauses, the
accounting treatment relating to the hydro PPAs, as discussed below, the amount
of severance and other costs, the outcome of the sale of the Roseton Steam
Station (described above), and PSC review of the amounts deferred. The PSC has
allowed Niagara Mohawk to offset the proceeds from the sale of the fossil and
hydro generation assets, by the amount which the actual amount incurred on the
hydro PPAs exceeds the forecasted amount reflected in Power Choice. On July 10,
2000, Niagara Mohawk filed a report with the PSC outlining the accounting of the
costs and proceeds from the sale of the generation assets sold through May 31,
2000. The amount recorded as a loss is subject to regulatory review. Niagara
Mohawk will begin recovery of the loss in 2003, over a period not to exceed the
average remaining life of the assets sold, estimated at 20 years. Niagara Mohawk
has recorded a non-cash incentive as provided for in Power Choice of $14.5
million based on the asset sales of which $9.0 million is reflected in income in
1999 and $5.5 million is reflected in income in 2000 in the Other income
(deductions) line item of the Consolidated Income Statements. The
incentive earned is subject to regulatory review and is included in the other
regulatory assets on the Consolidated Balance Sheets. Niagara Mohawk will begin
recovery of the incentive in 2001, over a period not to exceed five years.

On June 24, 1999, Niagara
Mohawk announced an agreement to sell its nuclear assets to AmerGen Energy
Company, LLC (AmerGen), a joint venture of PECO Energy Company and
British Energy, for approximately $135 million. New York State Electric and Gas
Corporation (NYSEG) was also a party to the agreement and agreed to
sell its 18 percent share of Unit 2 to AmerGen. The sale agreement was subject
to regulatory approval. On April 25, 2000, the PSC deemed Niagara Mohawks
and NYSEGs petitions with respect to the AmerGen agreement to be withdrawn
because the PSC expects a competitive process to sell the nuclear assets to
result in a substantially higher value and lower stranded costs than the AmerGen
agreement. As a result, on May 11, 2000, Niagara Mohawk, NYSEG and AmerGen
terminated their agreement in contemplation of such a competitive process, and
Niagara Mohawk and certain other co-owners are in the process of auctioning Unit
1 and their share of Unit 2. Niagara Mohawk cannot predict the outcome of this
auction, but is committed to pursue the sale of Unit 1 and Unit 2.
Notwithstanding this commitment, because Unit 2 has multiple owners and because
any sale will be subject to regulatory hurdles that must be overcome, including
stranded cost recovery, Niagara Mohawk does not believe that a sale is any more
likely to occur than other possible outcomes, including the possible continued
operation of the plants by Niagara Mohawk for the remainder of their useful
lives. (See Part I, Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Merger Agreement with
National Grid for a discussion of how the merger agreement is impacted by
the sale of nuclear assets).

In the event that the sale
of the nuclear assets does not occur, Niagara Mohawk will continue to recover
the costs to run the nuclear generation plants in its Power Choice rates.In addition, Niagara Mohawk would continue to participate in the PSC
regulatory proceeding regarding the future of nuclear assets in New York State.

Because of the uncertainty
as to whether the PSC will approve any sale of the nuclear generating plants on
terms acceptable to Niagara Mohawk, and the outcome of other regulatory
approvals, Niagara Mohawk has continued to utilize its best estimate of cash
flows based on a held-and-used (regulated) model for purposes of assessing
whether an asset impairment existed as of September 30, 2000. Under this
assumption, the nuclear generating assets are not impaired.

If, and when, Niagara
Mohawk concludes that its best estimate of future cash flows is from the sale of
the power plants, the impairment test will be performed taking into
consideration the expected cash flows from operations until the sale, expected
cash proceeds from the sale of the assets, less amounts which may be required to
pre-fund the nuclear decommissioning trust funds.

At September 30, 2000, the
net book value of Niagara Mohawks nuclear generation assets (including
materials, supplies and nuclear fuel) was approximately $1.6 billion, excluding
the reserve for decommissioning. In addition, Niagara Mohawk has other
nuclear-related assets of approximately $0.5 billion. These assets include the
decommissioning trusts and regulatory assets, which are primarily related to the
flow-through to customers of prior income tax benefits.

SFAS No. 71 and other
accounting matters:  The Emerging Issues Task Force (EITF) of the
FASB reached a consensus on Issue No. 97-4, Deregulation of the Pricing of
Electricity - Issues Related to the Application of SFAS No. 71 and SFAS No. 101,
Regulated Enterprises  Accounting for the Discontinuance of
Application of FASB Statement No. 71 in July 1997. EITF 97-4 does not
require a company to earn a return on regulatory assets that arise from a
deregulating transition plan in assessing the applicability of SFAS No. 71.
Niagara Mohawk believes that the regulated cash flows to be derived from prices
it will charge for electric service over the next ten years, including the CTC
assuming no unforeseen reduction in demand or bypass of the CTC or exit fees,
will be sufficient to recover the MRA regulatory asset and to provide recovery
of and a return on the remainder of its assets, as appropriate. In the event
Niagara Mohawk determines, as a result of lower than expected revenues and/or
higher than expected costs, that its net regulatory assets are not probable of
recovery, it can no longer apply the principles of SFAS No. 71 and would be
required to record an after-tax, non-cash charge against income for any
remaining unamortized regulatory assets and liabilities. If Niagara Mohawk could
no longer apply SFAS No. 71, the resulting charge would be material to Holdings
and Niagara Mohawks reported financial condition and results of operations
and adversely affect Niagara Mohawks, and therefore, Holdings
ability to pay dividends.

Under Power Choice, Niagara
Mohawks remaining electric business (electric transmission, distribution
and nuclear business) continues to be rate-regulated on a cost-of-service basis
and, accordingly, Niagara Mohawk continues to apply SFAS No. 71 to these
businesses. Also, Niagara Mohawks IPP contracts, including those
restructured under the MRA, as well as the PPAs entered into in connection with
the generation divestiture, continue to be the obligations of the regulated
business.

## NOTE 4.  
SEGMENT INFORMATION

Holdings is organized
between regulated and unregulated activities. Within the regulated business,
Niagara Mohawk, which has 98 percent of total assets and 87 percent of total
revenues, there are 2 principal business units: Energy Delivery and Nuclear. As
discussed in Note 3 above, Niagara Mohawk is pursuing the sale of its nuclear
assets and its 25 percent interest in the Roseton plant. Although there are two
identified business units, financial performance and resource allocation are
measured and managed at the regulated business level.

Holdings and Niagara Mohawk
use a shareholder value based management system. The measure of shareholder
value creation is Economic Value Added (EVA®). EVA® is the
financial measure used to evaluate projects, allocate resources and report and
provide performance incentives.

`For The Three Months           For The Nine Months
                               Ended September 30,           Ended September 30,
                               Total      Economic          Total        Economic
(In thousands of dollars)    Revenues    Value Added       Revenues    Value Added
------------------------- ---------------------------    -------------------------
2000
Regulated                   $ 909,537   $ (146,931)      $ 2,890,634    $(430,398)
Unregulated                   190,067      (11,129)          449,069      (24,905)
Eliminations                        -            -               (20)           -
                          -------------------------      -------------------------
  Total Consolidated      $ 1,099,604   $ (158,060)      $ 3,339,683    $(455,303)
====================      =========================      =========================
1999
Regulated                   $ 927,296   $ (199,733)      $ 2,893,778    $(541,240)
Unregulated                   107,016       (7,400)          174,515      (21,124)
Eliminations                      (85)           -              (611)           -
                          -------------------------      -------------------------
  Total Consolidated      $ 1,034,227   $ (207,133)      $ 3,067,682    $(562,364)
====================      =========================      =========================`

EVA® is calculated as
Net Operating Profit after Taxes less a charge for the use of capital employed.
The capital charge is determined by applying a rate representing an estimate of
investors expected return given the risk of the business and a targeted
capital structure. The rate is not the same as the embedded cost of capital, and
in particular, does not reflect the return on equity that may be established in
a rate proceeding. Certain adjustments to accounting data are made to more
closely reflect operating or economic results. For the three months and nine
months ending September 30, 2000 and 1999, an adjustment is made to include the
recognition of the estimated net present value of remaining future above-market
contract payments to IPPs, which is calculated annually, and the corresponding
recognition of imputed interest as follows:

`Three months ended           Nine months ended
                                       September 30,              September 30,
(in thousands of dollars)           2000          1999          2000          1999
------------------------------- -------------------------   ------------------------
Estimated net present value
of the remaining future above
market contract payments to
IPPs                            $1,383,600    $1,987,643    $1,383,600    $1,987,643

Corresponding recognition of
imputed interest                   $10,188       $14,635       $30,564       $43,902`

EVA® is further
segmented between EVA® from Operations and EVA® related to the IPPs.
This distinction is used to allow management to focus on operating performance
separate from the consequences of the IPP contracts, the MRA regulatory asset
and finance decisions related to managing the capitalization of Holdings.

A reconciliation of total
segment EVA® to total consolidated net income for the three months and nine
months ended September 30, 2000 and 1999 is as follows:

`Three months ended         Nine months ended
                                              September 30,             September 30,
(in thousands of dollars)                  2000         1999          2000        1999
------------------------------------   -----------------------   -----------------------
Economic Value Added:
    Operations                         $ (62,084)   $ (83,197)   $ (162,079)  $(185,383)
    IPP - Related                        (95,976)    (123,936)     (293,224)   (376,981)
                                       -----------------------   -----------------------
Total Economic Value Added              (158,060)    (207,133)     (455,303)   (562,364)
Charge for Use of Investor's Capital     230,615      289,498       704,095     889,486
Adjustments for Significant Items        (10,188)     (14,635)      (30,564)    (43,902)
1998 Ice Storm Recovery Costs             19,443            -        19,443           -
Interest Charges (net of taxes)          (71,215)     (77,392)     (215,603)   (249,299)
Extraordinary Item (net of taxes)              -      (13,054)         (909)    (23,804)
Niagara Mohawk Preferred Dividends        (7,871)      (8,991)      (23,679)    (27,039)
                                       -----------------------   -----------------------
   Consolidated Net Income (Loss)      $   2,724    $ (31,707)   $   (2,520)  $ (16,922)
                                       =======================   =======================`

## NOTE 5.  
EXTRAORDINARY ITEM

During the nine months
ended September 30, 2000 and 1999, Holdings and Niagara Mohawk recognized an
extraordinary item for the early redemption of debt. The following table shows
the after tax effect and per share effect of redemption premiums incurred, and
the write-off of unamortized debt expense and issuance costs associated with
each of the series that was redeemed:

`Nine months ended September 30,
                                                     2000                  1999
                                             --------------------  --------------------
                                                Costs     Income      Costs     Income
                        Amount      Month     Incurred,     Tax     Incurred,    Tax
Series                Redeemed    Redeemed   net of tax   Benefit  net of tax  Benefit
---------------------------------------------------------------------------------------
                                                 (in thousands of dollars)
Senior Notes          $  3,402    February     $ 14        $  8       $ -        $ -
Senior Bank Facility    50,000    April         336         181         -          -
First Mortgage Bonds    41,585    May           559         300         -          -
First Mortgage Bonds   151,720    June            -           -     10,750     5,790
First Mortgage Bonds   150,000    July            -           -      7,556     4,070
Senior Notes           500,000    September       -           -      5,459     2,940
Medium Term Notes       20,000    September       -           -         39        20
                                              ------       -----    ------   --------
      Total                                   $ 909        $489   $ 23,804   $12,820
                                              ======       =====  ========   ========
Per share effect, net of tax                  $   -                  $0.13
                                              ======              ========`

## NOTE 6.  
PROPOSED MERGER WITH NATIONAL GRID

In September 2000, Holdings
agreed to a merger with National Grid, under which National Grid will acquire
Holdings through the formation of a new National Grid holding company and the
exchange of Holdings shares for a combination of cash and American
Depository Shares (ADS) in the new holding company.

The merger is subject to
approval by a majority vote of Holdings shareholders as well as National Grid
shareholder approval. In addition, the merger is contingent on the sale of
Holdings nuclear facilities or other satisfactory arrangements being
reached and is subject to a number of regulatory and other approvals and
consents, including approvals by the SEC under the Public Utility Holding
Company Act of 1935, FERC, the PSC, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The merger is currently
anticipated to be completed by late 2001.

Holdings shareholders will
receive $19 per share, subject to the dollar value of 5 National Grid ordinary
shares being between $32.50 and $51.00 in a specified period shortly before the
closing of the merger. In the event that the dollar value of 5 National Grid
ordinary shares is greater than $51.00 during such period, the per share
consideration received by Holdings shareholders will increase by
two-thirds of the percentage of the increase in value over $51.00. In the event
that the dollar value of 5 National Grid ordinary shares is less than $32.50
during such period, the per share consideration received by Holdings
shareholders will decrease by two-thirds of the percentage of the decrease in
value below $32.50. Shareholders can elect to receive their consideration either
in cash or ADSs, or a combination of both, subject to the aggregate cash
consideration offered being at least $1.015 billion. If cash elections received
from Holdings shareholders exceed $1.015 billion, National Grid has the option
to increase the cash element of the consideration.

## REVIEW BY
INDEPENDENT ACCOUNTANTS

Niagara Mohawk Holdings,
Inc. and Niagara Mohawk Power Corporations independent accountants,
PricewaterhouseCoopers LLP, have applied limited procedures in accordance with
professional standards for a review of the unaudited Consolidated Balance Sheets
of Niagara Mohawk Holdings, Inc. and its subsidiary companies, as of September
30, 2000 and 1999, and the related unaudited Consolidated Statements of Income
for the three-month and nine-month periods ended September 30, 2000 and 1999 and
of Cash Flows for the nine-month period ended September 30, 2000 and 1999, and
the unaudited Consolidated Balance Sheets of Niagara Mohawk Power Corporation
and its subsidiary companies as of September 30, 2000 and 1999 and the related
unaudited Consolidated Statements of Income for the three-month and nine-month
periods ended September 30, 2000 and 1999 and of Cash Flows for the nine-month
period ended September 30, 2000 and 1999. The report of PricewaterhouseCoopers
LLP dated November 14, 2000, regarding their limited reviews of the financial
statements of Niagara Mohawk Holdings and its subsidiaries, and Niagara Mohawk
Power Corporation and its subsidiaries appears on the next page.

PricewaterhouseCoopers
LLPs report does not express an opinion on the interim unaudited
consolidated financial information. Accordingly, the degree of reliance on the
report of PricewaterhouseCoopers LLP on such financial information should be
restricted in the light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP has not carried out any significant or additional
audit tests beyond those which would have been necessary if their report had not
been included. Accordingly, PricewaterhouseCoopers LLP is not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited financial information because such report is not a
report or part of the Registration Statement within the
meaning of Sections 7 and 11 of the Securities Act of 1933.

## REPORT OF
INDEPENDENT ACCOUNTANTS

We have reviewed the
condensed consolidated balance sheets of Niagara Mohawk Holdings, Inc. and its
subsidiaries as of September 30, 2000 and 1999 (not presented herein), and the
related condensed consolidated statements of income for the three-month and
nine-month periods ended September 30, 2000 and 1999 and cash flows for the
nine-month period ended September 30, 2000 and 1999, and the condensed
consolidated balance sheets of Niagara Mohawk Power Corporation and its
subsidiaries as of September 30, 2000 and 1999 (not presented herein), and the
related condensed consolidated statements of income for the three-month and
nine-month periods ended September 30, 2000 and 1999 and of cash flows for the
nine-month period ended September 30, 2000 and 1999. These financial statements
are the responsibility of Niagara Mohawk Holdings, Inc.s management and
Niagara Mohawk Power Corporations management.

We conducted our review in
accordance with standards established by the American Institute of Certified
Public Accountants. A review of interim financial information consists
principally of applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our review, we are not aware of any material
 modifications that should be made to the condensed consolidated financial
 statements referred to above for them to be in conformity with generally accepted
accounting principles.

We previously audited in
accordance with generally accepted auditing standards, the consolidated balance
sheet of Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power Corporation as
of December 31, 1999, and the related consolidated statements of income, and
retained earnings, of cash flows and of comprehensive income for the year then
ended (not presented herein), and in our report dated January 27, 2000, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1999, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

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

Certain statements included
in this Quarterly Report on Form 10-Q are forward-looking statements as defined
in Section 21E of the Securities Exchange Act of 1934 that involve risk and
uncertainty, including Holdings and Niagara Mohawks
cash flow, the receipt of
shareholder approval at National Grid and Holdings and the timing and nature of
federal and state regulatory actions on the merger with National Grid or the
imposition of unacceptable conditions to approval by one or more regulatory
agencies, the timing and outcome of the proposed future sale of Niagara
Mohawks nuclear generation assets, the planned repayment of debt, the
timing of the reversal of the increased gas costs as a result of the gas costs
adjustment mechanism, the outcome of rate and reconciliation issues with the
NYISO, the effects of Niagara Mohawks transition to a new customer service
system, and the collection of accounts receivable and the corresponding bad debt
expense. These forward-looking statements are based upon a number of
assumptions, including assumptions regarding the Power Choice agreement and
regulatory actions to continue to support such an agreement. Actual future
results and developments may differ materially depending on a number of factors,
including regulatory changes either by the federal government or the PSC, including
municipalization and exit fees, the
timing and nature of federal and state regulatory actions on the merger with
National Grid, uncertainties regarding the ultimate impact on Holdings and
Niagara Mohawk as the regulated electric and gas industries are further
deregulated and electricity and gas suppliers gain open access to Niagara
Mohawks retail customers, the supply and demand of both gas and
electricity, operations at the NYISO, challenges to the Power Choice agreement
under New York laws, the timing and extent of changes in commodity prices (SFAS No. 133) and
interest rates, the effects of weather, the length and frequency of outages at
Niagara Mohawks two nuclear plants, the results from Niagara Mohawks
proposed sale of its nuclear assets and its 25 percent interest in Roseton,
efforts made by Niagara Mohawk to collect from customers, and the economic
conditions of Niagara Mohawks service territory.

# Merger
Agreement with National Grid

In September 2000, Holdings
agreed to a merger with National Grid, under which National Grid will acquire
Holdings through the formation of a new National Grid holding company and the
exchange of Holdings shares for a combination of cash and ADSs in
the new holding company.

The merger is subject to
approval by a majority vote of Holdings shareholders as well as National Grid
shareholder approval. In addition, the merger is contingent on the sale of
Holdings nuclear facilities or other satisfactory arrangements being
reached and is subject to a number of regulatory and other approvals and
consents, including approvals by the SEC under the Public Utility Holding
Company Act of 1935, FERC, the PSC, and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The merger is currently
anticipated to be completed by late 2001.

Holdings shareholders will
receive $19 per share, subject to the dollar value of 5 National Grid ordinary
shares being between $32.50 and $51.00 in a specified period shortly before the
closing of the merger. In the event that the dollar value of 5 National Grid
ordinary shares is greater than $51.00 during such period, the per share
consideration received by Holdings shareholders will increase by
two-thirds of the percentage of the increase in value over $51.00. In the event
that the dollar value of five National Grid ordinary shares is less than $32.50
during such period, the per share consideration received by Holdings
shareholders will decrease by two-thirds of the percentage of the decrease in
value below $32.50. Shareholders can elect to receive their consideration either
in cash or ADSs, or a combination of both, subject to the aggregate cash
consideration offered being at least $1.015 billion. If cash elections received
from Holdings shareholders exceed $1.015 billion, National Grid has the option
to increase the cash element of the consideration.

# Restructuring
of the Regulated Electric Utility Business

Power Choice:  The
PSC approved Niagara Mohawks Power Choice agreement on March 20, 1998 and
the rate plan was implemented beginning September 1, 1998. The Power Choice
agreement outlined Niagara Mohawks future structure in the regulated
electric business.

The Power Choice agreement
established a five-year rate plan that reduces class average residential and
commercial prices by an aggregate of 3.2 percent over the first 3 years,
beginning September 1, 1998. On September 1, 1999, Niagara Mohawk implemented
its second phase of rate reductions and implemented its third phase of rate
reductions on September 1, 2000. The reduction in prices includes certain
savings that result from approved reductions of the GRT. Recent New York State
tax law changes that further reduce the GRT rate for some customers and
eliminates the GRT for others, are not reflected in the price reductions. The
tax law changes are discussed below and in Item 1. Notes to the Consolidated
Financial Statements, Note 1. Summary of Significant Accounting Policies,
Basis of Presentation. Industrial customers are currently receiving
average reductions of 25 percent relative to 1995 tariffs; this decrease
includes discounts currently offered to some industrial customers through
optional and flexible rate programs. As part of Power Choice, Niagara Mohawk has
retained the flexibility to address specific competitive challenges for energy
intensive customers through individual rate negotiations.

Generation Asset Sales:  In its written Order dated May 6, 1998, the PSC approved Niagara
Mohawks plan to divest all of its fossil and hydro generation assets,
which is a key component in its Power Choiceagreement to lower average
electricity prices and provide customer choice. During 1999, Niagara Mohawk
completed the sale of its coal-fired generation plants, its hydro assets and its
oil and gas-fired plant at Oswego. See Holdings and Niagara Mohawks
combined Form 10-K for fiscal year ended December 31, 1999, Part II, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations - Power Choice and the Restructuring of the Regulated Electric
Utility Business - Generation Asset Sales for discussion of the sales
completed during 1999 and Holdings and Niagara Mohawks combined Form 10-Q
for the quarter ended June 30, 2000, Part I, Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Restructuring of the Regulated Electric Utility Business - Generation
Asset Sales for discussion of the sales completed during 2000.

The Power Choice agreement
stipulated that absent a statewide solution, Niagara Mohawk would file a
detailed plan for analyzing other proposals regarding its nuclear assets,
including the feasibility of an auction, transfer and/or divestiture of such
facilities, within 24 months of Power Choice. On June 24, 1999, Niagara Mohawk
announced an agreement to sell its nuclear generation assets to AmerGen. NYSEG
was also a party to the agreement and agreed to sell its share of Unit 2 to
AmerGen. On April 25, 2000, the PSC deemed Niagara Mohawk and NYSEGs
petitions with respect to the AmerGen agreement to be withdrawn because the PSC
expects a competitive process to sell the nuclear assets to result in a
substantially higher value and lower stranded costs than the AmerGen agreement.
As a result, Niagara Mohawk, NYSEG and AmerGen terminated their agreement in
contemplation of such a competitive process and, Niagara Mohawk and certain
other co-owners are in the process of auctioning Unit 1 and their share of Unit
2. Niagara Mohawk cannot predict the outcome of this process, but is committed
to pursue the sale of Unit 1 and Unit 2. Notwithstanding this commitment,
because Unit 2 has multiple owners and because any sale will be subject to
regulatory hurdles that must be overcome, including stranded cost recovery,
Niagara Mohawk does not believe that a sale is any more likely to occur than
other possible outcomes, including the possible continued operation of the
plants by Niagara Mohawk for the remainder of their useful lives.

Stranded Cost Recovery:  In approving Power Choice, the PSC authorized changes to Niagara
Mohawks Retail Tariff providing for the recovery of stranded costs in the
case of municipalization regardless of whether the new municipal utility
requires transmission service from Niagara Mohawk. The calculation of stranded
costs is governed by Rule 52 of Niagara Mohawks Retail Tariff, which
became effective on April 6, 1998. The stranded cost recovery provisions of
Niagara Mohawks Retail Tariff supplement the provisions of FERCs
Order No. 888, which provides for the recovery of certain stranded costs in
wholesale transmission rates. A number of communities served by Niagara Mohawk
are considering municipalization and have requested an estimate of their
stranded cost obligations. The following communities have commenced legal
proceedings challenging Niagara Mohawks right to recover stranded costs:

In August 1997, Niagara
Mohawk provided the village of Lakewood (Lakewood) with an estimate
of its stranded cost obligations under both Rule 52 and FERC Order No. 888. In
June 1998, Lakewood filed a petition with FERC seeking a determination that it
would not be responsible for any of Niagara Mohawks stranded costs if it
created a new municipal electric system.

On December 11, 1998, the
FERC issued an order granting Niagara Mohawks request for clarification
that Order No. 888 does not preempt the exit fee provision of the Retail Tariff
and directing that Lakewoods case before the FERC be held in abeyance
pending the resolution by the PSC of Lakewoods stranded cost obligation
under the exit fee provisions of Niagara Mohawks Retail Tariff.

During 1999, the PSC
established a formal proceeding in this matter. Niagara Mohawk filed its direct
case on September 3, 1999, which supported a revised estimate of exit fees of
$18 million. Lakewood filed its direct case on October 18, 1999, which supported
an exit fee of approximately $5 million. The parties to the case subsequently
entered into a number of stipulations that subjects any exit fee established by
the Commission to a true-up based on the resolution of certain issues presented
in other proceedings or forums. These include stipulations which call for
ultimate determinations outside this case of the amortization period for
regulatory assets, and return on Niagara Mohawks regulatory assets for
nuclear stranded costs, the MRA and loss on the sale of the fossil and hydro
generation assets.

On September 11, 2000, the
PSC issued an order setting Lakewoods exit fee at approximately $14.5
million, subject to certain adjustments. In that order, the PSC also directed
that further proceedings be conducted to determine whether certain changes to
Rule 52 should be implemented at the expiration of the five year term of Power
Choice. Niagara Mohawk is unable to predict the outcome of these further
proceedings at this time.

While the municipalization
of Lakewood would not have a material impact on Niagara Mohawks results of
operations and financial position, the outcome of this matter will likely define
the methodology to determine exit fees.

The Alliance for Municipal
Power (AMP) is a group of 21 towns and villages in St. Lawrence and
Franklin counties pursuing municipalization. AMP appealed the Commissions
orders approving Power Choice and Rule 52, which appeal was dismissed by the
Supreme Court of Albany County. AMP filed an appeal of this decision, but failed
to perfect its appeal within the time limit specified in New Yorks Civil
Practice Laws and Rules.  However, this appeal has not yet been dismissed by the
Appellate Division of the Supreme Court of Albany County.

At the PSCs request,
Niagara Mohawk has provided AMP with stranded cost calculations under Rule 52
and Order No. 888. Niagara Mohawk estimated AMPs total stranded cost
estimate at $150 million under Rule 52 and $272 million under Order No. 888. On
June 23, 1999, a representative of the AMP communities submitted a letter to the
PSC disputing Niagara Mohawks exit fee calculations and requesting that
the alternative dispute resolution procedures of Niagara Mohawks Power
Choice Settlement be invoked to resolve that dispute. By letter dated August 10,
1999, the PSC directed Niagara Mohawk to meet with representatives of the AMP
communities and an administrative law judge employed by the PSC. Since that
date, representatives of Niagara Mohawk and the AMP communities have met on
several occasions to exchange information and views on this subject, but no
agreement has yet been reached. On September 29, 2000, AMP filed a Petition for
an Expedited Declaratory Order with the FERC. In that petition, AMP urged the
FERC to nullify the exit fee provisions of Niagara Mohawks Retail Tariff
on a variety of grounds. The FERC has not yet set a date for interventions and
protests in response to this petition. Niagara Mohawk believes it has
meritorious defenses to the requests for relief made by AMP in its petition, but
cannot predict the outcome of this proceeding at this time. If the 21 AMP
communities withdrew from Niagara Mohawks system, Niagara Mohawk would
experience a potential revenue loss of approximately two percent per year. The
impact on Niagara Mohawks electric margin is considered to be immaterial.
Suspension of Power Choice or renegotiation of its material terms could have a
material adverse effect on Holdings and Niagara Mohawks results of
operations, financial condition, and future cash flows.

In a petition for expedited
declaratory ruling filed with the FERC on June 24, 1999, the Griffiss Local
Development Corporation (GLDC) and the Oneida County Industrial
Development Agency (Oneida IDA) sought an order declaring that
purchases of electricity from Niagara Mohawk by the Air Force Base Conversion
Agency and/or by GLDC itself for use at the former Griffiss Air Force Base
(the Base) were wholesale sales subject to the jurisdiction of the
FERC rather than retail sales subject to the jurisdiction of the PSC. In
addition, GLDC and Oneida IDA also sought an order from the FERC asserting
exclusive jurisdiction over any stranded cost obligation resulting from the
change from retail to wholesale rates and a determination that Niagara Mohawk
was not entitled to any stranded costs as a result of that change. Niagara
Mohawk intervened in this proceeding and opposed all relief requested by GLDC.
The FERC has not yet acted on this Petition.

On July 19, 1999, GLDC and
Oneida IDA filed an application with the PSC for a certificate of public
convenience and necessity allowing them to furnish electric service to retail
customers located on the Base, subject to light-handed regulation by the PSC. On
October 1, 1999, Niagara Mohawk intervened in this PSC proceeding and stated
that it was opposed to the issuance of the approvals requested by GLDC and
Oneida IDA unless they agreed to pay an exit fee, which Niagara Mohawk estimated
at $12 million. GLDC filed responsive testimony and calculated an exit fee of
$180,000, and the PSC outlined an exit fee of approximately $7 million in its
testimony. A substantial portion of the difference between the Niagara Mohawk
estimate and the PSC estimate related to future anticipated load to be served by
GLDC. GLDC and Oneida IDA refused to agree to these terms, and the PSC set that
case for hearing before one of its administrative law judges.

Shortly before that hearing
was scheduled to commence, Niagara Mohawk entered into a settlement agreement
with GLDC and Oneida IDA that provides GLDC with discounted electric rates for a
five year period, which would be consistent with established discounted rates
under Power Choice. This Settlement is contingent on GLDCs receipt of an
allocation of Power For Jobs credits by the Economic Development Power
Allocation Board and approval by the PSC. It has recently become apparent that
GLDC will not receive the allocation of Power For Jobs Power on which this
initial settlement was premised, and the parties are renegotiating this
settlement agreement. While Niagara Mohawk is hopeful that this negotiation
process will be successful, Niagara Mohawk cannot predict the outcome of these
negotiations at this time.

Niagara Mohawk has also
prepared exit fee stranded cost estimates for several other municipalities and
customers. Niagara Mohawk is unable to predict whether these other
municipalities or customers will pursue a withdrawal from Niagara Mohawks
system or the amount of stranded costs it may receive as a result of any
withdrawals.

# Financial
Position

Holdings and Niagara
Mohawks capital structure at September 30, 2000 and December 31, 1999, was
as follows:

`September 30,  December 31,
                 %             2000          1999
------------------------------------------------------
Holdings:
Long-term debt                 63.4          61.9
Preferred stock of subsidiary   5.6           5.5
Common equity                  31.0          32.6

Niagara Mohawk:
Long-term debt                 65.1          63.3
Preferred stock                 5.8           5.6
Common equity                  29.1          31.1`

The closing of the MRA
significantly increased the leverage of Niagara Mohawk and Holdings. However,
the increased operating cash flow resulting from the MRA and Power Choice,
including the proceeds from the sale of the fossil and hydro generation assets,
will allow both entities to reduce the leverage in the capital structure. Book
value of Holdings common stock was $16.98 per share at September 30, 2000,
as compared to $16.78 at December 31, 1999.

EBITDA for the 12 months
ended September 30, 2000 was $1,180.8 million for Holdings. EBITDA has declined
approximately $105.4 million as compared to the same period in 1999, primarily
as a result of lower operating income and lower depreciation as a result of the
fossil/hydro generation asset sales. (Note: EBITDA for the 12 months ended
September 30, 1999, has been restated to reflect a change in the EBITDA
calculation methodology using the method defined below. The amount of the change
was $11.2 million). EBITDA represents earnings before interest charges, interest
income, income taxes, depreciation and amortization, amortization of nuclear
fuel, allowance for funds used during construction, amortization/accretion of
MRA/IPP buyout costs, deferral of MRA interest rate savings, and extraordinary
items. EBITDA is a non-GAAP measure of cash flows and is presented to provide
additional information about Holdings and Niagara Mohawks ability to meet
its future requirements for debt service. EBITDA should not be considered an
alternative to net income as an indicator of operating performance or as an
alternative to cash flows, as presented on the Consolidated Statement of Cash
Flows, as a measure of liquidity. EBITDA may not be comparable to similarly
titled measures used by other companies. Following is a reconciliation of EBITDA
to Holdings net income:

`Twelve Months Ended
(in thousands of dollars)                September 30,
                                     2000             1999
                                 -----------     ------------
EBITDA                           $1,180,787      $1,286,167
Interest income                      21,411          24,762
Extraordinary item                     (909)        (23,804)
Income taxes                        (21,173)         (9,505)
Preferred dividend requirement
   of subsidiary                    (33,448)        (36,063)
Interest charges                   (436,490)       (509,965)
Depreciation and amortization      (310,600)       (359,719)
Nuclear fuel amortization           (28,882)        (29,813)
Amortization/accretion of
   MRA/IPP buyout costs            (373,099)       (361,029)
Allowance for funds used during
   construction                       3,022           6,587
Deferral of MRA interest rate
   savings                          (21,305)        (30,997)
                                 -----------     ------------
Net income                        $ (20,686)      $ (43,379)
                                 ===========     ============`

During 1999, the PSC
approved Niagara Mohawks petition to purchase up to $800 million of
Holdings common stock. Holdings Board of Directors has approved a
program to repurchase 40 million shares through December 31, 2002. Niagara
Mohawk purchased 10 million shares of Holdings common stock through
December 31, 1999 for $157.2 million.

During 1999, Niagara Mohawk
entered into an agreement with an agent to purchase up to five million shares of
Holdings common stock. The agent purchased the five million shares during
1999. Niagara Mohawk, which had the option to settle in cash or shares, elected
to settle in cash on June 21, 2000 for $79 million.

Niagara Mohawk purchased
12,125,045 additional shares for approximately $171.0 million during the first
nine months of 2000, excluding the 5 million shares noted above. Niagara Mohawk
has suspended the program to repurchase Holdings common stock as a result
of the proposed merger.

# Adoption of New Accounting Standard

Effective January 1, 2001, Holdings will be required to
 adopt a new accounting standard SFAS No. 133.  The standard calls for
identification of  derivative instruments, classification as to their purpose
 and specific accounting treatment.  See Note 1. Summary
of Significant Accounting Policies  New Accounting Standard,
for a detailed description of the issues surrounding implementation.  Holdings does
not believe that the adoption of the new standard will have a significant
 impact on the earnings or reported statements of financial
position.

# Liquidity
and Capital Resources

Short term.  At
September 30, 2000, Holdings and Niagara Mohawks principal sources of
liquidity included cash and cash equivalents of $113.7 million and $100.4
million, respectively, and accounts receivable of $470.3 million and $390.5
million, respectively. Accounts receivable are net of amounts sold, as discussed
below. Holdings and Niagara Mohawk have a negative working capital balance of
$665.7 million and $719.9 million, respectively, primarily due to long-term debt
due within one year of $865.2 million. Net cash from operating activitieswere $563.9 million for Holdings and $626.0 million for Niagara Mohawk in
the nine months ended September 30, 2000 which funded its acquisition of utility
plant and the retirement of certain debt obligations. Niagara Mohawk has a
senior bank facility agreement that provides Niagara Mohawk with $804 million of
credit consisting of a $280 million 364 day revolving credit facility (expires
May 31, 2001, with the option to convert the loans outstanding at the
termination date to a one-year term loan), a five-year $100 million revolving
credit facility (expires May 31, 2005), and $424 million for letters of credit
with a three-year term (expires June 2, 2003). The letter of credit facility
provides credit support for Niagara Mohawks adjustable rate pollution
control revenue bonds issued through the New York State Energy Research and
Development Authority. As of November 7, 2000, Niagara Mohawk borrowed $255
million from the revolving credit facility, consisting of $210 million from the
364 day revolving credit facility and $45 million from the five year revolving
credit facility, leaving Niagara Mohawk with $125 million of borrowing
capability under the bank facility agreement. Niagara Mohawk also has the ability to issue
first mortgage bonds to the extent that there have been maturities since June
30, 1998. Through September 30, 2000, Niagara Mohawk had $210 million in such
first mortgage bond maturities.

Niagara Mohawk Energy has a
$60 million bank facility secured by certain assets of Opinac. The facility
provides for letters of credit and a $20 million line of credit. The line of
credit will be reduced to $10 million on November 30, 2000, and expires on
September 30, 2001. As of September 30, 2000, approximately $35.9 million and
$1.2 million letters of credit and line of credit, respectively, were
outstanding.  In addition, Holdings has issued guarantees totalling $8 million
as of November 13, 2000 to trade counter-parties of Niagara Mohawk Energy.

Niagara Mohawk has
established a single-purpose, financing subsidiary, NM Receivables LLC
(NMR), whose business consists of the purchase and resale of an
undivided interest in a designated pool of Niagara Mohawk customer receivables,
including accrued unbilled revenues. From the fourth quarter of 1999 through
April 2000 and in September 2000, NMR was not in compliance with a certain
statistical ratio relating to the pool of receivables sold. The purchaser
granted waivers for this period. NMR was in compliance with the ratio for the
months of May through August 2000. The amount of receivables sold at September
30, 2000 was $105.2 million. See Holdings and Niagara Mohawks combined
Form 10-K for fiscal year ended December 31, 1999, Part II, Item 8. Financial
Statements and Supplementary Data, Note 8.  Commitments and Contingencies,
for a further discussion of this customer receivables program.

Holdings and Niagara
Mohawks long-term debt due within one yearand sinking fund
requirements on redeemable preferred stockis $872.8 million at September
30, 2000. In addition, construction expenditures planned within one year are
estimated to be $230 million. These capital requirements are planned to be
financed primarily from internally generated funds, borrowings against the
senior bank facility, and/or additional sales of accounts receivable.

Holdings and Niagara
Mohawks net cash provided by investing activities decreased $730.0
and $798.5 million, respectively in the 9 months ended September 30, 2000 as
compared to the same period in 1999. These decreases are primarily due to
Niagara Mohawk completing the sale of hydro and coal-fired generation assets
during the first nine months of 1999.

Niagara Mohawks
net cash used in financing activities decreased $888.6 million as
compared to the same period in 1999, primarily due to Niagara Mohawk reducing a
lesser amount of debt in 2000 as compared to 1999. In the first nine months of
2000, the net amount of debt repaid was $112.2 million as compared to $1,125.0
million in 1999. In addition, the decrease is due to the corporate restructuring
which involved the transfer of Opinacs cash balance of $89.6 million to
Holdings in 1999. This was partially offset by the repurchasing of
Holdings common stock for $250.0 million in the first 9 months of 2000.

Long term.  Niagara
Mohawks total capital requirements consist of amounts for its construction
program, working capital needs, maturing debt issues and sinking fund provisions
on preferred stock.  The construction expenditures, excluding nuclear fuel
and allowance for funds used during construction (AFC), are
anticipated to be approximately $229 million for 2001 and $230 million and for
2002. Capital expenditure levels for the energy delivery business are generally
consistent year-to-year. If the nuclear sale does not occur, Niagara Mohawk
estimates that it will incur expenditures for construction and nuclear fuel of
$32 million for 2001 and $67 million for 2002. The estimate of construction
additions included in capital requirements for the period 2001 and 2002 will be
reviewed by management to give effect to the overall objective of further
reducing construction spending where possible. Any change in the timing or
outcome of the nuclear sale will effect Niagara Mohawks capital
expenditure requirements.

Mandatory debt and
preferred stock retirements are expected to add approximately another $632.9
million to the 2001 estimate of capital requirements and are expected to add
approximately $548.1, $614.8, $236.1, and $553.7 million in the next subsequent
four years.

These capital requirements
are planned to be financed primarily from internally generated funds and
borrowings against the senior bank facility. As discussed above, Niagara Mohawk
has available $210 million of first mortgage bonds, which will increase to
approximately $1,535.4 million in 2005 based on expected maturities.

External financing plans
are subject to periodic revision as underlying assumptions are changed to
reflect developments and market conditions. The ultimate level of financing
during the next few years will be affected by, among other things:

`-  Consummation of the proposed merger with National Grid (see Merger Agreement
   with National Grid);
-  Niagara Mohawks competitive position and the extent to which competition penetrates its markets;
-  changes in electric and gas prices as a result of regulatory proceedings;
-  potential future actions with respect to IPPs not covered under the MRA;
-  uncertain energy demand due to the weather and economic conditions and obligations to serve
   as provider of last resort;
-  the cash tax benefits anticipated because the MRA generated a net tax operating loss (NOL)
   carryforward in 1998 (See Holdings and Niagara Mohawk's combined Form 10-K for fiscal year
   ended December 31, 1999, Part II, Item 7.  Managements Discussion and Analysis of Financial
   Condition and Results of Operation  Financial Position, Liquidity and Capital Resources
   for a further discussion of Niagara Mohawks ability to use this NOL);
-  levels of common dividend payments (See Holdings and Niagara Mohawk's combined Form 10-K for
   fiscal year ended December 31, 1999, Part II, Item 7.  Managements Discussion and Analysis
   of Financial Condition and Results of Operation  Financial Position, Liquidity and Capital
   Resources  common Stock Dividend), if any, and preferred dividend payments; and
-  the results of the remaining sales of Niagara Mohawk's generation assets.`

The proceeds of the sales
of the generation assets are subject to the terms of Niagara Mohawks
mortgage indenture and the note indenture that was entered into in connection
with the MRA debt financing. Niagara Mohawk is obligated to use 85 percent of
the cash proceeds of the sale of its generation assets to reduce debt
outstanding, as outlined in its Senior Note indenture. For a discussion of the
remaining generation asset sales, see Item 1. Note 3. Rate and Regulatory Issues
and Contingencies  Deferred loss on the sale of assets.

# Results of
Operations

The following discussion presents
the material changes in results of operations for the three months and nine
months ended September 30, 2000 in comparison to the same periods in 1999. The
results of operations reflect the seasonal nature of the business, with peak
electric loads in summer and winter periods. Gas sales peak principally in the
winter. The earnings for the three-month and nine-month periods should not be
taken as an indication of earnings for all or any part of the balance of the
year. Furthermore, future results of operations will be different from the past
in view of the June 30, 1998 termination, restatement or amendment of IPP
contracts, the implementation of Power Choice and the sale of the fossil
and hydro generation assets. With the closing of the MRA and the implementation
of Power Choice effective September 1, 1998, Holdings and Niagara Mohawk expect
reported earnings for the five years under Power Choice to be substantially
depressed as a result of the regulatory treatment of the MRA regulatory asset.
The anticipated effect of the seasonality factor, when coupled with the impact
of the MRA and Power Choice, would be to record a significantly higher
percentage of income earned in the first quarter compared for the balance of
each year. The ability of Niagara Mohawk to improve earnings in the period subsequent
to Power Choice will depend on the outcome of the regulatory process to set prices
at that time and may otherwise be affected by the proposed merger with National Grid.
See Merger Agreement with National Grid for a discussion of the proposed merger.
This discussion should also be read in conjunction with other
financial and statistical information appearing elsewhere in this report.

## Customer
Service System

In mid-February 1999,
Niagara Mohawk implemented a new Customer Service System (CSS). The
CSS replaced existing order, billing, collection and other infrastructural
systems and is designed to provide real-time information as well as a more
flexible and streamlined billing system. The new CSS provided the retail access
and unbundled bill functionality required under Power Choice and also addressed
Year 2000 compliance. These capabilities could not be developed in the previous
systems. While CSS performs bill calculations for residential and commercial
customers, legacy systems continue to calculate bills for most industrial
customers.

Niagara Mohawk, like other
companies that have implemented similar CSS projects, has experienced a
transition period, characterized by significantly higher customer call volumes
and complaints, billing and data accumulation issues, and other problems that
impact productivity and costs. Billing and data accumulation issues included
bill format errors, billing delays as edit and validation checks rejected bills,
instances where bills could not be generated by CSS, and inappropriate late
payment charges. The transition was also complicated by changes in the
information and choices provided to customers pursuant to Power Choice. Niagara
Mohawk took steps prior to and during the transition period to prioritize and
respond to problems quickly. Although the more significant billing and data
accumulation issues concerning customers have been addressed, resolution of the
remaining transition issues continues in 2000. These issues focus on
enhancements and improvements to CSS, which will increase overall bill quality,
timeliness of issuing bills and overall customer satisfaction.

The CSS transition period
has presented several financial exposures. Outstanding accounts receivables have
increased, and Niagara Mohawks bad debt expense for 1999 was $64.0 million
as compared to $31.7 million in 1998, with the increase in 1999 primarily
attributable to the added exposure to collection risk. Bad debt expense for the
first nine months of 2000 was $41.9 million, compared to $41.4 million in the
comparable period in 1999. Niagara Mohawk is taking aggressive action to reduce
its outstanding accounts receivable balance, so that the reserve for bad debts
can be returned to a level appropriate in the normal course of business. These
actions include increasing the outbound telephone calls to high-risk customers
and increasing the number of field collectors. However, the actions available to
Niagara Mohawk are more limited during the heating season (beginning November 1
through April 15), as a result of regulatory restrictions on disconnection of
heat-related service during cold weather.

The PSC has been evaluating
the development and implementation costs of the CSS project, as well as Niagara
Mohawks response to the transition problems incurred during
implementation. The PSC issued an order in January 2000 directing that certain
billing related problems identified by the PSC Staff be corrected, with emphasis
on estimated bills, by March 31, 2000. Niagara Mohawk has addressed the PSC
Staffs concerns regarding estimated bills by adding 45 new meter reader
positions to increase the number of customers whose meters are read monthly from
approximately 800,000 meters to 1.6 million meters. Further enhancements to CSS
were designed to improve the quality of estimates and the ability to provide
customers greater information about the preparation of an estimate. Other
concerns raised by the PSC Staff in the order were addressed in a response filed
by Niagara Mohawk in early February and further updated in a report on May 1,
2000. In the May 1, 2000 report, Niagara Mohawk identified that customer
complaints regarding billing issues has significantly decreased in the first
quarter of 2000 as compared to 1999. The PSC has required Niagara Mohawk to
issue a final report outlining the results achieved from the enhancements made.
The final report was filed on October 31, 2000. The report addressed all
outstanding issues required by the PSC which included: (1) a summary of
modifications made to the billing format; (2) the results of the Companys
efforts to reduce the number of estimated bills rendered; (3) an analysis and
demonstration that the Companys estimating procedures are producing
reasonably accurate bills; (4) a description of the effects for customers of
each billing and system improvement; and (5) approval of the Companys
estimating procedure. Niagara Mohawk cannot predict the outcome or
financial consequences, if any, of the continuing PSC inquiry, but believes it
has met the requirements set forth by the PSC to resolve the issues that
generated much of the call volumes and customer complaints.

## Three Months
Ended September 30, 2000 versus Three Months Ended September 30, 1999

Holdings reported earnings
during the third quarter of 2000 of $2.7 million or 2 cents per share, as
compared with a loss of $31.7 million or a negative 17 cents per share for the
third quarter of 1999. The prior years third quarter loss included an
extraordinary item reflecting the early retirement of debt amounting to $13.1
million or 7 cents per share.

Third quarter 2000 earnings
include approximately $19.4 million, or 12 cents per share, of insurance
proceeds and disaster relief associated with the 1998 ice storm restoration
effort. The quarters earnings also include $9.5 million, or 6 cents per
share, because of higher gas gross margin, and $6.1 million, or 4 cents per
share, due to lower interest costs, net of AFC, resulting from continuing debt
retirement.

Conversely, third quarter
2000 results were reduced by approximately $19.5 million, or 12 cents per share,
as a result of Niagara Mohawks exposure to higher natural gas prices, and
by $3.4 million, or 2 cents per share, due to the second and third phases of
electricity price reductions implemented as part of Niagara Mohawks
regulatory restructuring agreement.

The higher gas margin is
primarily attributable to changes in the regulatory treatment for the recovery
of gas pipeline costs. As a result of such changes, Niagara Mohawk will
experience a higher gas margin during low volume periods, such as in the summer
months, and a lower gas margin during high volume periods, such as in the winter
months. This higher gas margin was partially offset by incentives earned in 1999
that are no longer available under the gas rate agreement.

Niagara Mohawks net
income was $13.2 million during the third quarter of 2000. These earnings as
compared to the same period in 1999 is explained above in the discussion of
Holdings earnings for the same period.

## Revenues and
Sales/Deliveries

Of the $58.3 million
increase in Holdings electric revenues, $(23.8) million relates to Niagara
Mohawk regulated revenues and $82.1 million relates to Opinac unregulated
revenues.

Regulated electric
revenues decreased $23.8 million or 2.8 percent from the third quarter of
1999 due to a decrease in retail revenues of $104.4 million or 13.0 percent.
This decrease was primarily due to a decrease in electric sales/deliveries to
ultimate consumers as a result of the milder summer of 2000 compared to the
warmer than normal weather of 1999 and lower prices. This decrease was partially
offset by an increase in sales for resale of $18.2 million, due primarily to
increased generation sales to the NYISO, an increase in miscellaneous revenues
of $2.4 million (including unbilled revenues) and an increase in transmission
revenues of $18.9 million. Transmission revenues increased as a result of
increased revenues from transmission congestion contracts implemented as part of
the NYISO. The decrease in regulated electric sales to ultimate consumers and
the increase in distribution of energy of $41.1 million reflects the growing
number of customers that purchase electricity from other suppliers.

Regulated electric
salesto ultimate consumers were approximately 7.7 billion KWh in
the third quarter of 2000, a 13.5 percent decrease from 1999, primarily as a
result of milder weather.

Unregulated electric
revenues increased $82.1 million or 88.3 percent from the third quarter of
1999 primarily as a result of Niagara Mohawk Energy increased wholesale and
retail activity.

Unregulated electric sales were 2.5 billion KWh or a 9.4
 percent increase from the third quarter of 1999 primarily as a result of an increase
 in retail sales.

Of the $7.9 million
increase in Holdings gas revenues, $6.0 million relates to Niagara Mohawk
regulated revenues and $1.9 million relates to Opinac unregulated revenues.

Regulated gas
revenues increased $6.0 million or 8.2 percent in the third quarter of 2000
from the comparable period in 1999. This increase is primarily due to an
increase in residential sales. Regulated gas revenues in the third quarter of 1999
 included $6.0 million of revenues earned from revenue sharing mechanism allowed in Niagara
Mohawks gas rates as a result of lowering the cost of gas purchases. This
revenue sharing mechanism was available under the gas rate settlement agreement
that expired on November 1, 1999.

Regulated gas sales
to ultimate consumers were 4.0 million Dth or a 2.9 percent decrease from the
third quarter of 1999. This decrease reflects lower sales to commercial and
industrial customers.

Unregulated gas
sales decreased 0.7 million Dth or 22.2 percent in the third quarter of 2000
from the comparable period in 1999, primarily as a result of a decrease in sales
to other gas marketers.

Unregulated gas
revenues increased $1.9 million or 20.4 percent in the third quarter of 2000
from the comparable period in 1999, primarily as a result of higher gas prices.

## Operating
Expenses

Holdingsfuel for
electric generationand electricity purchasedis explained by Niagara
Mohawks activity, as well as an increase in unregulated supply costs of
$90.7 million or 103.1 percent in the third quarter of 2000 to meet higher sales
requirements.

Niagara Mohawks
totalelectricity purchasedincreased $72.3 million or 31.2 percent
in the third quarter of 2000, primarily to compensate for the sale of Niagara
Mohawks generation assets. Niagara Mohawk now purchases more of its
remaining load requirements through the NYISO or other parties. Although the
prices Niagara Mohawk must pay for electricity are higher than the fuel costs
incurred when the assets were owned, Niagara Mohawk now avoids the cost of
ownership, such as operating and maintenance, property taxes and depreciation.
These variances are discussed below. See Holdings and Niagara Mohawks
combined Form 10-K for the fiscal year ended December 31, 1999, Part II, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operation - Power Choice and the Restructuring of the Regulated Electric
Utility Business - FERC Order 888 for a further discussion on the
implementation of the NYISO. NYISO procedures require it to perform final
billing and settlements as a result of final meter readings on a monthly basis.
The NYISO is currently behind schedule in performing these final billings and
Niagara Mohawk anticipates some refunds due to over billing on electricity
purchases. However, Niagara Mohawk cannot estimate at this time what, if any,
portion may be refunded and accordingly has not recorded any potential
recoveries.

Niagara Mohawks
fuel for electric generation decreased $34.0 million or 64.0 percent as
compared to the third quarter in 1999, primarily as a result of the sale of its
fossil generation plants.

Holdingsgas
purchasedexpensereflects a decrease in Niagara Mohawks gas
purchased expense of $5.7 million in the third quarter of 2000 as further
discussed below, partially offset by an increase of $1.5 million primarily as a
result of higher unregulated sales.

Niagara Mohawks
gas purchased expense decreased $5.7 million in the third quarter of
2000. This was a result of a $8.8 million decrease in purchased gas costs and
certain other items recognized and recovered through the regulated gas commodity
cost adjustment clause, and a decrease in the average cost per Dth purchased
($11.1 million). These decreases were partially offset by a 3.9 million increase
in Dth purchased and withdrawn from storage for ultimate consumers sales ($14.2
million).

Other operation and
maintenance expense for both Holdings and Niagara Mohawk have decreased in
the third quarter 2000 as compared to 1999 primarily due to the receipt of
insurance proceeds and disaster relief associated with the 1998 ice storm
restoration effort of $29.9 million and lower fossil and hydro maintenance costs
due to the sale of the fossil and hydro generation plants during 1999 and 2000.

Depreciation and
amortization expense has decreased by approximately $2.2 million for both
Holdings and Niagara Mohawk as compared to the third quarter of 1999 due to the
sale of Niagara Mohawks fossil and hydro generation plants during 1999 and
2000.

The decrease in other
taxes for both Holdings and Niagara Mohawk of $35.3 million in the third
quarter of 2000 as compared to the second quarter of 1999 is partly due to lower
real estate taxes of $13.3 million resulting from the sale of Niagara
Mohawks fossil and hydro generation plants. Other taxes are also lower due
to lower GRT rates and an increase in GRT credits received due to an increase in
the customers in Niagara Mohawks service territory that participate in New
York States Power for Jobs program. In addition, other taxes decreased as
a result of the state tax law changes as further explained in Item 1. Notes to
the Consolidated Financial Statements, Note 1. Summary of Significant Accounting
Policies, Basis of Presentation.

Holdings and Niagara
Mohawks other incomedecreased in the third quarter of 2000
primarily due to lower interest income and the recording of a generation auction incentive
in the third quarter 1999 of $8.0 million.

Holdings and Niagara
Mohawksinterest charges have decreased in the third quarter of
2000 due to the redemption of Niagara Mohawks Senior Notes and First
Mortgage Bonds.

The increase in Niagara
Mohawks income taxes of approximately $3.4 million is primarily due
to an increase in book taxable income offset by changes in the percentage
allocation of federal income taxes to the third quarter of 2000 as compared to
the same period in 1999. The effective tax rate will differ from the statutory
rate primarily due to the flow-through of certain tax benefits or liabilities as
required by the PSC. As pre-tax income changes, the percentage relationship of
the flow-through items to pre-tax income will also change. This increase was
partially offset by a state income tax benefit of approximately $6.1 million,
which is explained in more detail in Item 1. Notes to the Consolidated Financial
Statements, Note 1. Summary of Significant Accounting Policies, Basis of
Presentation.

## Nine Months
Ended September 30, 2000 versus Nine Months Ended September 30, 1999

Holdings experienced a loss
for the first 9 months of 2000 of $2.5 million or negative 1 cent per share, as
compared with a loss of $16.9 million or negative 9 cents per share for the
first nine months of 1999. Earnings for the first 9 months of 1999 included an
extraordinary charge related to the early retirement of debt of $23.8 million or
13 cents per share.

Earnings for the 9 months
ended September 30, 2000, compared to the same period in 1999, were increased by
$31.7 million, or 19 cents per share, due to lower interest costs, net of AFC,
and by $19.4 million, or 12 cents per share, related to the recovery of January
1998 ice storm costs.

The increases, however,
were offset by a number of factors. Earnings were reduced by $19.5 million, or
12 cents per share, as a result of Niagara Mohawks exposure to higher
natural gas prices; by $18.9 million, or 11 cents per share, for costs
associated with the operation of the NYISO; by $12.2 million, or 7 cents per
share, for higher production from hydroelectric IPPs; and by $11.0 million, or 6
cents per share, as a consequence of electric price reductions.

Niagara Mohawks net
income was $21.4 million for the first 9 months of 2000. The variations in
earnings as compared to the same period in 1999 are noted above in the
discussion of Holdings earnings for the same period.

## Revenues and
Sales/Deliveries

# Nine Months
Ended September 30,

`Electric Revenue (Thousands)       Sales/Deliveries (GWh)
                                                                    %                               %
                                            2000       1999       Change     2000      1999    Change
                                      ---------------------------------------------------------------
Regulated:
   Residential                        $   902,620  $  962,525      (6.2)     7,473     7,864    (5.0)
   Commercial                             774,620     911,264     (15.0)     7,569     9,146   (17.2)
   Industrial                             340,261     361,446      (5.9)     4,524     5,114   (11.5)
   Industrial - Special                    46,822      48,938      (4.3)     3,201     3,386    (5.5)
   Other                                   29,812      36,612     (18.6)       121       136     -
                                      ------------ -----------   -------    -------   -------  ------
Regulated Sales to
        Ultimate Consumers              2,094,135   2,320,785      (9.8)    22,888    25,646   (10.8)
   Distribution of Energy                 136,192      36,875     269.3      2,949     1,027   187.1
Regulated Sales and Deliveries        ------------ -----------   -------    -------   -------  ------
        to Ultimate Consumers           2,230,327   2,357,660      (5.4)    25,837    26,673    (3.1)
   NYISO and Other                         70,820      33,673     110.3      1,349     1,227     9.9
   Transmission of Energy                 114,605      75,395      52.0          -         -       -
   Miscellaneous                           27,724     (15,508)    278.8          -         -       -
   Reclassification of
    GRT revenues (Note 1)                 (15,419)          -         -          -         -       -
                                      ------------ -----------    ------    -------   -------  ------
Total Regulated Sales and Deliveries  $ 2,428,057  $2,451,220      (0.9)    27,186    27,900    (2.6)
                                      ============ ===========    ======    =======   =======  ======
Unregulated:
   Wholesale & Retail Sales       $   399,204  $  146,523     172.5      8,010     4,074    96.6
                                      ============ ===========   =======    =======   =======  ======`

Of the $229.5 million
increase in Holdings electric revenues, $(23.2) million relates to Niagara
Mohawk regulated revenues and $252.7 million relates to Opinac unregulated
revenues.

Regulated electric
revenues decreased $23.2 million or 0.9 percent from the first 9 months of
1999. Sales for resale increased $37.1 million, due primarily to higher
generation sales to the NYISO, miscellaneous revenues increased $43.2 million
(including unbilled revenues) primarily
due to a change in the amount of unbilled revenues recorded and transmission
revenues increased $39.2 million. This increase was offset by a decrease in
retail revenues of $226.7 million due to milder weather, customer switching
for supply and lower prices.
Transmission revenues increased as a result of increased revenues from TCCs
implemented as part of the NYISO. The decrease in regulated electric sales to
ultimate consumers and the increase in distribution of energy of $99.3 million
reflects the growing number of customers that purchase electricity from other
suppliers.

Regulated electric
salesto ultimate consumers were approximately 22.9 billion KWh
in the first 9 months of 2000, a 10.8 percent decrease from 1999. This decrease
is primarily due to milder weather and customer switching for supply.

Unregulated electric
revenues increased $252.7 million or 172.5 percent from the first 9 months
of 1999 primarily as a result of Niagara Mohawk Energy increased sales to other
marketers.

Unregulated electric
sales were 8.0 billion KWh or a 96.6 percent increase from the first 9
months of 1999 primarily as a result of an increase in retail sales and sale to
other marketers.

# Nine Months
Ended September 30,

`Gas Revenue (Thousands)   Sales/Deliveries (Thousands of Dth)
                                                       %                            %
                                 2000      1999     Change      2000      1999    Change
                            --------------------------------------------------------------
Regulated:
   Residential              $  320,462   $298,115     7.5      41,104    40,883     0.5
   Commercial                   87,024     82,426     5.6      12,167    13,059    (6.8)
   Industrial                    1,831      1,951    (6.2)        321       449   (28.5)
                            -----------  ---------  ------    --------  --------  ------
Regulated Total to
   Ultimate Consumers          409,317    382,492     7.0      53,592    54,391    (1.5)
   Transportation of
   Customer-Owned Gas           46,460     42,007    10.6     104,690   101,918     2.7
   Spot Market Sales             1,604      3,054   (47.5)        592     1,350   (56.1)
   Miscellaneous                 8,289     15,005   (44.8)          7         8   (12.5)
   Reclassification of
      GRT revenues (Note 1)     (3,093)         -       -           -         -       -
                            -----------  ---------  ------    --------  --------  ------
Total Regulated             $  462,577   $442,558     4.5     158,881   157,667     0.8
                            ===========  =========  ======    ========  ========  ======
Unregulated:
   Wholesale & Retail   $   44,553   $ 22,662    96.6      12,484     8,127    53.6
                            ===========  =========  ======    ========  ========  ======`

Of the $41.9 million
increase in Holdings gas revenues, $20.0 million relates to Niagara Mohawk
regulated revenues and $21.9 million relates to Opinac unregulated revenues.

Regulated gas
revenues increased $20.0 million or 4.5 percent in the first 9 months of
2000 from the comparable period in 1999. This increase is primarily due to an
increase in residential sales and higher gas prices that are passed through to
customers. Regulated gas revenues in the first 9 months of 1999 included $7.6
million of revenues earned from revenue sharing mechanisms allowed in Niagara
Mohawks gas rates as a result of lowering the cost of gas purchases. This
revenue sharing mechanism was available under the gas rate settlement agreement
that expired on November 1, 1999.

Regulated gas sales
to ultimate consumers were 53.6 million Dth or a 1.5 percent decrease from the
first 9 months of 1999. This decrease is partially a result of warmer weather in
the first quarter of 2000 as compared to the same period in 1999. In addition,
the decrease is also due to the conversion of customers in the first quarter of
1999 from a bi-monthly billing to a monthly billing schedule as part of the
conversion to the new CSS system.

Unregulated gas
sales increased 4.4 million Dth or 53.6 percent in the first 9 months of
2000 from the comparable period in 1999, primarily as a result of an increase in
retail sales and sales to other gas marketers. As a result of the increase in
sales, unregulated gas revenues increased $21.9 million or 96.6 percent
in the first 9 months of 2000 from the comparable period in 1999.

## Operating
Expenses

Holdingsfuel for
electric generationand electricity purchased, which increased $441.5
million, is explained by Niagara Mohawks activity, as well as an increase
in unregulated electric supply costs of $265.5 million or 191.4 percent in the
first 9 months of 2000, primarily due to higher sales.

Nine Months
Ended September 30,(Niagara Mohawk only)

`GWh                      Cost (millions)          Cents/Kwh
                                    ------------------------     -------------------------   --------------
                                    2000     1999     % Chg      2000     1999      % Chg     2000   1999
                                    ----     ----     -----      ----     ----      -----     ----   ----
Regulated Fuel for
 Electric Generation:
   Coal                                -    2,989    (100.0)     $   -   $  44.8   (100.0)       -    1.5
   Oil                               406    1,997     (79.7)      18.8      63.2    (70.3)     4.6    3.2
   Natural Gas                        55      656     (91.6)       2.3      20.3    (88.7)     4.2    3.1
   Nuclear                         5,838    5,321       9.7       27.0      25.9      4.2      0.5    0.5
   Hydro                               -    1,396    (100.0)         -         -        -        -      -
                                  -------  -------   -------     ------  --------  -------   ------ ------
                                   6,299   12,359     (49.0)      48.1     154.2    (68.8)     0.8    1.2
   Deferral                            -        -         -          -       3.0   (100.0)       -      -
                                  -------  -------   -------     ------  --------  -------   ------ ------
   Total electric generation       6,299   12,359     (49.0)      48.1     157.2    (69.4)    0.8     1.3
                                  -------  -------   -------     ------  --------  -------   ------ ------
Regulated Electricity Purchased:
 IPPs:
   Capacity                            -        -         -        9.8       9.8        -       -       -
   Energy and taxes                3,833    5,256     (27.1)     228.0     252.4     (9.7)    5.9     4.8
                                  -------  -------   -------     ------  --------  -------   ------ ------
   Total IPP purchases             3,833    5,256     (27.1)     237.8     262.2     (9.3)    6.2    5.0
                                  -------  -------   -------     ------  --------  -------   ------ ------
 Fossil/Hydro PPAs:
   Capacity                            -        -         -       33.2      19.4     71.1       -       -
   Energy and taxes                2,662    2,094      27.1       74.6      48.6     53.5     2.8     2.3
                                  -------  -------   -------     ------  --------  -------   ------ ------
   Total Fossil/Hydro purchases    2,662    2,094      27.1      107.8      68.0     58.5     4.0    3.2
                                  -------  -------   -------     ------  --------  -------   ------ ------
   NYISO purchases                 7,021        -         -      319.4         -        -     4.5      -
   NYISO ancillary charges             -        -         -       67.7         -        -       -      -
   Other purchases                 6,547    8,320     (21.3)     106.2     176.0    (39.7)    1.6    2.1
   Swap payments                       -        -         -       53.7      70.3    (23.6)      -      -
                                  -------  -------   -------     ------  --------  -------   ------ ------
   Sub-total regulated purchases  20,063   15,670      28.0      892.6     576.5     54.8     4.4    3.7
                                 --------  -------   -------     ------  --------  -------   ------ ------
   Deferral                            -        -         -      (22.7)     (0.7) 3,142.9       -      -
                                 --------  -------   -------     ------  --------  -------   ------ ------
   Total regulated purchases      20,063   15,670      28.0      869.9     575.8     51.1     4.3    3.7
                                 --------  -------   -------     ------  --------  -------   ------ ------
Total generated and purchased     26,362   28,029      (5.9)   $ 918.0   $ 733.0     25.2     3.5    2.6
                                 ========  =======   =======   ========  ========  =======   ====== ======`

Niagara Mohawkselectricity purchasedincreased $294.1 million or 51.1 percent in the first
9 months of 2000, primarily to compensate for the sale of Niagara Mohawks
fossil and hydro generation assets. Niagara Mohawk now purchases more of its
remaining load requirement through the NYISO or other parties (for a discussion of the
portion of the purchases from the NYISO that are hedged, see Item 3. Quantitative
and Qualitative Disclosure About Market Risk  Electricity Swaps  Hedge of NYISO
Purchases). Although the
prices Niagara Mohawk must pay for electricity are higher than the fuel costs
incurred when the assets were owned, Niagara Mohawk avoids operating costs from
running these plants, including labor, fuel, real estate taxes, and
depreciation. The decrease in IPP purchases is primarily due to the additional
IPP contract buyouts made in 1999 and 2000. The amortization of the buyout costs
is included on the Amortization/accretion of the MRA/IPP buyout
costs line item of the Consolidated Statements of Income. The reductions
in IPP purchases were offset in part by an increase in hydro IPP purchases due
to an increase in water flow compared to a drier season in 1999. These IPP hydro
purchases have a higher cost per Kwh than market based prices. Niagara Mohawk is
required to purchase 100 percent of the output of these plants, in accordance
with the hydro IPP contracts. Included in other purchases for the 9 months ended
September 30, 1999 are purchases from the New York Power Pool
(NYPP), the predecessor of the NYISO. The decrease in other
purchases for the 9 months ended September 30, 2000 is primarily due to the
elimination of NYPP. The change in the deferral for electricity purchased is due
to the regulatory treatment of the hydro PPA as discussed above in Part 1, Item
1. Notes to the Consolidated Financial Statements, Note 3. Rate and Regulatory
Issues and Contingencies, Deferred loss on the sale of assets.

See Holdings and Niagara
Mohawks combined Form 10-K for the fiscal year ended December 31, 1999,
Part II, Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operation  Power Choice and the
Restructuring of the Regulated Electric Utility Business  FERC Order
888 for a further discussion on the implementation of the NYISO. Included
in the NYISO ancillary charges is an operating reserve charge. This charge is
based upon market prices, which significantly increased during the month of
February 2000. Approximately one-half of the operating reserve charges have been
reimbursed under the Huntley and Dunkirk financial swaps or passed on to
customers that are charged a market price for commodity. During the first
quarter, Niagara Mohawk, among others, petitioned the FERC to revise the
calculation of this charge and requested a refund on the over charge. The NYISO
temporarily set a price cap on the charge, which went into effect in March 2000.
On May 31, 2000, the FERC denied the portion of the petition regarding the
refund on the overcharge. Niagara Mohawk has subsequently appealed the decision
but cannot predict the outcome of the appeal. Niagara Mohawk also believes that
it was over billed for a portion of its energy purchases and believes it may
receive a refund for a portion of these charges when the NYISO performs its
final billings and settlements as a result of final meter readings as required.
The NYISO is currently behind schedule in performing these final billings.

For each billing month,
NYISO procedures provide for four billing and settlement period corrections,
namely the (1) initial settlement; (2) a 3 month following settlement; (3) a 6
month following settlement; and (4) a 12 month following correction. To date,
the NYISO has not completed any billing settlement corrections (i.e. 3 month, 6
month, 12 month), with the exception of a 6 month correction to the months of
November 1999 through January 2000. However, the NYISO has not done the final billing
settlement to determine
undefined billing errors that exist in the 6 month correction and intends to
make the appropriate corrections in the 12-month correction. Due to the lack of
confidence from the NYISO that any month to-date has been correctly balanced,
Niagara Mohawk cannot estimate the financial consequences from the rebalancing billing
statements.

Niagara Mohawk has entered
into financial agreements with IPP Parties in connection with the MRA and with
buyers of its previously owned coal and oil/gas fired facilities. The swap
payments included in the above table are measured as the difference between the
specified contract price and the market price of electricity, relative to
respective notional quantities of electricity. See Holdings and Niagara
Mohawks combined Form 10-K for the fiscal year ended December 31, 1999,
Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk -
Commodity Price Risk and also Note 9. Fair Value of Financial and
Derivative Financial Instruments - Swap Contracts. The IPP Indexed
swaps and the Albany swap contract prices are indexed monthly to changes in the
price of gas (the primary fuel of these facilities). The IPP Indexed swaps began
indexing changes in gas prices on July 1, 2000, after two years of fixed prices.
The indexing increased the contract prices for the 3 months ended September 30,
2000 by 34 percent, or $18.1 million higher than previously forecast and will
continue at an incremental cost of $6 million to $8 million per month through
August 2001. Under Power
Choice, Niagara Mohawk bears the risk of changes in the indexed contract prices
until August 31, 2001. Thereafter, changes in prices will be borne by customers.

Niagara Mohawk has taken
several steps to reduce exposure to further variability. Two of the eight IPP swap contracts were
renegotiated to fix the gas price used for indexing. Also, Niagara Mohawk
entered into NYMEX gas futures contracts and fixed for floating basis swaps
hedge the escalation in the natural gas price component for the remaining six
IPP indexed swap contracts through August 2001.

The method of accounting
for gas futures is in accordance with SFAS No. 80 as a hedge of an anticipated
transaction. Under hedge accounting, gains or losses from the settlements of the
futures contracts are deferred until the hedged transactions occur. At that
time, the gains or losses and the payments under the indexed swap contracts are
recognized in power purchases in the Consolidated Statements of Income.

The transactions being
hedged are increases in the cost of natural gas used as a component of the
indexing of the IPP swap contract prices. The extent to which the cost of gas
impacts the IPP swap contract prices varies by contract, but on average
represents approximately 60 percent to 70 percent of the indexed contract
prices.

If there is a loss of
correlation between changes in the market value of the futures contracts and the
commodity cost of gas, Niagara Mohawk would cease to account for the contracts
as hedges and any gains or losses in the contracts value would be recognized in
the Statements of Income currently.

These gas futures contracts
qualify for hedge accounting because they are designated as hedges at their
inception, and price movements in the futures contracts are expected to
correlate with changes in the commodity price of natural gas. This commodity
price change is expected to correlate with changes in the indexed contract
prices. The results of the futures contracts should be highly effective in offsetting the
effects that gas price changes have on the indexed contract prices.

Niagara Mohawks
fuel for electric generation decreased $109.1 million as compared to the
first nine months in 1999 primarily due to the sale of its fossil generation
assets. Niagara Mohawks nuclear generation increased as compared with the
first nine months of 1999, primarily due to the outages at Unit 1 and Unit 2
during the first nine months of 1999. In accordance with Power Choice, the
electric fuel adjustment clause was discontinued. However, during the first
quarter of 1999, Niagara Mohawk recorded a $3.0 million liability to customers
resulting from PSC audit adjustments of prior years fuel costs.

Holdingsgas
purchasedexpensereflects the increase in Niagara Mohawks gas
purchased expense of $39.5 million discussed below, as well as an increase of
$22.5 million in the first 9 months of 2000 primarily as a result of higher
unregulated sales.

Niagara Mohawks
gas purchased expense increased $39.5 million in the first 9 months of
2000. This was a result of a $10.7 million increase in purchased gas costs and
certain other items recognized and recovered through the regulated gas commodity
cost adjustment clause, a 5.4 percent increase in the average cost per Dth
purchased ($10.9 million), and a 9.0 million increase in Dth purchased and
withdrawn from storage for ultimate consumers sales ($17.9 million). Niagara
Mohawks net cost per Dth sold, as charged to expense during the first 9
months, excluding spot market purchases, increased to $4.12 in 2000 from $3.79
in 1999.

The increase in the
purchased gas costs and certain other items recognized and recovered through the
regulated gas cost adjustment mechanism was primarily due to a change in the
regulatory treatment for these costs in accordance with Niagara Mohawks
temporary gas rate agreement that has been in place since the expiration of the
1996 rate agreement on November 1, 1999. The result of this change in recovery
method will cause Niagara Mohawk to experience a lower gas margin during high
volume periods, such as in the winter months, and a higher gas margin during low
volume periods, such as in the summer months. Although the negative 2000
earnings impact from this timing difference is expected to reverse by year-end,
annual gas margins for 2000 are expected to be lower because certain cost saving
incentives earned in 1999 are no longer available under the gas rate agreement.

Other operation and
maintenance expenses for the first nine months of 2000 of both Holdings and
Niagara Mohawk have decreased primarily due to the receipt of insurance proceeds
and disaster relief associated with the 1998 ice storm restoration effort of
$29.9 million; and lower fossil and hydro maintenance costs due to the sale of
the fossil and hydro generation plants during 1999 and 2000. This was partially
offset by higher costs associated with the sale of accounts receivable, higher net
nuclear expense which reflects higher non-outage costs at Unit 2 and a higher
stock-based long-term management incentive accrual.

Amortization/accretion
of MRA/IPP buyout costs for both Holdings and Niagara Mohawk have increased
$9.7 million for the first nine months of 2000 as further explained in Note 1.
Summary of Significant Accounting Policies  Basis of
Presentation.

Depreciation and
amortization expense for both Holdings and Niagara Mohawk have decreased
$34.9 million for the first nine months of 2000 as a result of the sale of
Niagara Mohawks fossil and hydro generation assets, which decreased
depreciation and amortization expense by approximately $30.4 million.

The decrease in other
taxes of $117.7 million for both Holdings and Niagara Mohawk for the first 9
months of 2000 as compared to the same period in 1999 is partly due to lower
real estate taxes of $49.1 million resulting from the sale of Niagara
Mohawks fossil and hydro generation plants. Other taxes are also lower due
to lower GRT rates and an increase in GRT credits received due to an increase in
the customers in Niagara Mohawks service territory that participate in New
York States Power for Jobs program. In addition, other taxes decreased as
a result of the state tax law changes as further explained in Item 1. Notes to
the Consolidated Financial Statements, Note 1. Summary of Significant Accounting
Policies, Basis of Presentation.

Holdings and Niagara
Mohawks other incomedecreased approximately $11 million primarily
due to lower interest income and AFC and higher carrying charges. This was
partially offset by a lower amount deferred in connection with MRA interest rate
savings. In approving Power Choice, the PSC ordered that any savings from any
reduction in the interest associated with the debt issued in connection with the
MRA financing as compared to assumptions underlying Niagara Mohawks Power
Choice filing be deferred for future disposition.

Holdings and Niagara Mohawk's interest charges decreased
 mainly due to the repayment of approximately $1.1 billion in debt during 1999.

Holdings and Niagara
Mohawks income taxes were about the same for the nine months ended
2000 and 1999. As further explained in Item 1. Notes to the Consolidated
Financial Statements, Note 1. Summary of Significant Accounting Policies,
Basis of Presentation, about $6.0 million of state income taxes are
included in the income taxes line item for the nine months ended
September 30, 2000 reflecting the change in the New York State income tax law.
There were no state income taxes applicable to Niagara Mohawk in 1999. Holdings
and Niagara Mohawks federal income taxes were lower by approximately $6.0
million primarily due to lower book taxable income in the first 9 months of 2000
as compared to 1999. Included in earnings for the first 9 months of 1999 is
approximately $9.2 million of previously deferred investment tax credits
associated with the sale of Niagara Mohawks two coal-fired generation
plants, while only $0.8 million previously deferred investment tax credits
associated with the sale of the Albany oil and gas-fired generation plant is
included in the results for the first 9 months of 2000. Niagara Mohawk believes
this accounting to be consistent with applicable tax laws. The effective tax
rate will differ from the statutory rates primarily due to the flow-through of
certain federal tax benefits or liabilities as required by the PSC. As pre-tax
income changes, the percentage relationship of the flow-through items to pre-tax
income will also change.

## ITEM 3.  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material
changes in Holdings or Niagara Mohawks market risks during the nine months
ended September 30, 2000, however, Niagara Mohawk has taken several additional
steps to mitigate some of the risks posed to its operations. Based upon
forecasts of gas commodity prices, Niagara Mohawk has and may continue to experience increases in
the cost of gas purchased for resale to customers as well as increases in
payments under the IPP Indexed Swap Contracts and in the payments made to one of
the IPPs. In addition, the price of oil or natural gas could adversely affect
the payments made under the Albany swap contract. The company has participated
in the NYISO TCC auction in order to mitigate volatility in the cost of
electricity transmission. The steps the company has taken to mitigate these
risks are discussed below. For a detailed discussion of market risk, see
Holdings and Niagara Mohawks combined Form 10-K for fiscal period ended
December 31, 1999, Part II, Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.

Niagara Mohawk has a risk
management policy defining the limits within which hedging activities are
carried out. The objective of Niagara Mohawks hedging program is to
mitigate risks associated with the various commodity and transportation costs
that may have an impact on earnings. Niagara Mohawk does not hold speculative
positions in gas or electric commodity futures for trading. The instruments that
Niagara Mohawk uses as hedges are purchased for quantities expected to be used
or sold over a reasonable period of time in the normal course of business.

See Holdings and Niagara
Mohawks combined Form 10-K for fiscal year ended December 31, 1999, Part
II, Item 7A. Quantitative and Qualitative Disclosures About Market
Risks - subsection titled Commodity Price Risk for a
discussion on the IPP, Huntley, and Dunkirk swaps.

## Gas Futures
Contracts - Gas for Resale to Customers

In June 2000, Niagara
Mohawk began to hedge its exposure to fluctuations in natural gas commodity
prices with NYMEX gas futures contracts. The item to be hedged, purchased
natural gas, exposes Niagara Mohawk to commodity price volatility. Even though
Niagara Mohawks exposure to gas commodity price fluctuations is limited by
a regulatory ruling that transfers the commodity price risk to the customer for
prudently incurred commodity costs, Niagara Mohawk uses gas futures as hedges to
effectively and prudently manage those costs.

The anticipated
transactions being hedged are the purchases of natural gas for resale to
customers for the winter heating season of November 2000 through March 2001.
Based on similar purchases in the past, the quantity of gas hedged by the
futures contracts should represent approximately ten percent of the gas
purchased during this time frame. As of November 2000, Niagara Mohawk has 360
open futures contracts valued at a
mark to market deferred loss of approximately $640,000. The market prices used
for this valuation were taken from a brokers statement as of the date of
this disclosure and are not intended to predict the actual closing price at the
time the contracts are settled.

Based on current accounting
rules, SFAS No. 80, Accounting for Futures Contracts if there is a loss of
correlation between changes in the market value of
the futures contracts and gas commodity costs, we would cease to account for the
contracts as hedges. Any deferred gains or losses in the value of the futures
contracts would be recognized in the Statements of Income currently. However,
Niagara Mohawk believes that prudently incurred costs are recoverable from
customers.

## Gas Futures
Contracts and Gas Basis Swaps - Indexed Swap Contracts

Niagara Mohawk believes that the above market payments under the IPP
 indexed swap contracts are, in aggregate, included within the
forecast used in setting Power Choice prices.  However, through August
 2001, prices for approximately three-quarters of its sales are
fixed.  Therefore, significant increases in the gas component of the index
 would pose a risk to earnings.  Niagara Mohawk took steps
to mitigate this risk, first by renegotiating two of the contracts in such
 a manner that the gas component of the indexed price is
fixed through August 2001.  For the remaining six IPP swap contracts Niagara
 Mohawk has utilized a combination of NYMEX futures and
fixed for floating basis swaps to lock in the gas component of the indexed
 contract price through August 2001.  Beginning in
September 2001, Niagara Mohawk can recover the cost variations in the indexed
 swap contracts resulting from the indexing provisions.

Beginning in August 2000,
Niagara Mohawk began purchasing NYMEX gas futures to hedge the gas commodity
component of the indexed contract payment for six of the IPP indexed swap
contracts. The anticipated transactions being hedged are the gas commodity
components of the indexed contract payments for the six IPP swaps for the period
September 2000 through August 2001. The NYMEX futures cover all of the quantity
of gas impacting these payments during this time frame. At this time, Niagara
Mohawk has 2,298 open futures contracts valued at a mark to market deferred gain
of $1.9 million. The market prices used in this valuation were taken from a
brokers statement as of the date of this disclosure and are not intended
to predict the actual closing price at the time the contracts are settled.

The gas factor in the
indexing formula for each of the six IPPs designates a particular geographic
pricing point for the referenced price of natural gas. NYMEX futures contracts
are predicated on the commodity price of gas at the Henry Hub in Louisiana. The
term basis refers to the price differential between the price of gas
at the Henry Hub and the price at some other particular pricing point. The gas
component to the indexing formula in each of the IPP contracts encompasses both
the commodity price and the basis cost for gas to the particular pricing point
identified in the contract. To more fully hedge the impact that gas prices have
on the indexed price, Niagara Mohawk entered into fixed for floating basis swap
agreements with several counterparties. These contracts fix the basis cost of
gas between the Henry Hub and each of the pricing points stated in the IPP
swaps. This hedging was undertaken for the period of October 2000 through August
2001. The quantities hedged were the same quantities as determined for the NYMEX
futures contracts.

The anticipated
transactions being hedged are the gas basis components of the indexed contract
payments for the six IPP swaps for the period October 2000 through August 2001.
The basis swaps cover all of the quantity of gas impacting these payments during
this time frame. As of November
2000, Niagara Mohawk has contracts with five counterparties and the contracts
would be valued at a mark to market deferred gain of $707,000. Unlike NYMEX
futures, these contracts are not exchange traded, and therefore, the market
prices used in this valuation were obtained from various sources including
brokers quotations as of the date of this disclosure and are not intended
to predict the actual closing price at the time the contracts are settled.

## Gas Futures
Contracts  IPP Contract

One nonMRA IPP contract
for MWs includes a provision which indexes the price
Niagara Mohawk pays to the price of natural gas. Niagara Mohawk is investigating
the use of NYMEX futures as a means to mitigate future gas price risk associated
with this contract.

## Oil Swap
Contract  Albany Indexed Swap

Under this swap agreement,
Niagara Mohawk pays a fixed price for a set quantity of oil in specific months
between January and August 2001. The counterparty pays a market price for oil
that is highly correlated with the oil price referenced in the Albany swap
contract. Price movements in the oil swap are expected to correlate with changes
in the cost of oil used in the Albany swap. The results of the fixed for floating
swap should substantially offset the effects that oil price changes have on the
indexed contract price.

One of the components in
the formula that dictates the indexed contract price for the Albany swap is the
cost of natural gas or oil. The election to use oil or gas in the pricing is at
Niagara Mohawks discretion. Increases in both commodities could impact the
payments under the swap.
Therefore, at the end of September 2000, Niagara Mohawk
chose to limit this risk through a fixed for floating swap on the price of oil
for the period January 2001 through August 2001. At the time, the swaps were
entered into, the gas price factor in the swap payment exceeded the oil factor.
Therefore, the determination was made to only hedge the oil prices. If gas
prices exceed oil prices, payments are based on oil prices, for which Niagara Mohawk has a
hedge. If oil prices exceed gas prices, the swap payments will be based on gas
prices.

The price of oil is
currently being used to calculate the contract payments, however, the swap
payments can be based on gas or oil, whichever is more advantageous for Niagara
Mohawk. The possibility exists that the cash flows realized from the oil swap
hedge might not highly correlate with the Albany swap payments if the latter
payments are based upon the price of gas. If that should occur, Niagara Mohawk
will discontinue hedge accounting treatment and will reclassify deferred gains
or losses to earnings.

The total quantity of oil
hedged is 772,300 barrels over the period of January 2001 through August 2001.
As of the approximate date of this disclosure, early November 2000, the
estimated mark to market valuation is a deferred gain of $1.2 million. This is
not an exchange traded contract, and therefore, the market prices used in this
valuation were obtained by referencing various published sources for the price
of oil as of the date of this disclosure and are not intended to predict the
actual closing price at the time this contract is settled.

## Electricity
Swaps  Hedge of NYISO Purchases

When Niagara Mohawk has more
sales than physical supply contracts, electricity is purchased through the NYISO
at market prices. Purchases from the NYISO subject Niagara Mohawk to price risk.
In order to reduce this exposure, Niagara Mohawk chose to enter into bilateral
fixed for floating swaps on the price of electricity.

The contracts call for
Niagara Mohawk to pay fixed prices for specific quantities of power at various
on-peak and off-peak periods between September 2000 and May 2001. The
counterparty will pay Niagara Mohawk the specific locationally based market
price as set by the NYISO for the same quantity of power during the same on or
off peak periods. Since Niagara Mohawk is also purchasing power through the
NYISO in those same quantities and for the same periods, these swaps will be
highly effective in achieving offsetting cash flows.

The total quantity of
electricity hedged is 1.7 million MWh, or approximately 9 percent of the
projected fixed price sales over the period. As of November 2000, the estimated
 mark to market deferred gain is
$12.8 million. These contracts are not exchange traded, and therefore, the
market prices used in this valuation were based on information derived from
brokers quotations and other sources for the price of electricity as of
the date of this disclosure. These figures are not intended to predict the
actual closing price at the time this contract is settled.

## Transmission
Congestion Contracts  Hedge of Transmission Costs

Transmission congestion is
a component of the difference in the price of electricity between two geographic
locations; the point of injection and the point of withdrawal. Congestion is
caused by a constraint on the optimum economic operation of the power system and
can be influenced by such factors as supply and demand, transmission capacity,
and line availability. The dollar value of congestion can be determined at the
time of electricity is transmitted, prior to that it can only be estimated.

TCCs are the right to
collect or the obligation to pay congestion for energy associated with a single
megawatt of transmission between a specified point of injection and point of
withdrawal. TCCs are financial instruments purchased to hedge the cost of
transmitting power.

The NYISO conducts a TCC
auction twice each year. At this time, TCCs are auctioned for periods of five years, two years
and six months. Member systems of the NYISO that own the transmission facilities
for transmission pathways must release their rights
into the auction. Companies with previously acquired TCCs can offer them in a subsequent
auction.  They will
receive a payment from the NYISO at the auction market-clearing price for these rights.
Niagara Mohawk records money received from the auction as deferred transmission
revenue, which is amortized to revenue over the appropriate period. In turn,
Niagara Mohawk must bid for TCCs to the extent necessary to manage its cost of
energy for its customers.

If Niagara Mohawk elects to
purchase TCCs, the auction-clearing price
fixes the cost the company pays for winning the TCC. The TCC itself grants the holder the
right to receive, or the obligation to pay, the market cost of congestion for
the period covered. TCCs are specific as to the transmission pathway that they
cover, and Niagara Mohawk only bids on TCCs along pathways it will actually move
power and in quantities that will be used in the normal course of business to serve load.
Niagara Mohawk believes a
TCC will be highly effective in achieving offsetting cash flows compared to the
cost of transmitting power to congested areas.

In the NYISO auction that
took place in October 2000, Niagara Mohawk successfully bid on TCCs in all three
of the markets offered: five year, two year and six months. The TCCs begin on
November 1, 2000. The total cost paid for all TCCs acquired was $64.3 million.
That cost will be recorded in a pre-paid transmission account and allocated to
expense over the respective lives of the contracts.
Concurrently, as the owner of the TCC, it will receive or make payments for the
actual congestion on the transmission pathways for which it owns the TCCs. The
effect is to fix the price of transmission for the quantities of TCCs purchased
at the TCC price paid.

Niagara Mohawk Energy, Inc.

Niagara Mohawk Energy has its own risk management policy, which defines the limits
 within which it can carry out its commercial
activities.  The purpose of the risk management program is to mitigate risks associated
 with various energy commodities.  Niagara
Mohawk Energy is permitted to carry open positions and accordingly is exposed to market
 risks.  The risk management program
systematically identifies, measures, evaluates and actively manages, and reports on
 the market driven risks associated with Niagara
Mohawk Energy's commercial activities.

Niagara Mohawk Energy, within its trading portfolio, takes certain positions to
 mitigate risks associated with the physical sale or
purchase contracts and takes certain positions to take advantage of market conditions.
  Niagara Mohawk Energy uses various forms of
financial instruments, including futures, forwards, swaps, TCCs, and options.
  Each of these instruments involves different risks.
Niagara Mohawk Energy believes these instruments help to manage the exposure
 to changes in market prices and take advantage of
selected opportunities.

Niagara Mohawk Energys portfolio has net open positions.  Open positions create
exposure to fluctuations in market prices that may
adversely impact the reported financial position and results of operation.
  A Value at Risk (VaR) model is used to access market
risk within the portfolio.  The model utilizes a variance/covariance
 methodology with a 95 percent confidence level and a five day
holding period.  Since markingtomarket the portion of its portfolio,
 designated as trading, Niagara Mohawk Energys VaR has not
exceeded $6 million.

# NIAGARA
MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES

# PART II

## ITEM 1.   LEGAL
PROCEEDINGS

See Holdings and Niagara
Mohawks combined Form 10-Q for the quarter ended June 30, 2000, Part II,
Item 1. Legal Proceedings for a discussion of other outstanding legal matters.

## PULP Litigation

In July 1998, the Public
Utility Law Project of New York, Inc. (PULP) and others sought a declaratory
judgment, declaring Niagara Mohawks Power Choice agreement unlawful, null
and void and injunctive relief in the Supreme Court of the State of New York,
Albany County against the PSC and Niagara Mohawk to enjoin the defendants to
halt all their actions and expenditures to implement the rules for the provision
of retail energy services contained in the Power Choice agreement. The PSC and
Niagara Mohawk filed motions seeking to dismiss this action. By a decision dated
March 2, 2000, Albany County Supreme Court granted the motions to dismiss
PULPs action. On March 31, 2000, PULP filed a notice of appeal of the
decision with the Appellate Division, Third Department. The appeal has not been
perfected as of September 30, 2000. Niagara Mohawk is unable to predict the
outcome of this matter.

# Fourth Branch Litigation

In November 1993, Fourth
Branch Associates Mechanicville (Fourth Branch) filed an action
against Niagara Mohawk and several of its officers and employees in the New York
State Supreme Court, seeking compensatory damages of $50 million, punitive
damages of $100 million, and injunctive and other related relief. The lawsuit
grows out of Niagara Mohawks termination of a contract for Fourth Branch
to operate and maintain a hydroelectric plant Niagara Mohawk owned in the town
of Halfmoon, New York. Fourth Branchs complaint also alleges claims based
on the inability of Fourth Branch and Niagara Mohawk to agree on terms for the
purchase of power from a new facility that Fourth Branch hoped to construct at
the Mechanicville site. In January 1994, Niagara Mohawk filed a motion to
dismiss Fourth Branchs complaint. By order dated November 7, 1995, the
Court granted Niagara Mohawks motion to dismiss the complaint in its
entirety. Fourth Branch filed an appeal from the Courts order. On January
30, 1997, the Appellate Division modified the November 7, 1995 court decision by
reversing the dismissal of the fourth and fifth causes of action set forth in
Fourth Branchs complaint. Discovery proceedings are in progress with
respect to the two causes of action.

Niagara Mohawk and Fourth
Branch had also entered into negotiations under a FERC mediation process. As a
result of these negotiations, Niagara Mohawk had proposed to sell the
hydroelectric plant to Fourth Branch for an amount which would not be material.
In addition, the proposal included a provision that would require the
discontinuance of all litigation between the parties.

Attempts to implement this
proposal were unsuccessful, and Niagara Mohawk informed FERC that its
participation in the mediation efforts was concluded. On January 14, 1997, the
FERC Administrative Law Judge issued a report to FERC recommending that the
mediation proceeding be terminated.

During July 1998, Fourth
Branch commenced a condemnation proceeding in Federal District Court to obtain
title to the project property and also has made a unilateral offer of settlement
before FERC. Niagara Mohawk served an answer with various affirmative defenses.
On July 30, 1998, Fourth Branch moved for Summary Judgment. Niagara Mohawk
opposed Fourth Branchs motion and cross-moved for summary judgment in
favor of Niagara Mohawk. The Court granted Niagara Mohawks motion for
summary judgment on September 1, 1999.

On September 10, 1999,
Fourth Branch filed an amended unilateral offer of settlement with FERC. On
September 30, 1999, Niagara Mohawk filed its response and objection to the
amended offer of settlement. On November 23, 1999, FERC issued a comprehensive
order rejecting Fourth Branchs unilateral offer of settlement, dismissing
Fourth Branchs complaint of anti-competitive conduct against Niagara
Mohawk and determining that there has been an implied surrender by Fourth Branch
and Niagara Mohawk of the FERC license for the Mechanicville Project. On
December 23, 1999, Fourth Branch filed a petition for rehearing of the
Commissions decision. On March 16, 2000, FERC denied the petition for
rehearing. On April 21, 2000, Fourth Branch filed an appeal of FERCs
decision to the United States Court of Appeals in Washington, D.C. The appeal is
currently pending. FERC has also initiated proceedings related to site closure
and restoration plans, or alternatives thereto.

Niagara Mohawk is unable to
predict the ultimate disposition of the lawsuit and FERC case referred to above.
However, Niagara Mohawk believes it has meritorious defenses and intends to
defend them vigorously. No provision for liability, if any, that may result from
this lawsuit has been made in Niagara Mohawks financial statements.

## ITEM 6.
  EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 11  Computation of
the Average Number of Shares of Common Stock Outstanding
       for the Three Months
and Nine Months Ended September 30, 2000 and 1999.

Exhibit 15 - Accountants' Acknowledgement Letter.

Exhibit 27a - Financial Data Schedule for Niagara Mohawk Holdings, Inc.

Exhibit 27b - Financial Data Schedule for Niagara Mohawk Power Corporation

In accordance with Paragraph 4(iii) of Item 601(b) of Regulation S-K, Niagara Mohawk agrees to
       furnish to the Securities and Exchange Commission, upon
 request, a copy of the agreements comprising      
 the $804 million senior debt facility that Niagara Mohawk completed with a bank group on
        June 1, 2000. The total amount of long-term debt authorized under
 such agreement       does not exceed ten percent of the total
consolidated assets of Niagara Mohawk and its subsidiaries.

## Niagara Mohawk Holdings, Inc.

Form 8-K Reporting Date 
 July 28, 2000
       Items reported:
       (1)   
Item 5.  Other Events
               
Holdings filed a press release
 relating to its second quarter earnings for 2000.       (2)
   Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits
               
Exhibit 99  Press release of Holdings issued
 July 28, 2000, relating to its second quarter earnings.

Form 8-K Reporting Date
  September 4, 2000      
     Items reported:
       (1)    Item 5.
  Other Events
               
On September 5, 2000, Holdings and National Grid issued a joint press release 
               
announcing that they have signed a merger agreement dated September 4, 2000, under which National
               
 Grid will acquire Holdings through the formation of a new National Grid holding company and the
               
 exchange of Holdings shares for a combination of cash and American Depositary Shares in the
               
 new holding company.
(2)    
Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits
                 (a)
   Exhibit 99-1  Press release of Holdings issued September 5, 2000, announcing that
 Holdings               
        
 and National Grid signed a merger agreement.         
       (b)    Exhibit 99-2  Merger Agreement
 dated September 4, 2000 by and among Holdings,         
               
 National Grid, New National Grid Limited, and Grid
 Delaware, Inc.

Form 8-K Reporting Date
  October 27, 2000      
     Items reported:      
     (1)   Item 5. Other Events         
     Holdings filed a press release relating to its third quarter earnings for 2000.
       (2)   Item 7.  Financial Statements, Pro Forma Financial
 Information and Exhibits            
  Exhibit 99  Press release of Holdings issued October 27, 2000, relating to its
third quarter earnings.

## Niagara Mohawk
Power Corporation

Form 8-K Reporting Date
  July 28, 2000
        Items reported:
        (1)   Item 5.  Other Events
                Holdings
 filed a press release relating to its second quarter earnings for 2000.
        (2)   Item 7.  Financial Statements,
 Pro Forma Financial Information and Exhibits
               
Exhibit 99  Press release of Holdings issued July 28, 2000, relating to its second
quarter earnings.

Form 8-K Reporting Date  October 27, 2000
          Items reported:
          (1)  Item 5.  Other Events
                
Holdings filed a press release relating to its third quarter earnings for 2000.
          (2)  Item 7. 
 Financial Statements,
 Pro Forma Financial Information and Exhibits
              
  Exhibit 99  Press
release of Holdings issued October 27, 2000, relating to its third quarter earnings.

# NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
 registrants have duly caused this report to be signed on their behalf by the undersigned thereunto
 duly authorized.

`NIAGARA MOHAWK HOLDINGS, INC.
                                                         (Registrant)



Date: November 14, 2000                    By   /s/Steven W. Tasker
                                                -----------------------------
                                                Steven W. Tasker
                                                Vice President-Controller and
                                                Principal Accounting Officer


                                                NIAGARA MOHAWK POWER CORPORATION
                                                          (Registrant)



Date: November 14, 2000                    By   /s/Steven W. Tasker
                                                -----------------------------
                                                Steven W. Tasker
                                                Vice President-Controller and
                                                Principal Accounting Officer`

# NIAGARA MOHAWK HOLDINGS, INC. AND
 SUBSIDIARY COMPANIES

EXHIBIT INDEX

`Exhibit
Number    Description
------    -----------

11       Niagara Mohawk Holdings, Inc.
         Computation of the Average Number of Shares of Common Stock Outstanding
         for the Three Months and Nine Months Ended September 30, 2000 and 1999

15       Accountants' Acknowledgement Letter

27a      Niagara Mohawk Holdings, Inc.
         Financial Data Schedule

27b      Niagara Mohawk Power Corporation
         Financial Data Schedule`

# Exhibit 11

## NIAGARA MOHAWK
HOLDINGS, INC. AND SUBSIDIARY COMPANIES

Computation of the Average Number of Shares of Common Stock
 OutstandingFor the Three Months and Nine Months Ended September 30, 2000

`(4)
                                                                               Average Number of
                                                                              Shares Outstanding
                                                                               As Shown on the
                                                                                Consolidated
                                      (1)          (2)            (3)           Statement of
                                   Shares of    Number of        Share              Income
                                    Common         Days          Days        (3 divided by number
                                     Stock      Outstanding     (2 x 1)        of Days in Period)
-------------------------------------------------------------------------------------------------

                                     For the Three Months Ended September 30:
                                     ----------------------------------------

July 1 - September 30, 2000        164,399,547       92      15,124,758,324

Shares repurchased by
   Niagara Mohawk                    4,159,729       (a)        312,644,108
                                   ------------              ---------------

                                   160,239,818               14,812,114,216       161,001,241
                                   ============              ===============      ===========

July 1 - September 30, 1999        187,364,863       92      17,237,567,396       187,364,863
                                   ============              ===============      ===========

                                     For the Nine Months Ended September 30:
                                     ---------------------------------------

January 1 - September 30, 2000     177,364,863      274      48,597,972,462

Shares repurchased by
   Niagara Mohawk                   17,125,045       (a)      2,077,788,412
                                   ------------              ---------------

                                   160,239,818               46,520,184,050       169,781,694
                                   ============              ===============      ===========

January 1 - March 18, 1999         187,364,863       77      14,427,094,451

March 18 - September 30, 1999 (b)  187,364,863      196      36,723,513,148
                                   ------------              ---------------

                                   187,364,863               51,150,607,599       187,364,863
                                   ============              ===============      ===========`

(a) Number of days
outstanding not shown as shares represent an accumulation of purchases of
Holdings common stock by Niagara Mohawk during 2000. Share days for the
shares repurchased are based on the total number of days each share was
repurchased during 2000.

(b)      On March 18, 1999, the common stock of Niagara Mohawk was exchanged
 on a share-for-share basis with Holdings.  Note:  Earnings per share calculated on both a
 primary and fully diluted basis are the same due to the effects of rounding.

# Exhibit 15

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549

Ladies and Gentlemen:

We are aware that our
report dated November 14, 2000 on our review of interim financial information
of Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power Corporation as of and
for the three-month and nine-month periods ended September 30, 2000 and included
in Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power Corporation quarterly
report on Form 10-Q for the quarter then ended is incorporated by reference in
Niagara Mohawk Holdings, Inc. Registration Statement on Form S-8 (No. 333-13781)
and in the Registration Statement on Form S-3 (No. 333-55923); and incorporated
by reference in Niagara Mohawk Power Corporation Registration Statements on Form
S-8 (Nos. 33-36189 and 33-42771) and in the Registration Statements on Form S-3
(Nos. 33-50703, 33-54827, 33-55546, and 333-33826) and in the Registration
Statement on Form S-4 (No.333-49769).