---

SECURITIES AND EXCHANGE COMMISSION

Washington, 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 June 30, 2001

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 July 31, 2001, 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.)

Filing Format
This Quarterly Report on Form 10-Q is a combined quarterly report being filed separately by two registrants:  
Niagara Mohawk Holdings, Inc. (Holdings) and Niagara Mohawk Power Corporation (Niagara Mohawk).  
Holdings became the holding company for Niagara Mohawk on March 18, 1999.  Except where the context clearly indicates
 otherwise, any references in this report to Holdings includes all subsidiaries of Holdings
 including Niagara Mohawk.  Niagara Mohawk makes no representation as to the information
 contained in this report in relation to Holdings and its subsidiaries other than Niagara Mohawk.

NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q - For the Quarter Ended June 30, 2001
PART I.   FINANCIAL INFORMATION

Glossary of Terms

Item 1.     Financial Statements
Consolidated Financial Statements:

                      
Niagara Mohawk Holdings, Inc.
                      
Consolidated Statements of Income

                      
Consolidated Balance Sheets

                      
Consolidated Statements of Cash Flows

                      
Niagara Mohawk Power Corporation

                      
Consolidated Statements of Income

                      
Consolidated Balance Sheets

                      
Consolidated Statements of Cash Flows

                  
Notes to Consolidated Financial Statements

                  
Review by Independent Accountants

                  
Independent Accountants Report on the Limited Review of the Interim Financial Information

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

Item 3.
      Quantitative and Qualitative Disclosures About Market Risk
PART II.     OTHER INFORMATION
Item 1.        Legal Proceedings


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

Item 6.        Exhibits and Reports on Form 8-K

Signatures

Exhibit Index

NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES

GLOSSARY OF TERMS

TERM            DEFINITION
CTC
             
Competitive transition charges: a mechanism established in the Power Choice agreement to recover stranded costs

                      
from customers

Dth
               
Dekatherm: one thousand cubic feet of gas with a heat content of 1,000 British Thermal Units per cubic foot

EBITDA        
A non-GAAP measure of cash flow which is calculated as: earnings before interest charges, interest income, income taxes,

                      
 depreciation and amortization, and other non-cash items, including amortization of nuclear fuel, allowance for funds used
                      
 during construction, amortization/accretion of MRA/IPP buyout costs, deferral of MRA interest rate savings, cumulative 
                      
effect of a change in accounting principle and non-recurring and extraordinary items.  EBITDA may not be comparable to similarly
                      
 titled measures used by other companies.

FERC
           
Federal Energy Regulatory Commission

GAAP
          
Generally Accepted Accounting Principles

GRT
              
Gross Receipts Tax

GWh
             
Gigawatt-hour: one gigawatt-hour equals one billion watt-hours

IPP
                
Independent Power Producer: any person that owns or operates, in whole or in part, one or more Independent

                      
 Power Facilities, including the purchasers of Niagara Mohawks generation assets

IPP Party
      
Independent Power Producers that were a party to the MRA

KWh
              
Kilowatt-hour: a unit of electrical energy equal to one kilowatt of power supplied or taken from an electric circuit

                      
 steadily for one hour

MRA
              
Master Restructuring Agreement:  an agreement, including amendments thereto, which terminated, restated or

                      
 amended certain IPP Party power purchase agreements effective June 30, 1998

MRA
              
Recoverable costs to terminate, restate or amend IPP Party contracts, which have been deferred and are being

regulatory       
amortized and recovered under the Niagara Mohawks Power Choice agreement.

asset

MW
                
Megawatt: One million watts

National         
National Grid group plc is a holding company based in the United Kingdom.  Unless the context clearly denotes

Grid
               
 otherwise, this definition also includes a holding company to be established over National Grid Group plc

                      
 contemporaneously with the Holdings merger.  Its principle subsidiary, The National Grid Company plc, owns

                       
and operates the high voltage transmission system in England and Wales.


NYISO
           
New York Independent System Operator
Power
           
Niagara Mohawks five-year electric rate agreement, which incorporates the MRA agreement, approved by the PSC

Choice
          
in an Order dated March 20, 1998, and became effective September 1, 1998

PPA
               
Power Purchase Agreement: long-term contracts under which a utility is obligated to purchase electricity from

                      
 
an IPP at specified rates

Provider of
    
The entity that will provide electric and gas commodity to its customers who are unable or unwilling to obtain an

last resort       
alternative supplier

PRP
                
Potentially Responsible Party (may include current site owner, site owner at the time of disposal, entity who
                      
   arranged for disposal at the location, or transporters of disposal material)

PSC
                
New York State Public Service Commission

SFAS
              
Statement of Financial Accounting Standards No. 71

No. 71
              
Accounting for the Effects of Certain Types of Regulation

SFAS
              
Statement of Financial Accounting Standards No. 133

No. 133
           
Accounting for Derivative Instruments and Hedging Activities

Stranded
         
Regulated utility costs that may become unrecoverable due to a change in the regulatory environment
Costs

TCC
                
Transmission Congestion Contracts.  Transmission congestion is a component of the cost differential in the price of
                      
  
electricity between two geographic locations.  A TCC confers on the holder the right to collect or obligation to pay
                      
  
congestion charges for a single megawatt of energy at the price of congestion between those locations.

Unit 1
               
Nine Mile Point Nuclear Station Unit No. 1

Unit 2
               
Nine Mile Point Nuclear Station Unit No. 2
PART I

ITEM 1.  FINANCIAL STATEMENTSNIAGARA MOHAWK HOLDINGS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)

Three Months Ended June 30,  Six Months Ended June 30,
                                                   2001         2000          2001        2000
                                               -----------  -----------  -----------  ------------                                                                   (in thousands of dollars)
Operating revenues:
 Electric                                      $  904,247   $  893,145   $1,881,471   $1,822,414
 Gas                                              185,418      151,838      575,231      416,177
 Other                                                132          511          312        1,488
                                               -----------  -----------  -----------  -----------
                                                1,089,797    1,045,494    2,457,014    2,240,079
                                               -----------  -----------  -----------  -----------
Operating expenses:
 Electricity purchased                            411,240      407,582      851,915      782,637
 Fuel for electric generation                       7,382       15,644       21,699       28,974
 Gas purchased                                    111,263       79,994      391,627      236,980
 Other operation and maintenance expenses         258,043      224,501      516,538      447,369
 Amortization/accretion of MRA/IPP buyout costs    91,072       93,978      182,145      187,636
 Depreciation and amortization                     79,217       78,362      157,104      156,312
 Other taxes                                       65,225       70,442      115,808      138,774
                                               -----------  -----------  -----------  -----------
                                                1,023,442      970,503    2,236,836    1,978,682
                                               -----------  -----------  -----------  -----------
Operating income                                   66,355       74,991      220,178      261,397
Other income (deductions)                        (46,802)        2,553      (44,468)      (2,365)
                                               -----------  -----------  -----------  -----------
Income before interest charges                     19,553       77,544      175,710      259,032
Interest charges                                   99,592      109,565      202,487      220,897
Preferred dividend requirement of subsidiary        7,757        7,904       15,515       15,808
                                               -----------  -----------  -----------  -----------
Income (loss) before income taxes                 (87,796)     (39,925)     (42,292)      22,327
Income taxes                                       (7,761)     (21,116)       9,619       26,662
                                               -----------  -----------  -----------  -----------
Loss before extraordinary item and cumulative
 effect of a change in accounting principle       (80,035)     (18,809)     (51,911)      (4,335)

Extraordinary item - Loss from the
 extinguishment of debt, net of income taxes            -         (909)           -         (909)

Cumulative effect of a change in accounting
 principle, net of income taxes (Note 1)                -            -       12,790            -
                                               -----------  -----------  -----------  -----------
Net income (loss) (Note 1)                     $  (80,035)  $  (19,718)  $  (39,121)  $   (5,244)
                                               ===========  ===========  ===========  ===========
Average number of shares of common stock
 outstanding (in thousands)                       160,240      171,088      160,240      174,220

Basic and diluted loss per average
 share of common stock before extraordinary
 item and cumulative effect of a change in
 accounting principle                          $    (0.50)  $    (0.11)  $    (0.32)  $    (0.02)

Extraordinary item per average share of
 common stock                                           -        (0.01)           -        (0.01)
Cumulative effect of a change in accounting
 principle                                              -            -         0.08            -
                                               -----------  -----------  -----------  -----------
Basic and diluted earnings (loss) per average
   share of common stock                       $    (0.50)  $    (0.12)  $    (0.24)  $    (0.03)
                                               ===========  ===========  ===========  ===========

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


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

June 30,
                                                            2001        December 31,
                                                         (Unaudited)        2000
                                                        ------------   ------------
                                                           (In thousands of dollars)
Utility plant:
   Electric plant                                       $ 7,201,994    $ 7,179,329
   Nuclear fuel                                             674,721        672,259
   Gas plant                                              1,326,578      1,310,649
   Common plant                                             359,604        349,751
   Construction work in progress                            245,093        289,634
                                                        ------------   ------------
     Total utility plant                                  9,807,990      9,801,622
   Less - Accumulated depreciation and amortization       4,111,520      4,019,282
                                                        ------------   ------------
     Net utility plant                                    5,696,470      5,782,340
                                                        ------------   ------------
Other property and investments                              533,300        596,036
                                                        ------------   ------------
Current assets:
  Cash, including temporary cash investments
   of $123,378 and $66,796, respectively                    169,171        108,343
  Accounts receivable (less allowance for doubtful
   accounts of $69,700 and $62,600, respectively)           307,285        470,820
  Materials and supplies, at average cost:
   Gas storage                                               44,240         53,863
   Other                                                     90,162         93,431
   Assets from price risk management activities (Note 1)     21,330         67,603
   Prepaid taxes                                             43,811         19,393
   Other                                                     20,836         37,745
                                                        ------------   ------------
                                                            696,835        851,198
                                                        ------------   ------------
Regulatory assets (Note 3):
   MRA regulatory asset                                   3,151,007      3,328,720
   Swap contracts regulatory asset                          611,646        625,103
   Regulatory tax asset                                     409,636        408,303
   IPP restructuring costs                                  215,669        234,117
   Deferred environmental restoration costs (Note 2)        285,000        285,000
   Deferred loss on sale of assets                          122,804        158,333
   Postretirement benefits other than pensions               43,164         45,084
   Unamortized debt expense                                  37,787         39,823
   Other                                                    168,921        191,524
                                                        ------------   ------------
                                                          5,045,634      5,316,007
                                                        ------------   ------------
Other assets                                                 91,622         78,081
                                                        ------------   ------------
                                                        $12,063,861    $12,623,662
                                                        ============   ============

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

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

June 30,
                                                                     2001       December 31,
                                                                  (Unaudited)       2000
                                                                 ------------    -----------
                                                                   (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 shares    $     1,874          1,874
   Treasury stock, at cost - 27,125,045 shares                      (407,193)      (407,193)
   Capital stock premium and expense                               2,548,576      2,547,885
   Accumulated other comprehensive income                            (45,734)       (31,861)
   Retained earnings                                                 525,288        564,409
                                                                 ------------    -----------
                                                                   2,622,811      2,675,114
  Preferred stock of subsidiary:
   Not subject to mandatory redemption                               440,000        440,000
   Subject to mandatory redemption                                    51,950         53,750
  Long-term debt                                                   4,735,477      4,678,963
                                                                 ------------    -----------
   Total capitalization                                            7,850,238      7,847,827
                                                                 ------------    -----------
Current liabilities:
   Short-term debt                                                     5,000        110,000
   Long-term debt due within one year                                418,121        628,325
   Sinking fund requirements on redeemable preferred
    stock of subsidiary                                                7,620          7,620
   Accounts payable                                                  278,678        482,965
   Payable on outstanding bank checks                                 18,624         28,536
   Customers' deposits                                                20,393         18,807
   Accrued taxes                                                      56,455          9,881
   Accrued interest                                                   92,256         98,408
   Accrued vacation pay                                               35,206         34,607
   Liabilities from price risk management activities (Note 1)         33,296          2,719
   Deferred gain on hedging activity (Note 1)                              -         17,409
   Other                                                             157,643        137,953
                                                                 ------------    -----------
                                                                   1,123,292      1,577,230
                                                                 ------------    -----------
Regulatory and other liabilities (Note 3):
   Accumulated deferred income taxes                               1,483,732      1,472,818
   Liability for swap contracts                                      757,059        778,229
   Employee pension and other benefits                               214,895        218,569
   Deferred gain on swap hedges                                            -         66,405
   Other                                                             349,645        377,584
                                                                 ------------    -----------
                                                                   2,805,331      2,913,605
                                                                 ------------    -----------
Commitments and contingencies (Notes 2 and 3):
   Liability for environmental restoration                           285,000        285,000
                                                                 ------------   ------------
                                                                 $12,063,861    $12,623,662
                                                                 ============   ============

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

NIAGARA MOHAWK HOLDINGS, INC.AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWSIncrease (Decrease) in Cash
(UNAUDITED)
Six Months Ended June 30,
                                                                           2001         2000
                                                                       ----------    ----------
                                                                       (in thousands of dollars)
Cash flows from operating activities:
 Net income (loss)                                                     $ (39,121)     $  (5,244)
 Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
   Extraordinary loss on extinguishment of debt, net of taxes                 -            887
   Cumulative effect of a change in accounting principle, net of taxes    (8,826)            -
   Depreciation and amortization                                         157,104       156,312
   Impairment charge of investment                                        44,000             -
   Amortization/accretion of MRA/IPP buyout costs                        182,145       187,636
   Amortization of nuclear fuel                                           12,641        13,891
   Provision for deferred income taxes                                     4,828        27,019
   Net accounts receivable (net of changes in accounts receivable sold)  149,833       (80,698)
   Materials and supplies                                                  8,284         5,488
   Accounts payable and accrued expenses                                (169,610)       (1,359)
   Accrued interest and taxes                                             40,422        83,748
   Changes in MRA and IPP buyout costs regulatory assets                  23,561        17,165
   Deferral of MRA interest rate savings                                   8,457        10,829
   Changes in other assets and liabilities                                 1,247       (16,712)
                                                                       ----------    ----------
    Net cash provided by operating activities                            414,965       398,962
                                                                       ----------    ----------
Cash flows from investing activities:
 Construction additions                                                 (115,333)      (89,901)
 Nuclear fuel                                                             (2,461)      (17,236)
                                                                       ----------    ----------
   Acquisition of utility plant                                         (117,794)     (107,137)
 Materials and supplies related to construction                             (175)          444
 Accounts payable and accrued expenses related to construction           (42,403)         (340)
 Proceeds from the sale of generation assets                              83,838        47,500
 Other investments                                                        18,992        27,380
 Other                                                                    (1,560)        3,009
                                                                       ----------    ----------
    Net cash used in investing activities                                (59,102)      (29,144)
                                                                       ----------    ----------
Cash flows from financing activities:
 Net change in short-term debt                                          (105,000)            -
 Reduction in preferred stock of subsidiary                               (1,800)       (1,800)
 Reduction in long-term debt                                            (305,053)     (307,291)
 Proceeds from long-term debt                                            130,000       200,000
 Purchase of treasury stock                                                    -      (190,168)
 Other                                                                   (13,182)          709
                                                                       ----------    ----------
    Net cash used in financing activities                               (295,035)     (298,550)
                                                                       ----------    ----------
Net increase in cash                                                      60,828        71,268
Cash at beginning of period                                              108,343       116,164
                                                                       ----------    ----------
Cash at end of period                                                  $ 169,171     $ 187,432
                                                                       ==========    ==========

Supplemental disclosures of cash flow information:
   Interest paid                                                       $ 189,494     $ 164,805
   Income taxes paid                                                   $   5,187     $     112

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



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

Three Months Ended     Six Months Ended
                                                       June 30,              June 30,
                                                   2001       2000       2001         2000
                                                ---------  ---------  ----------- -----------
                                                           (in thousands of dollars)
Operating revenues:
 Electric                                       $781,175   $770,226   $1,604,741  $1,598,272
 Gas                                             164,976    136,978      521,116     382,825
                                                ---------  ---------  ----------- -----------
                                                 946,151    907,204    2,125,857   1,981,097
                                                ---------  ---------  ----------- -----------
Operating expenses:
 Electricity purchased                           283,495    286,192      574,548     566,082
 Fuel for electric generation                      7,382     15,644       21,699      28,974
 Gas purchased                                    91,726     65,533      341,486     203,965
 Other operation and maintenance expenses        253,546    219,856      502,171     437,512
 Amortization/accretion of MRA/IPP buyout costs   91,072     93,978      182,145     187,636
 Depreciation and amortization                    79,093     78,212      156,861     156,044
 Other taxes (Note 1)                             65,041     70,257      115,444     138,252
                                                ---------  ---------  ----------- -----------
                                                 871,355    829,672    1,894,354   1,718,465
                                                ---------  ---------  ----------- -----------
Operating income                                  74,796     77,532      231,503     262,632
Other deductions                                  (1,908)       (27)      (2,697)     (7,392)
                                                ---------  ---------  ----------- -----------
Income before interest charges                    72,888     77,505      228,806     255,240
Interest charges                                  99,592    109,565      202,487     220,897
                                                ---------  ---------  ----------- -----------
Income (loss) before income taxes                (26,704)   (32,060)      26,319      34,343

Income taxes                                      (4,462)   (20,283)      13,312      25,287
                                                ---------  ---------  ----------- -----------
Income (loss) before extraordinary item          (22,242)   (11,777)      13,007      9,056

Extraordinary item - Loss from the
 extinguishment of debt, net of income taxes           -       (909)           -        (909)
                                                ---------  ---------  ----------- -----------
Net income (loss) (Note 1)                       (22,242)   (12,686)      13,007       8,147
Dividends on preferred stock                       7,757      7,904       15,515      15,808
                                                ---------  ---------  ----------- -----------
Balance available for common stock              $(29,999)  $(20,590)  $   (2,508) $   (7,661)
                                                =========  =========  =========== ===========

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

NIAGARA MOHAWK POWER CORPORATIONAND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
June 30,
                                                            2001       December 31,
                                                        (Unaudited)        2000
                                                       ------------   ------------
                                                         (In thousands of dollars)
Utility plant:
 Electric plant                                        $ 7,201,994    $ 7,179,329
 Nuclear fuel                                              674,721        672,259
 Gas plant                                               1,326,578      1,310,649
 Common plant                                              359,604        349,751
 Construction work in progress                             245,093        289,634
                                                       ------------   ------------
   Total utility plant                                   9,807,990      9,801,622
 Less - Accumulated depreciation and amortization        4,111,520      4,019,282
                                                       ------------   ------------
   Net utility plant                                     5,696,470      5,782,340
                                                       ------------   ------------
Other property and investments                             441,542        420,391
                                                       ------------   ------------
Current assets:
 Cash, including temporary cash investments
  of $65,565 and $48,123, respectively                      82,698         75,025
 Accounts receivable (less allowance for doubtful
  accounts of $63,600 and $59,100, respectively)           264,358        390,452
 Materials and supplies, at average cost:
   Gas storage                                              41,124         50,947
   Other                                                    90,162         93,431
 Assets from price risk management activities (Note 1)         112         65,052
 Prepaid taxes                                              33,639          7,882
 Other                                                      16,410         31,195
                                                       ------------   ------------
                                                           528,503        713,984
                                                       ------------   ------------
Regulatory assets (Note 3):
 MRA regulatory asset                                    3,151,007      3,328,720
 Swap contracts regulatory asset                           611,646        625,103
 Regulatory tax asset                                      409,636        408,303
 IPP restructuring costs                                   215,669        234,117
 Deferred environmental restoration costs (Note 2)         285,000        285,000
 Deferred loss on sale of assets                           122,804        158,333
 Postretirement benefits other than pensions                43,164         45,084
 Unamortized debt expense                                   37,787         39,823
 Other                                                     168,921        191,524
                                                       ------------   ------------
                                                         5,045,634      5,316,007
                                                       ------------   ------------
Other assets                                                90,843         77,235
                                                       ------------   ------------
                                                       $11,802,992    $12,309,957
                                                       ============   ============

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

NIAGARA MOHAWK POWER CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS

June 30,
                                                                               2001     December 31,
                                                                           (Unaudited)      2000
                                                                          ------------  ------------
                                                                          (In thousands of dollars)
Capitalization:
 Common stockholders' equity:
   Common stock - $1 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)     (407,193)
   Capital stock premium and expense                                        2,363,095     2,362,404
   Accumulated other comprehensive income                                     (20,384)       (7,459)
   Retained earnings                                                          259,438       299,106
                                                                          ------------  ------------
                                                                            2,382,321     2,434,223
                                                                          ------------  ------------
 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 150,000 and 168,000 shares,
    respectively                                                               13,200        15,000
 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                38,750        38,750
                                                                          ------------  ------------
                                                                              491,950       493,750
                                                                          ------------  ------------
 Long-term debt                                                             4,735,477     4,678,963
                                                                          ------------  ------------
   Total capitalization                                                     7,609,748     7,606,936
                                                                          ------------  ------------

Current liabilities:
  Short-term debt                                                               5,000       110,000
  Long-term debt due within one year                                          418,121       628,325
  Sinking fund requirements on redeemable preferred stock                       7,620         7,620
  Accounts payable                                                            223,899       404,115
  Payable on outstanding bank checks                                           18,625        28,536
  Customers' deposits                                                          20,393        18,807
  Accrued taxes                                                                58,532        10,867
  Accrued interest                                                             92,256        98,408
  Accrued vacation pay                                                         35,206        34,607
  Liabilities from price risk management activities (Note 1)                   33,296         2,719
  Deferred gain on futures contracts (Note 1)                                       -        17,409
  Other                                                                       184,070       136,789
                                                                          ------------  ------------
                                                                            1,097,018     1,498,202
                                                                          ------------  ------------
Regulatory and other liabilities (Note 3):
  Accumulated deferred income taxes                                         1,489,627     1,479,032
  Liability for swap contracts                                                757,059       778,229
  Employee pension and other benefits                                         214,895       218,569
  Deferred gain on swap hedges                                                      -        66,405
  Other                                                                       349,645       377,584
                                                                          ------------  ------------
                                                                            2,811,226     2,919,819
                                                                          ------------  ------------
Commitments and contingencies (Notes 2 and 3):
  Liability for environmental restoration                                     285,000       285,000
                                                                          ------------  ------------
                                                                          $11,802,992   $12,309,957
                                                                          ============  ============

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


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

Six Months Ended June 30,
                                                                      2001          2000
                                                                  ----------    ----------
                                                                  (In thousands of dollars)
Cash flows from operating activities:
 Net income                                                       $  13,007     $   8,147
 Adjustments to reconcile net income to net cash provided by
  (used in) operating activities:
   Depreciation and amortization                                    156,861       156,044
   Amortization/accretion of MRA/IPP buyout costs                   182,145       187,636
   Amortization of nuclear fuel                                      12,641        13,891
   Extraordinary loss on the extinguishment of debt, net of taxes         -           887
   Provision for deferred income taxes                                9,262        27,015
   Net accounts receivable (net of changes in accounts
    receivable sold)                                                112,393       (46,026)
   Materials and supplies                                             8,484         5,550
   Accounts payable and accrued expenses                           (177,514)      (19,674)
   Accrued interest and taxes                                        41,513        84,306
   Changes in MRA and IPP buyout costs regulatory assets             23,561        17,165
   Deferral of MRA interest rate savings                              8,457        10,829
   Changes in other assets and liabilities                           30,398        (6,148)
                                                                  ----------    ----------
    Net cash provided by operating activities                       421,208       439,622
                                                                  ----------    ----------
Cash flows from investing activities:
 Construction additions                                            (115,333)      (89,901)
 Nuclear fuel                                                        (2,461)      (17,236)
                                                                  ----------    ----------
 Acquisition of utility plant                                      (117,794)     (107,137)
 Materials and supplies related to construction                        (175)          444
 Accounts payable and accrued expenses related to construction      (37,589)       (4,919)
 Other investments                                                  (20,895)      (18,627)
 Proceeds from the sale of generation assets                         83,838        47,500
 Other                                                               (1,317)        5,497
                                                                  ----------    ----------
    Net cash used in investing activities                           (93,932)      (77,242)
                                                                  ----------    ----------
Cash flows from financing activities:
 Common stock dividend paid to Holdings                             (10,000)      (36,132)
 Repurchase of Holdings' common stock                                     -      (190,168)
 Preferred dividends paid                                           (15,515)      (15,808)
 Reduction in long-term debt                                       (305,053)     (307,291)
 Proceeds from long-term debt                                       130,000       200,000
 Reduction in preferred stock                                        (1,800)       (1,800)
 Net change in short-term debt                                     (105,000)            -
 Other                                                              (12,235)          709
                                                                  ----------    ----------
    Net cash used in financing activities                          (319,603)     (350,490)
                                                                  ----------    ----------
Net increase in cash                                                  7,673        11,890
Cash at beginning of period                                          75,025        72,479
                                                                  ----------    ----------
Cash at end of period                                             $  82,698     $  84,369
                                                                  ==========    ==========
Supplemental disclosures of cash flow information:
        Interest paid                                             $ 189,494     $ 164,805
        Income taxes paid (refunded)                              $   3,310     $    (772)

Supplemental schedule of noncash financing activities:
  In 2001, the Board of Directors declared a dividend of $37.2 million payable
  by Niagara Mohawk to Holdings, of which $10 million was paid in May 2001.

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
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.  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 for 2001 are subject to adjustment at the end of the year when they
will be audited by independent accountants. These financial statements and notes
thereto should be read in conjunction with the audited financial statements
included in Holdings and Niagara Mohawks combined 2000 Annual Report on
Form 10K.

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 sixmonth periods ended June 30, 2001 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 future will depend on the outcome of the
regulatory process, including the effect on rates proposed in connection with
the pending merger with National Grid. See Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations  Pending
Merger Agreement with National Grid, for a discussion of the pending
merger, and see Holdings and Niagara Mohawks combined Form 10K for the
fiscal year ended December 31, 2000, Part II, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Pending Merger Rate Plan, for a discussion of the rate plan filed in
connection with the merger. The closing of the sale of the fossil and hydro
generation assets at various times during 2000 and 2001 has also affected the
comparability of the financial statements. See Holdings and Niagara
Mohawks combined Form 10K for the fiscal year ended December 31, 2000,
Part II, Item 8. Financial Statements and Supplementary Data  Note 2, for a
further discussion of the MRA and the generation asset sales.

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.

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, deferred gains
and losses associated with hedging activity 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 six months
ended June 30, 2001 and 2000 were as follows:

Three Months Ended    Six Months Ended
                        June 30,             June 30,
Company:            2001       2000       2001      2000
--------------    --------   -------    --------  -------
                          (in millions of dollars)
Holdings          $(92.6)    $(21.6)    $(53.0)   $ (7.3)
Niagara Mohawk     (38.4)     (12.8)       0.1       8.4

New Accounting Standards  Derivatives and Hedging Activities:  The FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended. SFAS No. 137 changed the implementation date for this standard to
fiscal years beginning after June 15, 2000. 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 which, among other
changes, modified the type and number of transactions to which the new standard
would need to be applied. Holdings and Niagara Mohawk adopted this standard
beginning January 1, 2001. See Holdings and Niagara Mohawks combined Form
10Q for the period ended March 31, 2001, Part I, Item 1. Notes to Consolidated
Financial Statements  Note 1, Summary of Significant Accounting Policies
 Derivatives and Hedging Activities for more discussion of the
implementation of SFAS No. 133.

New Accounting Standards  Other:  In June 2001, the FASB issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations be accounted
for under the purchase method for all business combinations initiated after June
30, 2001 and for all business combinations accounted for by the purchase method
for which the date of acquisition is after June 30, 2001. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of the
goodwills impairment. Separable intangible assets that are not deemed to
have an indefinite life will continue to be amortized over their useful lives.
The provisions of SFAS No. 142 will be effective for fiscal years beginning
after December 15, 2001. Holdings is currently evaluating these new standards in
light of the pending merger. See Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations  Pending
Merger Agreement with National Grid, for a discussion of the pending
merger.

In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations.
SFAS No. 143 requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes the cost by increasing
the carrying amount of the related longlived asset. Over time, the liability is
accreted to its present value each period and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of the
liability, the entity either settles the obligation for the amount recorded or
incurs a gain or loss. The provisions of SFAS No. 143 will be effective for
fiscal years beginning after June 15, 2002, with earlier application encouraged.
Holdings and Niagara Mohawk are currently evaluating the effect of this
statement on Holdings and Niagara Mohawks results of operations and
financial position.

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 123 sites that comprise the current liability estimates, including 67
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. Niagara Mohawk has denied any responsibility at certain of
these PRP sites and is contesting liability accordingly.

As a consequence of site characterizations and assessments completed to date and negotiations with other
PRPs or with the appropriate environmental regulatory agency, Niagara Mohawk has
accrued a liability in the amount of $285 million, which is reflected in both
Holdings and Niagara Mohawks Consolidated Balance Sheets at June 30, 2001
and December 31, 2000. The potential high end of the range is presently
estimated at approximately $496 million. The probabilistic method was used to
determine the amount to be accrued for 21 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 response to
an October 1999 request for information, Niagara Mohawk informed the DEC of 24
additional former manufactured gas plant sites that it may be associated with,
including two sites that are currently owned by Niagara Mohawk. Niagara Mohawk
has executed a voluntary cleanup order with the DEC for the investigation and,
as required, the remediation of these additional sites. The order is awaiting
execution by the DEC. Niagara Mohawk has included amounts for only the
investigation of these sites in the estimated liability. Niagara Mohawk is
unable to estimate the costs to remediate these sites, since they primarily
relate to nonowned sites and were previously owned by predecessor companies of
Niagara Mohawk.

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.

Based on previously submitted feasibility studies and the DECs ongoing regulatory review
process for Niagara Mohawks Harbor Point site, the estimated total cost
range for this site consists of a high end of $82.3 million, with an expected
value calculation of $61.7 million, which is included in the amounts accrued at
June 30, 2001 and December 31, 2000. The DEC has categorized this site into
three operating units. With respect to one operating unit, the DEC issued a
record of decision (ROD) in March 2001. Based on this ROD and legal
settlement efforts with respect to another responsible party, the estimated
range for this operating unit consists of a high end of $15.7 million and an
expected value calculation of $13.6 million. With respect to another operating
unit, the DEC is expected to issue a proposed remedial action plan
(PRAP) in the fall 2001. Currently, the high end of this unit is
estimated to be $63.2 million, with an expected value calculation of $42.5
million. With respect to the last operating unit, the DEC is requiring
additional investigations and a feasibility study. Currently, the high end of
this unit is estimated to be $7.1 million, with an expected value calculation of
$5.6 million. The estimated costs for the latter two operating units do 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.

Niagara Mohawk has settled with several of the defendants. The settling parties have filed a stipulation of
discontinuance with the Court. The Court dismissed the action with prejudice on
July 2, 2001, based on the settling parties stipulation of discontinuance. The
settlements achieved substantially reduce Niagara Mohawks financial
exposure concerning the remediation of Harbor Point and the surrounding sites,
which has been reflected in the $285 million environmental liability.

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.
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 $5.0 billion at June 30, 2001. These regulatory assets are
probable of recovery.

MRA regulatory asset:  Under Power Choice, a regulatory asset was established for the costs of the
MRA and represents the cost to terminate, restate, or amend IPP Party contracts.
This regulatory asset is being amortized generally over ten years, beginning
September 1, 1998. Niagara Mohawks rates under Power Choice have been
designed to permit recovery of the MRA regulatory asset.

Swap contract regulatory asset:   The swap contracts regulatory asset represents the expected future
recovery of the swap contract liabilities. The swap contract liability is the
present value of the forecasted 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. In the balance sheet presentation, a portion of
the Swap Contracts Regulatory Asset is recorded within the MRA Regulatory Asset.
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 terms of these contracts ending on June 2003. The Albany
contract expires on September 30, 2003. See Holdings and Niagara Mohawks
combined Form 10K for fiscal year ended December 31, 2000, Part II, Item 8.
Financial Statements and Supplementary Data  Note 8 and Note 9 for a further
discussion of the several PPAs and other financial agreements that Niagara
Mohawk has entered into as part of the MRA and the sale of its generation
assets. 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.

IPP Restructuring Costs:   Niagara Mohawk is also permitted to defer and amortize the cost of
any additional IPP contract restructurings. Through June 2001, there have been
13 IPP contracts for approximately 161 MWs terminated for a total consideration
(cash and/or notes) of $242.1 million. Deferred costs associated with IPP
restructurings will generally be amortized over five years in accordance with
Power Choice, unless PSC approval is obtained for a different amortization
period. Niagara Mohawk retains the annual net savings of the restructurings
during the remaining term of Power Choice to offset the amortization expense.
Niagara Mohawk continues to evaluate opportunities related to restructurings and
amendments of other IPP contracts.

Deferred loss on the sale of assets:  See Holdings and Niagara Mohawks combined Form 10K
for fiscal year ended December 31, 2000, Part II, Item 8. Financial Statements
and Supplementary Data  Note 2, for a detailed discussion of the nonnuclear
generation asset sales. Power Choice required Niagara Mohawk to divest its
portfolio of fossil and hydro generation assets and provided for deferral and
future recovery of net losses resulting from the sale of the fossil and hydro
generation asset portfolio. Niagara Mohawk has completed the sales of these
assets and has recorded a regulatory asset of $122.8 million as of June 30,
2001, for the net loss on the sale of its coalfired generation plants, its
hydro generation assets, and its oil and gas fired plants. 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 amount
of severance and other costs, and PSC review of the amounts deferred. The net
loss or stranded cost balance of $122.8 million at June 30, 2001 reflects the
results of the PSC Staffs recommended adjustments based on their review of
the generation asset sales through year end 2000, as well as the results of the
Roseton sale. 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 $18.6 million based on the asset sales, of which $6.8 million is
reflected in income in 2001 in the Other income (deductions) line
item of the Consolidated Income Statements and $11.8 million was reflected in
income in 1999 and 2000. The incentive earned reflects PSC Staff recommended
adjustments based on their review to date and is included in the other
regulatory assets on the Consolidated Balance Sheets. The merger rate plan
proposal would modify the recovery period of stranded costs and incentives.

Niagara Mohawk has also announced an agreement to sell its nuclear generation assets. See Holdings and
Niagara Mohawks combined Form 10K for fiscal year ended December 31,
2000, Part II, Item 8. Financial Statements and Supplementary Data  Note 3, for
a complete discussion regarding this announced sale of Niagara Mohawks
nuclear generation assets and its regulatory treatment. On May 8, 2001, Niagara
Mohawk announced that it filed a joint proposal of settlement regarding the rate
treatment of the sale of its interests in Unit 1 and Unit 2 to Constellation
Nuclear, LLC. The settlement was reached with Multiple Intervenors (an
association of large customers on behalf of its members in Niagara Mohawks
service territory) and the staff of the PSC. The settlement remains subject to
approval by the PSC. The key provisions of the joint proposal include:

o
Full recovery of all stranded costs (other than $123 million), including a
return, over a period projected not to exceed ten years; ando
Approval of 2 PPAs, 1 for 41 percent (Niagara Mohawks ownership share) of
90 percent of the output of Unit 2 for a term of 10 years, and another for 90
percent of the output of Unit 1 until the end of its current license life
(2009).In addition to the PSC, the sale is subject to approval from the FERC. In June 2001, the Nuclear Regulatory
Commission approved the sale of the nuclear assets to Constellation Nuclear,
LLC. Niagara Mohawk is hopeful the transaction will close in the third quarter
2001.

Notwithstanding the
announced sale, because Unit 2 has multiple owners (and the sale of Unit 1 is
contingent on the sale of Unit 2) and because these sales are still subject to
regulatory hurdles that must be overcome, including the other co-tenants
reaching settlement with the PSC staff, 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 Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations  Pending
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 the pending sale, 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 June 30, 2001. 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 and
expected cash proceeds from the sale of the assets. If the terms of the joint
proposal of settlement were to be implemented, Niagara Mohawk would expect to
record a writeoff of $123 million before tax. In addition, the joint proposal
of settlement provides for recording in earnings the previously deferred
investment tax credits of approximately $79 million.

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 in the future, including the CTC and
assuming no unforeseen reduction in demand or bypass of the CTC or exit fees,
will be sufficient to recover the MRA regulatory asset over its planned
amortization period 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 97 percent of total assets and 87 percent of total
revenues, there are two principal business units: Energy Delivery and Nuclear.
As discussed in Note 3 above, Niagara Mohawk has a proposed sale of the nuclear
generation assets. Although there are two identified business units, financial
performance and resource allocation are measured and managed at the regulated
business level. Holdings management is pursuing a sale of Niagara Mohawk
Energy Inc.s (Niagara Mohawk Energy) energy marketing business.
The energy marketing business had revenues of $330.8 million and net income from
continuing operations after the cumulative effect of the accounting change (
net of income taxes) of $7.9 million in the first six months of 2001.

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 Six Months
                                Ended June 30,             Ended June 30,
                                --------------             --------------
                             Total      Economic        Total       Economic
(In thousands of dollars)  Revenues    Value Added     Revenues    Value Added
-------------------------  ------------------------   ------------------------
2001
Regulated                 $  946,151   $ (153,109)    $2,125,857   $(249,503)
Unregulated                  143,646      (16,469)       331,157     (12,860)
                          ------------------------    -----------------------
 Total Consolidated       $1,089,797   $ (169,578)    $2,457,014   $(262,363)
                          ========================    =======================
2000
Regulated                 $  907,204   $ (157,315)    $1,981,097   $(283,467)
Unregulated                  138,310       (7,718)       259,002     (13,776)
Eliminations                     (20)           -            (20)          -
                          ------------------------    -----------------------
 Total Consolidated       $1,045,494   $ (165,033)    $2,240,079   $(297,243)
                          ========================    =======================

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 six months
ending June 30, 2001 and 2000, 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 shown in the table below. In addition, there
was a significant adjustment in 2001 to reflect the recognition of an impairment
charge on Holdings entire investment in Telergy, Inc., a development stage
telecommunications company, of $44.0 million.

Three months ended June 30,  Six months ended June 30,
(in thousands of dollars)            2001         2000           2001        2000
------------------------------   --------------------------  -------------------------

Estimated net present value of   $1,314,600   $1,383,600     $1,314,600   $1,383,600
the remaining future above
market contracts with the IPPs

Corresponding recognition of         $9,678      $10,188        $19,356      $20,376
imputed interest

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 six
months ended June 31, 2001 and 2000 is as follows:

Three Months Ended June 30,    Six Months Ended June 30,
(in thousands of dollars)                 2001          2000             2001         2000
------------------------------------  ---------------------------    -------------------------
Economic Value Added:
    Operations                          $ (92,887)   $ (67,376)      $(108,244)    $ (99,995)
    Stranded Costs                        (76,691)     (97,657)       (154,119)     (197,248)
                                      ---------------------------    -------------------------
Total Economic Value Added               (169,578)    (165,033)       (262,363)     (297,243)
Charge for Use of Investor's Capital      216,039      236,521         434,659       473,480
Adjustments for Significant Items         (44,000)           -         (44,000)            -
Interest Component of IPP Payments
 (net of taxes)                            (9,699)     (10,188)        (19,391)      (20,376)
Interest Charges (net of taxes)           (65,040)     (72,205)       (132,511)     (144,388)
Extraordinary Item (net of taxes)               -         (909)              -          (909)
Niagara Mohawk Preferred Dividends         (7,757)      (7,904)        (15,515)      (15,808)
                                      ---------------------------    -------------------------
   Consolidated Net Income (Loss)       $ (80,035)   $ (19,718)      $ (39,121)    $  (5,244)
                                      ===========================    =========================
EVA® is a registered trademark of Stern Stewart & Co.


NOTE 5.  DERIVATIVES AND HEDGING ACTIVITIES

Niagara Mohawk has six types of derivative instruments: (1) financial swap agreements based on notional
quantities of electric power (IPP swaps, Huntley, Dunkirk, and Albany swaps),
(2) NYMEX gas futures, gas basis swaps, and an oil swap acquired to offset price
escalation in the aforementioned swaps, (3) NYMEX gas futures hedging a power
purchase agreement indexed to gas prices, (4) fixed for floating electricity
swaps designated as cash flow hedges of anticipated purchases of electricity,
and (5) NYMEX gas futures, and (6) Combination Call and Put Options designated
as cash flow hedges of anticipated purchases of natural gas.

The derivative financial instruments held by Niagara Mohawk are used for hedging or cost control and not
for trading. Niagara Mohawk has an Exposure Management Committee
(EMC) to monitor and control efforts to manage risks. The EMC
oversees the Financial Risk Management Policy (the Policy)
applicable to the regulated company that outlines the parameters within which
corporate managers are to engage in, manage, and report on various areas of risk
exposure. At the core of the Policy is a condition that Niagara Mohawk will
engage in activities at risk only to the extent that those activities fall
within commodities and financial markets to which it has a physical market
exposure in terms and in volumes consistent with its core business.

The IPP indexed swaps, Huntley, Dunkirk, and Albany swap contracts were entered into in connection with
the MRA and the sale of the generation assets and serve to limit Niagara
Mohawks exposure to electricity prices. These swaps are an exchange of a
contract price for the floating market price based on a notional amount of power
and offer some degree of hedge protection against volatile market prices.
However, with the IPP indexed swaps and the Albany swap, the contract payments
are indexed, primarily to fuel prices (natural gas and oil), and therefore, the
payments Niagara Mohawk must make fluctuate with the prices for these
commodities. To mitigate exposure, Niagara Mohawk acquired NYMEX gas futures,
gas basis swaps, and the Albany Oil swap.

Niagara Mohawk has also been making payments to a non-MRA IPP under a contract to buy power where the
price for this power is indexed to natural gas. Increases in the price of gas
cause this contract to be more costly. Niagara Mohawk purchases NYMEX gas
futures contracts to mitigate the impact the price of gas has on this contract.

Purchases of electricity and natural gas for distribution to its customers can expose Niagara Mohawk to
price risk for those commodities. Niagara Mohawk attempts to mitigate these
risks using fixed for floating electric swaps and through the purchase of NYMEX
gas futures.

During several months of 2001, Niagara Mohawk projects that it will be in a short position for
electricity needed to supply customers. For those months, electricity would need
to be purchased through the NYISO at market prices. While Niagara Mohawk expects
supplies of electricity in upstate New York to be adequate during the summer, to
maintain internal limits on exposure to market risks, Niagara Mohawk locked in
the price for a portion of this shortage through fixed for floating swaps on
electricity. For the first six months of 2001, Niagara Mohawk has recorded a
decrease of $5.9 million to Electricity purchased from the
settlement of these cash flow hedges.

For purchases of natural gas used to supply customers, 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. A
related regulatory ruling requires that gas utilities in New York state include
volatility of customers bills as one of the criteria to be used in developing
their gas supply purchasing strategies. Niagara Mohawk is using NYMEX gas
futures, and, beginning in April 2001, combinations of NYMEX call options and
put options as hedges to effectively and prudently manage the volatility of
those costs. The combination options are financial instruments called collars.
Like the futures contracts, the collars are designated and documented as cash
flow hedges of the anticipated purchases of natural gas. The use of collars,
along with the purchase of gas futures contracts, is consistent with Niagara
Mohawks overall strategy of mitigating the volatility in gas prices. For
the first six months of 2001, Niagara Mohawk has recorded a decrease of $7.7
million to Gas purchased from the settlement of these cash flow
hedges.

The transactions that result in the reclassification to earnings of the gains or losses from the cash
flow hedges are the purchases of electricity at market prices from the NYISO and
the purchases of natural gas in each of the months hedged. Net deferred losses
at June 30, 2001 for both electricity and gas cash flow hedges is $13.0
million based on June market prices. The deferral is recorded in Accumulated other comprehensive
income.  Since none of Niagara Mohawks cash flow hedges extend beyond one year, the net settlement
gains or losses resulting from these hedges will be reclassified to earnings within the next 12 months.
There were no gains or losses reclassified into earnings resulting from the
discontinuance of cash flow hedges.

The application of SFAS No. 133 in the accounting for transmission congestion contracts (TCCs) was discussed
in Holdings and Niagara Mohawks combined Form 10K for fiscal year ended
December 31, 2000, Part II, Item 8. Financial Statements and Supplementary Data
 Note 1, Summary of Significant Accounting Policies  Derivatives. It has been
determined that TCCs, as used by Niagara Mohawk, are excluded from the
application of SFAS No. 133.

On July 18, 2001, Niagara Mohawk signed an energy supply agreement with Tractebel Energy
Marketing, Inc. (Tractebel).  Under this agreement Tractebel will manage Niagara Mohawks
wholesale electricity portfolio for the period October 2001 through December 2006.
Tractebel will sell to Niagara Mohawk a specified quantity of power at fixed
prices through 2003. Then, beginning in 2004, the price would be adjusted based
on the price of natural gas with an annual cap on the adjustments. Tractebel
would provide electricity consumed by Niagara Mohawks retail customers,
beyond the contract quantities, at the market prices in effect at the time. Niagara Mohawk
 believes this contract represents a power purchase agreement for quantities of electricity to
be consumed in the normal course of business and as such will be excluded from
accounting under SFAS 133. (See Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations 
Energy Supply Agreement for more discussion of this contract).

Niagara Mohawk Energy also holds financial instruments and is engaged in trading activities. Niagara Mohawk
Energy maintains a separate Risk Management and Trading Policy Manual that
allows for transactions such as marketing and trading in retail and wholesale,
physically and financially settled, energy based instruments. Like Niagara
Mohawks Policy, the energy trading policy seeks to assure that risks are
identified, evaluated, and actively managed.

Niagara Mohawk Energy uses purchases and sales of energy as well as derivative transactions (such as
forwards, futures and swaps) to create margin and to hedge the price risk of its
portfolio. TCCs are also used by Niagara Mohawk Energy to fix the price of
delivered energy. Unlike Niagara Mohawk, because Niagara Mohawk Energy does not
originally own the transmission rights, these instruments are not excludable
from SFAS No. 133 and are included in its derivative portfolio. Niagara Mohawk
Energy manages risk by quantifying market exposure and then comparing the
quantification to pre-determined risk capital limit defined by the Niagara
Mohawk Energy Board of Directors.

For a more detailed discussion of the various derivative instruments used, see Holdings and Niagara
Mohawks combined Form 10-K for fiscal year ended December 31, 2000, Part
II, Item 8. Financial Statements and Supplementary Data - Note 9, Fair Value of
Financial and Derivative Financial Instruments. See also Holdings and Niagara
Mohawks combined Form 10-K for fiscal period ended December 31, 2000, Part
II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, for a
detailed discussion about how these items factor into Holdings and Niagara
Mohawks risk management strategy.

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 June 30,
2001 and 2000, and the related unaudited consolidated statements of income and
of cash flows for the three-month periods ended June 30, 2001 and 2000, and the
unaudited Consolidated Balance Sheets of Niagara Mohawk Power Corporation and
its subsidiary companies as of June 30, 2001 and 2000, and the related
unaudited Consolidated Statements of Income and of cash flows for the
three-month periods ended June 30, 2001 and 2000. The report of
PricewaterhouseCoopers LLP dated August 14, 2001, 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 and PricewaterhouseCoopers LLP
did not audit 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

To the Stockholders and Board of Directors of
Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation
300 Erie Boulevard West
Syracuse, NY 13202

We have reviewed the condensed consolidated balance sheets of Niagara Mohawk Holdings, Inc. and its
subsidiaries as of June 30, 2001 and 2000 (not presented herein), and the
related condensed consolidated statements of income for each of the three
month periods ended June 30, 2001 and 2000, and of cash flows for the sixmonth periods
ended June 30, 2001 and 2000 and the condensed consolidated
balance sheets of Niagara Mohawk Power Corporation and its subsidiaries as of
June 30, 2001 and 2000 (not presented herein), and the related condensed
consolidated statements of income and of cash flows for the three month periods
ended June 30, 2001 and 2000. These financial statements are the responsibility
of Niagara Mohawk Holdings, Inc. 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
sheets of Niagara Mohawk Holdings, Inc. and Niagara Mohawk Power Corporation as
of December 31, 2000, 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 23, 2001, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheets as of December 31, 2000 is fairly stated, in all
material respects, in relation to the consolidated balance sheets from which it
has been derived.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Syracuse, New York
August 14, 2001

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 to establish a new holding company to
facilitate the merger and the timing and nature of federal and state regulatory
actions on the pending merger with National Grid or the imposition of
unacceptable conditions to approval by one or more regulatory agencies, the
timing and outcome of the pending sale of Niagara Mohawks nuclear
generation assets, the planned repayment of debt, the outcome of rate and
reconciliation issues with the NYISO, escalating energy prices and the potential
effect it could have on 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 pending 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 including implementation of FERC Order 2000,
challenges to the Power Choice agreement
under New York laws, the timing and extent of changes in commodity prices 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
pending sale of its nuclear assets, efforts made by Niagara Mohawk to collect
from customers, particularly in an environment of rising commodity costs, estimated
future environmental expenditures and
the economic conditions of Niagara Mohawks service territory.

Pending Merger Agreement with National Grid

In September 2000, Holdings entered into a merger agreement with National Grid, under which National Grid
will acquire Holdings, with Holdings shares being exchanged for a
combination of cash and American Depository Shares in a new National Grid
holding company.

The pending merger was approved by Holdings shareholders on January 19, 2001 and by National
Grids shareholders on January 29, 2001. However, the merger is contingent
on National Grid shareholders further approving the new holding company
structure at a second meeting to be held later this year. On February 26, 2001,
the merger received clearance under the HartScottRodino Antitrust Improvements
Act of 1976, as amended. On June 13, 2001, FERC approved the merger. The pending
merger is also 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 and the PSC. Although
Holdings cannot predict the timing or the outcome of the negotiations or
timetable under which the PSC will consider the petition for the merger and the
merger rate plan, Holdings is targeting the pending merger to be completed
around the end of this year.

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 pending 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.

Regulatory Agreements and the Restructuring of the Regulated Electric Utility Business

Pending Merger Rate Plan:  On January 17, 2001, Niagara Mohawk filed a petition for approval of
the merger and the merger rate plan with the PSC. The objectives of the pending
merger rate plan are lowering and stabilizing energy delivery rates for
customers, continued development of competitive commodity supply and demand
market with protections for small customers, resolving outstanding issues before
the PSC, and continuing Niagara Mohawks return to financial stability. Key
elements of the pending merger rate plan are a reduction in electricity delivery
charges as compared to what customers would have otherwise paid (7.8 percent for
residential, 3.8 percent for commercial, 6.4 percent for small to midsized
industrial and 13.4 percent for large industrial), a tenyear freeze
of reduced electricity delivery charges subject to limited adjustments for
exogenous factors, power supply costs stabilized for small customers for four
years, a oneyear extension of the current Gas Settlement Agreement, and
incentive mechanisms to encourage cost reductions, service quality, and
transmission congestion management. Other major provisions include an extension
of the current lowincome customer assistance program, modifications to
corporate structure and affiliate rules and establishment of storm and
environmental response funds. Variations in commodity costs and transmission
revenues would be flowed through to customers. Current gas delivery rates are
frozen through August 2003 and the merger rate plan proposes to extend the
current gas agreement by one year to August 2004, maintaining the delivery rate
freeze, safety incentives and programs to facilitate a competitive market. The
parties to the PSC proceeding are in confidential settlement negotiations.
Niagara Mohawk cannot predict the timing or the outcome of the negotiations or
timetable under which the PSC will consider the petition for the merger and the
merger rate plan.

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 electric rate plan that reduces class average
residential and commercial prices by an aggregate of 3.2 percent over the first
three 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. New York State
tax law changes that further reduce the GRT rate for some customers and
eliminate the GRT for others, are not reflected in the price reductions. The tax
law changes are discussed in Holdings and Niagara Mohawks combined Form
10-K for fiscal year ended December 31, 2000, Part II, Item 8. Financial
Statements and Supplementary Data, - Note 1. Summary of Significant Accounting
Policies, Basis of Presentation.

On April 27, 2001, Niagara Mohawk made a compliance filing with the PSC to cover the final two years of the
Power Choice agreement, as required under the terms of such agreement. This
filing was necessary should the proposed merger rate filing not be approved in
time for September implementation. The merger rate filing described above would
supersede this filing if it is approved. The proposal allows for implementation
of the Power Choice agreement to pass through certain commodityrelated costs to
customers beginning September 1, 2001. Electric commodity costs, which fluctuate
with market conditions, are projected to be higher as a result of recent trends
in commodity markets, increases in charges from the NYISO and the expiration of
some Niagara Mohawk supply contracts. Partially offsetting the projected
increase in commodity costs is a reduction in rates for electric delivery
service associated with a lowering of the competitive transition charge with
respect to existing supply contracts. On balance, most customers are projected
to see average total price increases of ten percent, depending upon actual
commodity market conditions. However, residential and commercial customers will
be provided with price protection from severe fluctuations in the commodity
prices through a delivery charge adjustment mechanism that provides the value of
the remaining financial instruments and supply contracts.

On July 31, 2001, Niagara Mohawk filed a supplemental filing that included downward adjustments to the
commodity forecast to reflect the favorable impact of recent contract
transactions that Niagara Mohawk entered into and the introduction of a
transmission revenue adjustment mechanism. The transmission revenue adjustment mechanism
will compare actual transmission revenues received with the $87.4
million forecast base transmission revenue used to develop Power Choice
electric delivery prices, with differences collected from or returned to customers.
The updated filing projects that most electric customers may experience approximately a two percent decrease from the amount
forecasted in the April filing. Niagara Mohawks largest customers, who have
already experienced market price increases, are expected to see average total
price reductions of ten percent as a result of the cut in delivery rates. The compliance filing is
subject to approval by the PSC.

Energy Supply Agreement with Tractebel:  On July 18, 2001, Niagara Mohawk entered into an
energy-supply agreement with Tractebel that would
substantially mitigate market price fluctuations and production risks in
existing supply contracts and will help stabilize bills for customers who would
otherwise have seen greater price volatility.

Under the agreement, which is subject to approval by the PSC, Tractebel will manage Niagara Mohawks
wholesale electricity portfolio through 2006. Niagara Mohawk will sell to
Tractebel at cost virtually all the electricity and electricity derivatives,
including contracts tied to the price of natural gas, it currently has under
contract with generators and energy marketers. In return, Tractebel will sell to
Niagara Mohawk a specified quantity of electricity at a fixed price through
2003. Beginning in 2004, the fixed price would be subject to an annual capped
adjustment based on the price of natural gas in futures markets.

Electricity consumed by retail customers beyond the quantity established in the agreement with Tractebel
would be supplied to Niagara Mohawk at market prices in effect at that time.
However, all Niagara Mohawk customers would retain the ability to purchase their
electricity commodity from alternative suppliers. Niagara Mohawks largest
customers will continue to buy power at market prices, as they have done in
prior years.

In addition, Tractebel will act as Niagara Mohawks agent for all purchases from the NYISO. Under Power
Choice, as discussed above, Niagara Mohawk would be able to passthrough certain
commodityrelated costs to customers beginning September 1, 2001.

Generation Asset Sales:See Item 1. Notes to the Consolidated Financial Statements  Note 3.
Rate and Regulatory Issues and Contingencies, Deferred loss on the sale of
assets and Holdings and Niagara Mohawks combined Form 10-K for
fiscal year ended December 31, 2000, Part II, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Regulatory Agreements and the Restructuring of the Regulated Electric
Utility Business - Generation Asset Sales.

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 for customers leaving Niagara Mohawks system to be supplied by a
municipal or other utility or IPP is governed by Rule 52 of Niagara
Mohawks Retail Tariff, which became effective on April 6, 1998. A number
of communities served by Niagara Mohawk are considering municipalization and
have requested an estimate of their stranded cost obligation.

Alliance for Municipal Power

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.

At the PSCs request, Niagara Mohawk 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. Thereafter,
representatives of Niagara Mohawk and the AMP communities met on several
occasions to exchange information and views on this subject, but no agreement
has 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. In an order dated January
25, 2001, the FERC dismissed AMPs petition without prejudice to AMPs
right to raise any of the issues raised therein in a proceeding before the PSC.
On February 23, 2001, AMP requested rehearing of this determination. Niagara
Mohawk and the PSC both opposed this request, which was denied by the FERC in an
order dated March 26, 2001. AMP did not appeal this order within the period
provided by law, and the FERCs order in this case is now final.

If the 21 AMP communities withdrew from Niagara Mohawks system, Niagara Mohawk would experience a
potential revenue loss of approximately 2 percent per year. The impact on
Niagara Mohawks electric margin is considered to be immaterial. Suspension
or renegotiation of the exit fee provisions of Power Choice could have a
material adverse effect on Holdings and Niagara Mohawks results of
operations, financial condition, and future cash flows.

FERC Order 2000.  
In December 1999, the FERC issued Order 2000, which requires all public utilities
that own, operate or control interstate electric transmission to file a proposal
for a Regional Transmission Organization (RTO). Utilities not
currently part of a FERC approved transmission entity had to file their plans to
form an RTO by October 15, 2000. Utilities, including Niagara Mohawk, who are
part of a FERC approved transmission entity (Niagara Mohawk is a member of the
NYISO), had to file with the FERC demonstrating the transmission entity conforms
to the minimum characteristics and functions of an RTO, and if required,
identify specific plans to make it conform, including any obstacles to achieve
full compliance with Order 2000. On January 16, 2001, following a collaborative
process with the other New York transmission owning utilities, with the staff of
the NYISO, and other New York wholesale market participants, Niagara Mohawk and
the other New York transmission owning utilities made a joint filing with the
NYISO at the FERC describing how the NYISO is generally compliant with many of
the Order 2000 requirements, and steps that will be taken to achieve full
compliance with the remaining requirements. A number of generators, marketers
and industrial customers subsequently intervened in this proceeding requesting
various forms of relief ranging from a FERC order requiring the NYISO to merge
with the New England independent system operator and Pennsylvania Jersey
Maryland independent system operator (PJM) to modification or
abolition of various provisions of the NYISOs Open Access Transmission
Tariff.

On July 12, 2001, FERC ruled that the three Northeast ISOs (ISO New England, NYISO and PJM) did not
meet all the criteria in Order 2000, and that discussions must begin immediately
to begin the process of developing a single RTO spanning the Northeast region
served by the three ISOs. The FERC ordered the commencement of a mediation
process to develop a plan that would achieve a single RTO for the Northeast
region of the country utilizing the best practices from each of the existing
Northeast ISOs.

On July 24, 2001, the PSC announced their support of FERCs process to establish a single RTO to run
the daily power markets and oversee the flow of electricity in the Northeastern
United States, citing both economic and system reliability benefits. In
addition, the PSC noted their belief that the RTO approach will strengthen the
reliability of the system, promote better transmission planning and result in
efficient wholesale prices for electricity.

Niagara Mohawk cannot predict the financial impacts, if any, that may result from the ultimate
compliance with the FERC Order 2000 or any subsequent findings in that regard.

FERC Order on Niagara Mohawks Transmission Rates with Sithe.   
Sithe/Independence Power Partners, LP (Sithe) has filed two complaints against Niagara Mohawk challenging
the transmission rates charged by Niagara Mohawk. In its most recent complaint,
Sithe challenged Niagara Mohawks revenue requirements and loss
methodology, and also sought a refund of approximately $65 million which they
paid for certain interconnection facilities.

On June 29, 2001, Niagara Mohawk and Sithe negotiated and filed a settlement resolving all of the issues
in this proceeding with the FERC for an amount that will not have a material
adverse effect on Niagara Mohawks results of operations or financial
condition. Niagara Mohawk is unable to predict if and when FERC approval may
occur.

Financial Position

Holdings and Niagara Mohawks capital structure at June 30, 2001 and December 31, 2000, was as
follows:

June 30,   December 31,
             %                    2001          2000
--------------------------------------------------------
Holdings:
Long-term debt                    62.3          62.6
Preferred stock of subsidiary      6.0           5.8
Common equity                     31.7          31.6

Niagara Mohawk:
Long-term debt                    64.2          64.4
Preferred stock                    6.1           6.0
Common equity                     29.7          29.6

The financing 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 generation assets, have and will
continue to allow both entities to reduce the leverage in the capital structure.
Book value of Holdings common stock was $16.37 per share at June 30, 2001,
as compared to $16.69 at December 31, 2000.

EBITDA for the 12 months ended June 30, 2001 was $1,086.9 million for Holdings. EBITDA has declined
approximately $83.4 million as compared to the same period in 2000, primarily as
a result of lower operating. EBITDA represents earnings before interest charges,
interest income, income taxes, depreciation and amortization, and other noncash
items, including amortization of nuclear fuel, allowance for funds used during
construction, amortization/accretion of MRA/IPP buyout costs, deferral of MRA
interest rate savings, cumulative change in accounting principle and
non-recurring 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)                  June 30,
                                      2001           2000
                                  -----------    -----------
EBITDA                            $1,086,919     $1,170,339
Interest income                       16,613         22,919
Extraordinary item                    12,790        (13,966)
Income taxes                          23,812        (22,839)
Preferred dividend requirement
   of subsidiary                     (31,144)       (34,568)
Interest charges                    (418,864)      (445,902)
Depreciation and amortization       (313,129)      (312,860)
Nuclear fuel amortization            (28,129)       (28,627)
Impairment charge on Telergy
   investment                        (44,000)             -
Amortization/accretion of
   MRA/IPP buyout costs             (369,996)      (369,749)
Allowance for funds used during
   construction                        2,805          2,859
Deferral of MRA interest rate
   savings                           (18,097)       (22,723)
                                  -----------    -----------
Net income                        $  (80,420)    $  (55,117)
                                  ===========    ===========

Liquidity and Capital Resources

(See Holdings and Niagara Mohawks combined Form 10K for fiscal year ended December 31, 2000, Part
II, Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations  Financial Position, Liquidity and Capital
Resources).

Short Term.  At June30, 2001, Holdings and Niagara Mohawks principal sources of liquidity
included cash and cash equivalents of $169.2 million and $82.7 million,
respectively, and accounts receivable of $307.3 million and $264.4 million,
respectively. Accounts receivable are net of amounts sold, as discussed below.
Holdings and Niagara Mohawk have a negative working capital balance of $426.5
million and $568.5 million, respectively, primarily due to longterm debt due
within one year of $418.1 million at Niagara Mohawk and shortterm debt of $5.0
million. Ordinarily, construction related shortterm borrowings are refunded
with longterm securities on a periodic basis. This approach generally results
in a working capital deficit. Working capital deficits may also be a result of
the seasonal nature of Niagara Mohawks operations as well as the timing of
differences between the collection of customer receivables and the payments of
fuel and purchased power costs. As discussed below, Niagara Mohawk believes it
has sufficient cash flow and borrowing capacity to fund such deficits as
necessary in the near term.

Net cash from operating activities was $415.0 million for Holdings and $421.2 million for Niagara
Mohawk in the six months ended June 30, 2001 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 $846.9
million of credit consisting of a $322.9 million 364 day revolving credit
facility (expires May 31, 2002, with the option to convert up to $280.0 million
loans outstanding at the termination date to a oneyear term loan ), a 5year
$100 million revolving credit facility (expires May 31, 2005), and $424 million
for letters of credit with a 3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 June 30, 2001, Niagara Mohawk borrowed
$105 million from the revolving credit facility, consisting of $5.0 million from
the 364 day revolving credit facility and $100.0 million from the 5year
revolving credit facility, leaving Niagara Mohawk with $317.9 million of
borrowing capability under the bank facility agreement. The interest rate
applicable to the facility is variable based on certain rate options available
under the agreement and approximated 5.6 percent at July 31, 2001. Niagara
Mohawk also has the ability to issue first mortgage bonds to the extent that
there have been maturities since June 30, 1998. Through June 30, 2001, Niagara
Mohawk had $420 million in such first mortgage bond maturities.

Niagara Mohawk Energy has a $75 million bank facility secured by certain assets of Opinac and a $25 million
guarantee from Holdings. The facility provides for letters of credit and a $10
million line of credit. The bank facility expires on September 30, 2002. As of
June 30, 2001, approximately $49.7 million in letters of credit were outstanding
and there were no borrowings against the line of credit. In addition, Holdings
has issued guarantees of $8.0 million as of June 30, 2001 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. During February 2001, NMR was not in
compliance with the statistical ratios relating to the pool of receivables sold.
The purchaser has granted a waiver for this period. NMR returned to compliance
with this ratio in March 2001 and remained in compliance through May 2001. The
amount of receivables sold at June 30, 2001 was $290 million, which exceeded the
amount that could be supported by the then outstanding accounts receivable.
Subsequently, the amount of receivables sold has been reduced to bring Niagara
Mohawk back into compliance. See Holdings and Niagara Mohawks combined
Form 10K for fiscal year ended December 31, 2000, Part II, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources for a discussion of
NMRs compliance with statistical ratios in 2000. See Holdings and Niagara
Mohawks combined Form 10K for fiscal year ended December 31, 2000, Part
II, Item 8. Financial Statements and Supplementary Data  Note 8. Commitments
and Contingencies, for a further discussion of this customer receivables
program.

Niagara Mohawk plans to issue up to an additional $300 million in debt in the early fall 2001 to provide
it with financial flexibility, particularly in light of the uncertainty in the
timing of the sale of the nuclear assets. The financing is principally driven by
the need to fund debt maturities of $302 million in July 2001 and $100 million
in October 2001.

On July 1, 2001, Niagara Mohawk had $302 million in senior notes maturities. In order to meet that
obligation and other internal cash requirements, Niagara Mohawk borrowed $315
million on its existing senior bank facility and entered into a term loan with
certain banks to obtain an additional $60 million in short term debt. The term
loan was intended to be a bridge loan pending the nuclear sale and is due upon
the completion of the sale, but no later than October 31, 2001.

Holdings and Niagara Mohawks net cash used in investing activities increased $30.0
million and $16.7 million, respectively, in 2001 as compared to the same period
in 2000. These increases were primarily due to an increase in accounts payable
and supplies related to construction of approximately $33 million and an
increase in the acquisition of utility plant of approximately $10 million,
partially offset by higher proceeds from the sales of generation assets in the
first six months of 2001as compared to the first six months of 2000 of
approximately $36 million.

Niagara Mohawks net cash used in financing activities decreased $30.9 million as compared
to the same period in 2000, primarily due to the discontinuance of the stock
repurchase program as a result of the pending merger. In the first six months of
2000, Niagara Mohawk repurchased Holdings common stock for $190.2 million.
Niagara Mohawk did not repurchase any common stock in 2001. In addition, Niagara
Mohawk paid less dividends to Holdings in 2001 as compared to 2000. In the first
six months of 2001, Niagara Mohawk paid a dividend of $10 million to Holdings. A
total dividend of $37.2 million has been declared, leaving $27.2 million in
dividends payable by Niagara Mohawk to Holdings. In the first six months of
2000, Niagara Mohawk paid a dividend of $36.1 million to Holdings. These
decreases were partially offset by Niagara Mohawk retiring more debt in the
first six months of 2001 as compared to 2000 (net debt reductions were $173.1
million).

Results of Operations

The following discussion presents the material changes in results of operations for the three months and six
months ended June 30, 2001 in comparison to the same period in 2000. The results
of operations section includes the results of both Holdings and Niagara Mohawk.
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 six month period should not be
taken as an indication of earnings for all or any part of the balance of the
year. As a result of the closing of the MRA and the implementation of Power
Choice effective September 1, 1998, reported earnings for the five years under
Power Choice have been and will continue 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 income in the first quarter, which is reduced
by losses in the subsequent quarters. The ability of Niagara Mohawk to improve
earnings in the future periods will depend on the outcome of the regulatory
process, including the outcome of the merger rate filing, and may otherwise be
affected by the pending merger with National Grid. See Pending Merger
Agreement with National Grid for a discussion of the pending merger. This
discussion should also be read in conjunction with other financial and
statistical information appearing elsewhere in this report. See Holdings and
Niagara Mohawks combined Form 10K for the fiscal year ended December 31,
2000, Part II, Item 8. Financial Statements and Supplementary Data  Note 1.
Summary of Significant Accounting Policies, for a further discussion
of the formation of the holding company structure during 1999.

Three Months Ended June 30, 2001 versus Three Months Ended June 30, 2000

Holdings:

The loss for the second quarter of 2001 was $80.0 million or 50 cents per share,
as compared with a loss of $19.7 million or 12 cents per share for the second quarter of 2000.
The loss for the second quarter of 2001 includes a charge of $44.0 million or 27
cents per share due to the recognition of an impairment charge of its entire investment
in Telergy, Inc., a development
stage telecommunications company, as a result of Holdings assessment of its investment
in Telergy, Inc.. The loss for the second quarter of 2000
includes extraordinary charges related to the early repayment of debt of $0.9
million or 1 cent per share. The second quarter results for 2001, as compared
with the second quarter of 2000, were negatively impacted by the following
items:

o
Niagara Mohawks exposure to higher natural gas prices in its purchased
power portfolio of $16.1 million or 7 cents per share, principally because
restructured contracts with IPPs began indexing to natural gas prices in July
2000. Fuel and purchased power costs were also higher because of an indexed
contract with an IPP not part of the MRA. Niagara Mohawk has taken steps to
hedge against further volatility in natural gas prices, largely by purchasing
NYMEX gas futures contracts through August 2001, which marks the end of the
fixed price period in Niagara Mohawks multi-year regulatory agreement.o
Changes in the percentage allocation of federal income taxes in the second quarter 2001 as
compared to the same period in 2000 of $22.6 million or 9 cents per share. 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.o
Lower subsidiary earnings of 3 cents per share primarily as a result of
mark-to-market losses on the trading portion of Niagara Mohawk Energys
portfolio (see Item 1. Financial Statements - Note 5. Derivatives and Hedging
Activities for more information on Niagara Mohawk Energys trading
activities).o
No auction incentive was recorded in the second quarter 2001 and an auction
incentive of $6.0 million or 2 cents per share was recorded in the second
quarter 2000 (see Item 1. Financial Statements  Note 2. Rate and Regulatory
Issues and Contingencies  Deferred Loss on the Sale of Assets).o
A reduction in regulated electric revenues by $2.7 million or 1 cent per share
as a result of the implementation of Niagara Mohawks third phase of rate
reductions in September 2000 under Power Choice.Second quarter results have been positively impacted by the following items:

o
Lower interest expense of approximately $10.0 million or 4 cents per share due to the repayment of debt
during 2000 and 2001.o
Receipt of multi state tax refunds from a previously owned subsidiary of $3.9 million or 2 cents per
share related to tax periods prior to 1995.o
The increase in GRT credits received by Niagara Mohawk of $5.2 million or 2 cents per share due to
an increase in the customers in Niagara Mohawks service territory that
participate in New York States Power for Jobs program.Niagara Mohawk:

Niagara Mohawk had a loss of $22.2 million for the second quarter of 2001. The preferred dividend
requirement reduced the balance available for common stock to a loss of $30.0
million. These losses as compared to the same period in 2000 are explained above
in the discussion of Holdings losses for the same period, except for the
subsidiary results.

Revenues and Sales/Deliveries

Electric:

Of the $11.1 million increase in Holdings electric revenues, $0.2 million relates to Opinacs
unregulated revenues and $10.9 million relates to Niagara Mohawks revenues.

Regulated electric revenues increased $10.9 million or 1.4 percent from the second quarter of
2000. The increase in regulated electric revenues is primarily due to an
increase in miscellaneous revenues of $9.0 million, an increase in commercial
revenues of $4.7 million and an increase in the revenue from the distribution of
energy of $2.3 million. These increases were partially offset by a decrease in
residential revenues of $5.6 million as a result of lower sales to residential
customers and lower rates implemented in September 2000 in accordance with Power
Choice.

Regulated electric sales to ultimate consumers were approximately 7.2 billion KWh in the
second quarter of 2001 and the same period in 2000.

Unregulated electric revenues increased $0.2 million or 0.1 percent from the second quarter of
2000 primarily as a result of Niagara Mohawk Energy having increased wholesale
revenues of $27.0 million due to increased partner and trading volumes and
higher prices. This increase was partially offset by lower retail revenues of
$18.0 million primarily due to the loss of a large customer and lower
mark-to-market revenues of $8.9 million. The loss of customers has a direct
correlation to market prices and the back out rates of the utilities in the
territories that Niagara Mohawk Energy markets within.

Unregulated electric sales were 2.7 billion KWh or a 9.8 percent decrease from the second quarter
of 2000 primarily due to lower retail sales, partially offset by an increase in
wholesale sales.

Gas:

Of the $33.6 million increase in Holdings gas revenues, $28.0 million relates to Niagara Mohawk regulated revenues
and $5.6 million relates to Opinac unregulated revenues.

Regulated gas revenues increased $28.0 million or 20.4 percent in the second quarter of
2001 from the comparable period in 2000, primarily as a result of higher gas
prices being passed through to customers.

Regulated gas sales to ultimate consumers were 13.6 million Dth or a 6.3 percent decrease from the
second quarter of 2000.

Unregulated gas sales decreased 0.2 million Dth or 5.8 percent in the second quarter of 2001
from the comparable period in 2000. Wholesale sales decreased 0.4 million Dth as
a result of lower trading activity due to increased market volatility. This was
partially offset by an increase in retail sales of 0.2 million Dth due to
increased sales activity. Despite the decrease in sales, unregulated gas
revenues increased $5.6 million or 37.6 percent in the second quarter of
2001 from the comparable period in 2000 due to the increase in gas prices.

Operating Expenses

Holdingsfuel for electric generationand electricity purchased
decreased $4.6 million.
It is explained by Niagara Mohawks activity and is partially offset by an
increase in unregulated electric supply costs of $6.4 million or 5.2 percent in
the second quarter of 2001. Such increase in the unregulated electric supply
costs was primarily due to increased sales requirements.

Niagara Mohawks electricity purchased decreased $2.7 million or 0.9 percent in the second
quarter of 2001. IPP purchases were lower due to a decrease in hydro IPP
purchases as a result of a reduction in water flow. The second quarter 2001 was
a drier season as compared to the same period in 2000. The NYISO purchases were
higher due to an increase in the market price of electricity.

Niagara Mohawks
fuel for electric generation decreased $8.3 million or 52.8 percent as
compared to the second quarter in 2000, primarily as a result of the sale of
Niagara Mohawks interest in the Roseton Steam Station in the first quarter
2001.

Holdingsgas purchasedexpensereflects the increase in Niagara Mohawks gas
purchased expense of $26.2 million discussed below, as well as an increase of
$5.1 million in unregulated gas purchased costs in the second quarter of 2001
primarily as a result of higher natural gas prices.

Despite a decrease in regulated gas sales, Niagara Mohawks gas purchased expense
increased $26.2 million in the second quarter of 2001as a result of higher
natural gas prices.

Other operation and maintenance expenses for both Holdings and Niagara Mohawk have increased in
the second quarter of 2001 as compared to the same period in 2000, as a result
of a higher system benefits charge of $7.7 million and an increase in
transmission expense of $18.1 million due in part to the transmission congestion
contracts (TCC) purchased through the auction process conducted by
the NYISO. The systems benefits charge and the TCC expense are both offset in
electric revenues. The incremental merger related costs for the second quarter
of 2001 were approximately $1.2 million.

On July 13, 2001, Niagara Mohawk and the International Brotherhood of Electrical Workers agreed on a
3-year, 4 month labor agreement that provided for wage increases of 3.25 percent
to 3.75 percent over the next 3 years. For more information regarding Niagara
Mohawks work force, see Holdings and Niagara Mohawks combined Form
10-K for the fiscal year ended December 31, 2000, Part I, Item 1. Business
 Employee Relations.

The following table outlines the components of the line item Amortization/Accretion of
MRA/IPP Buyout Costs:"

Three Months Ended        Six Months Ended
                                                June 30,                June 30,
                                            2001       2000         2001       2000
                                         ---------  ---------    ----------  ---------
                                                        (in thousands)
Amortization of MRA regulatory asset     $ 96,624   $ 96,624     $193,249   $193,249
Accretion to MRA regulatory asset
    (Senior Discount Note)                 (7,768)    (7,148)     (15,536)   (14,296)
Other MRA related accretion                (7,008)    (4,478)     (14,016)    (8,957)
Amortization of other IPP buyout costs      9,224      8,980       18,448     17,640
                                         ---------  ---------    ---------  ---------
                                         $ 91,072   $ 93,978     $182,145   $187,636
                                         =========  =========    =========  =========

The decrease in other taxes for both Holdings and Niagara Mohawk is due to lower
GRT rates and an increase in GRT credits ($5.2 million) 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.

Holdings and Niagara Mohawksother income was lower in the second quarter 2001 as
compared to the same period in 2000, since no auction incentive was recorded in
the second quarter 2001 and an auction incentive of $6.0 million was recorded in
the second quarter 2000. This decrease was partially offset by the receipt of
multi-state tax refunds from a previously owned subsidiary of $3.9 million for
tax periods prior to 1995. In addition, Holdings other incomewas
further reduced by the recognition of an impairment charge of $44.0 million as a
result of Holdings assessment of its investment in Telergy, Inc., a
development stage telecommunications company.

Holdings and Niagara Mohawksinterest charges decreased by $10.0 million in the second
quarter of 2001 mainly due to the repayment of debt during 2000 and 2001.

The increase in Holdings and Niagara Mohawks income taxes of approximately $13.4 million and
$15.8 million, respectively, in the second quarter of 2001 is due to changes in
the estimate of the percentage allocation of income taxes to the second quarter
2001 as compared to the same period in 2000. 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.

Six Months Ended June 30, 2001 versus Six Months Ended June 30, 2000

Holdings:

The loss for the first six months of 2001 was $39.1 million or 24 cents per share,
as compared with a loss of $5.2 million or a negative 3 cents per share for the same
period in 2000. The loss for the first six months of 2001 includes a charge of $44.0
million or 27 cents per share due to the recognition of an impairment charge of its entire
investment in Telergy, Inc., a development
stage telecommunications company, as a result of Holdings assessment of its investment in Telergy, Inc..
The loss for 2001 was partially offset by the
cumulative effect of an accounting change related to the adoption by Niagara
Mohawk Energy of SFAS No. 133 of $12.8 million or 8 cents per share. The loss
for the first six months of 2000 includes extraordinary charges related to the
early repayment of debt of $0.9 million or 1 cent per share. Earnings for the
first six months of 2001, as compared with the first six months of 2000, have
also been positively impacted by the following items:

o
The increase in GRT credits received by Niagara Mohawk of $22.1 million or 9 cents per share due to
an increase in the customers in Niagara Mohawks service territory that
participate in New York States Power for Jobs program.o
Lower interest expense of approximately $18.4 million or 7 cents per share due to the repayment
of debt during 2000 and 2001.o
Receipt of multi state tax refunds from a previously owned subsidiary of $3.9 million or 2
cents per share related to tax periods prior to 1995.Earnings for the first six months were negatively impacted by the following items:

o
Niagara Mohawks exposure to higher natural gas prices in its purchased
power portfolio of $36.9 million or 15 cents per share, principally because
restructured contracts with IPPs began indexing to natural gas prices in July
2000. Fuel and purchased power costs were also higher because of an indexed
contract with an IPP not part of the MRA. Niagara Mohawk has taken steps to
hedge against further volatility in natural gas prices, largely by purchasing
NYMEX gas futures contracts through August 2001, which marks the end of the
fixed price period in Niagara Mohawks multi-year regulatory agreement.o
A reduction in regulated electric revenues by $7.7 million or 3 cents per share
as a result of the implementation of Niagara Mohawks third phase of rate
reductions in September 2000 under Power Choice.o
An increase in bad debt expense of $7.4 million or 3 cents per share which
reflects the impact of the higher natural gas prices on customers.o
Lower subsidiary earnings of 3 cents per share primarily as a result of
mark-to-market losses on the trading portion of Niagara Mohawk Energys
portfolio (see Item 1. Financial Statements - Note 5. Derivatives and Hedging
Activities for more information on Niagara Mohawk Energys trading
activities).Niagara Mohawk:

Niagara Mohawk had earnings of $13.0 million for the first six months of 2001. The preferred dividend
requirement reduced the balance available for common stock to a loss of $2.5
million. These earnings as compared to the same period in 2000 are explained
above in the discussion of Holdings earnings for the same period, except
for the subsidiary results.

Revenues and Sales/Deliveries

Electric:

Of the $59.1 million increase in Holdings electric revenues, $52.6 million relates to Opinacs
unregulated revenues and $6.5 million relates to Niagara Mohawks revenues.

Regulated electric revenues increased $6.5 million or 0.4 percent from the first six months of
2000. The increase in regulated electric revenues is primarily due to an
increase in transmission revenues of $20.7 million primarily as a result of
increased revenues from transmission congestion contracts sold through the
auction process conducted by the NYISO and an increase in sales for resale of
$16.7 million, due primarily to increased sales to the NYISO. These increases
were partially offset by a decrease in residential revenues of $15.6 million as
a result of lower sales to residential customers and lower rates implemented in
September 2000 in accordance with Power Choice and a decrease in miscellaneous
revenues of $15.8 million in the first six months of 2001 primarily due to a
decrease in unbilled revenues. In accordance with Power Choice, Niagara Mohawk
recognizes changes in accrued unbilled revenue in its results of operations.

Six Months Ended June 30,

Electric Revenue (Thousands)          Sales (GWh)
                                                      %                           %
                              2001        2000     Change     2001     2000    Change
                          ----------- ----------- -------    -------  -------  ------
Regulated:
 Residential              $  598,543  $  614,124    (2.5)     5,031    5,114   (1.6)
 Commercial                  511,955     506,004     1.2      4,917    4,926   (0.2)
 Industrial                  224,349     222,400     0.9      2,749    2,968   (7.4)
 Industrial - Special         32,815      31,055     5.7      2,319    2,122    9.3
 Other                        13,340      20,613   (35.3)        79       87   (9.2)
                          ----------- ----------- -------    -------  -------  -----
Regulated Total to
 Ultimate Consumers        1,381,002   1,394,196    (0.9)    15,095   15,217   (0.8)
 Other Electric Systems       58,468      41,771    40.0      1,334      856   55.8
 Distribution of Energy       85,039      86,965    (2.2)     2,049    1,896    8.1
 Transmission of Energy       88,626      67,915    30.5          -        -      -
 Miscellaneous                (8,394)      7,425  (213.1)         -        -      -
                          -----------  ---------- -------    -------  -------  -----
Total Regulated            1,604,741   1,598,272     0.4     18,478   17,969    2.8

Unregulated:
 Wholesale & Retail          276,730     224,142    23.5      5,869    5,557    5.6
                          ----------- -----------  ------    -------  -------  -----
Total                     $1,881,471  $1,822,414     3.2     24,347   23,526    3.5
                          =========== ===========  ======    =======  =======  =====

Regulated electric salesto ultimate consumers were approximately 15.1 billion KWh or a 0.8 percent
decrease from the first six months of 2000 primarily due to lower residential,
commercial and industrial sales.

Unregulated electric revenues increased $52.6 million or 23.5 percent from the first six months
of 2000 primarily as a result of Niagara Mohawk Energy having increased
wholesale revenues of due to increased partner and trading volumes and higher
prices. This increase was partially offset by lower retail revenues due to the
loss of a large customer. The loss of customers has a direct correlation to
market prices and the back out rates of the utilities in the territories that
Niagara Mohawk Energy markets within.

Unregulated electric sales were 5.9 billion or a 5.6 percent increase from the first six months
of 2000 primarily due to an increase in wholesale sales. This increase was
partially offset by lower retail sales.

Gas:

Of the $159.1 million increase in Holdings gas revenues, $138.3 million relates to Niagara Mohawk
regulated revenues and $20.8 million relates to Opinac unregulated revenues.

Regulated gas revenues increased $138.3 million or 36.1 percent in the first six months of
2001 from the comparable period in 2000, primarily as a result of higher gas
prices being passed through to customers.

Regulated gas salesto ultimate consumers were 48.4 million Dth or a 2.3 percent decrease from the first six
months of 2000.

Six Months Ended June 30,
Gas Revenue (Thousands)       Sales (Thousands of Dth)
                                                    %                            %
                             2001      2000      Change     2001       2000    Change
                          ---------- ---------  -------   --------   -------- -------
Regulated:
   Residential            $ 363,753  $269,353     35.0     36,993     37,943    (2.5)
   Commercial               110,623    76,108     45.4     11,113     11,324    (1.9)
   Industrial                 2,521     1,577     59.9        300        290     3.4
                          ---------- ---------  -------   --------   -------- -------
Regulated Total to
    Ultimate Consumers      476,897   347,038     37.4     48,406     49,557    (2.3)
   Transportation of
      Customer-Owned Gas     30,244    36,146    (16.3)    62,784     74,273   (15.5)
   Spot Market Sales              -     1,604   (100.0)         -        592  (100.0)
Miscellaneous                13,975    (1,963)  (811.9)         5          5       -
                          ---------- ---------  -------   --------   -------- -------
Total Regulated             521,116   382,825     36.1    111,195    124,427   (10.6)

Unregulated:
   Wholesale & Retail        54,115    33,352     62.3      8,547      9,916   (13.8)
                          ---------- ---------  -------   --------   -------- -------
Total                     $ 575,231  $416,177     38.2    119,742    134,343   (10.9)
                          ========== =========  =======   ========   ======== =======

Unregulated gas sales decreased 1.4 million Dth or 13.8 percent in the first six months of
2001 from the comparable period in 2000. Wholesale sales decreased 1.8 million
Dth as a result of lower trading activity due to increased market volatility.
This was partially offset by an increase in retail sales of 0.4 million Dth due
to increased sales activity. Despite the decrease in sales, unregulated gas
revenues increased $20.8 million or 62.3 percent in the first six months of
2001 from the comparable period in 2000 due to the increase in gas prices.

Operating Expenses

Holdingsfuel for electric generationand electricity purchased, which increased $62.0
million, is explained by Niagara Mohawks activity, as well as an increase
in unregulated electric supply costs of $60.8 million or 28.1 percent in the
first six months of 2001, primarily due to increased sales requirements.

Six Months Ended June 30,(Niagara Mohawk only)
GWh                  Cost (millions)          Cents/Kwh
                                       -----------------------    ------------------------    --------------
                                         2001    2000   % Chg      2001     2000    % Chg       2001   2000
                                         ----    ----   -----      ----     ----    -----       ----   ----
Regulated Fuel for Electric Generation:
 Oil and Natural Gas                      115     258   (55.4)    $  5.2   $ 11.8   (55.9)      4.5    4.6
 Nuclear                                3,641   3,777    (3.6)      16.5     17.2    (4.1)      0.5    0.5
                                       ------- -------  ------    -------  -------  ------     -----  -----
   Total electric generation            3,756   4,035    (6.9)      21.7     29.0   (25.2)      0.6    0.7
                                       ------- -------  ------    -------  -------  ------     -----  -----

Regulated Electricity Purchased:
 IPPs:
  Capacity                                  -       -       -        8.4      7.8     7.7         -      -
  Energy and taxes                      2,399   2,679   (10.5)     127.9    163.4   (21.7)      5.3    6.1
                                       ------- -------  ------    -------  -------  ------     -----  -----
   Total IPP purchases                  2,399   2,679   (10.5)     136.3    171.2   (20.4)      5.7    6.4
                                       ------- -------  ------    -------  -------  ------     -----  -----
 Fossil/Hydro PPAs:
  Capacity                                  -       -       -       16.8     21.6   (22.2)        -      -
  Energy and taxes                      1,599   2,699   (40.8)      44.4     50.6   (12.3)      2.8    1.9
                                       ------- -------  ------    -------  -------  ------     -----  -----
   Total Fossil/Hydro purchases         1,599   2,699   (40.8)      61.2     72.2   (15.2)      3.8    2.7
                                       ------- -------  ------    -------  -------  ------     -----  -----
  NYISO  - energy purchases             5,032   4,698     7.1      252.2    203.1    24.2       5.0    4.3
  NYISO  - ancillary charges                -       -       -       18.4     36.9   (50.1)        -      -
  Other purchases                       4,018   4,321    (7.0)      68.2     69.9    (2.4)      1.7    1.6
  Swap payments                             -       -       -       46.4     27.5    68.7         -      -
                                       ------- -------  ------    -------  -------  ------     -----  -----
   Sub-total regulated purchases       13,048  14,397    (9.4)     582.7    580.8     0.3       4.5    4.0
                                       ------- -------  ------    -------  -------  ------     -----  -----
  Deferral                                  -       -       -       (8.2)   (14.7)  (44.2)        -      -
                                       ------- -------  ------    -------  -------  ------     -----  -----
   Total regulated purchases           13,048  14,397    (9.4)     574.5    566.1     1.5       4.4    3.9
                                       ------- -------  ------    -------  -------  ------     -----  -----
Total generated and purchased          16,804  18,432    (8.8)     596.2    595.1     0.2       3.5    3.2
Losses/Niagara Mohawk use                 375   2,359   (84.1)        -         -       -         -      -
                                       ------- -------  ------    -------  -------  ------     -----  -----
                                       16,429  16,073     2.2     $596.2   $595.1     0.2       3.6    3.7
                                       ======= =======  ======    =======  =======  ======     =====  =====

Niagara Mohawks electricity purchased increased $8.5 million or 1.5 percent in the first
six months of 2001. The NYISO purchases were higher due to an increase in the
market price of electricity and quantity purchased. IPP purchases were lower due
to a decrease in hydro IPP purchases as a result of a reduction in water flow.
The first six months of 2001 was a drier season as compared to the same period
in 2000. These IPP hydro purchases have a higher cost per Kwh than market
prices. Niagara Mohawk is required to purchase 100 percent of the output of
these plants, in accordance with the hydro IPP contracts. The change in the
deferral for electricity purchased is due to the regulatory treatment of the
hydro PPA as discussed in Holdings and Niagara Mohawks combined Form 10-K
for fiscal year ended December 31, 2000, Part II, Item 8. Financial Statements
and Supplementary Data  Note 2. Rate and Regulatory Issues and Contingencies,
Deferred Loss on the Sale of Assets.

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 Regulated Electric Fuel and Purchased Power Costs table
are measured as the difference between the specified contract price and the
market price of electricity, relative to respective notional quantities of
electricity. In addition, the swap payments reflect the NYMEX gas futures
contracts and fixed for floating basis swaps that Niagara Mohawk entered into to
hedge the escalation in the natural gas price component of six IPP indexed swap
contracts through August 2001. Under Power Choice, Niagara Mohawk bears the risk
of increases in the indexed contract prices beyond the Power Choice set prices
until August 31, 2001. However, Niagara Mohawk believes that the Power Choice
prices for the payments under the IPP, Huntley, Dunkirk and Albany swaps are, in
aggregate, sufficient to recover the expenditures through August 31, 2001.
Thereafter, changes in prices will be borne by customers. See Holdings and
Niagara Mohawks combined Form 10K for fiscal year ended December 31,
2000, Part II, Item 7A.  Quantitative and Qualitative Disclosures About Market
Risk  Commodity Price Risk and Item 8.  Financial Statements and
Supplementary Data  Note 9. Fair Value of Financial and Derivative Financial
Instruments, Swap Contracts Regulatory Asset and Derivative
Hedging Instruments.

Niagara Mohawks fuel for electric generation decreased $7.3 million as compared to the
first six months in 2000 primarily as a result of the sale of the Roseton Steam
Station in the first quarter 2001.

Holdingsgas purchasedexpense reflects the increase in Niagara Mohawks gas
purchased expense of $137.5 million discussed below, as well as an increase of
$17.1 million in unregulated gas purchased costs in the first six months of 2001
primarily as a result of higher natural gas prices.

Despite a decrease in regulated gas sales, Niagara Mohawks gas purchased expense
increased $137.5 million in the first six months of 2001as a result of higher
natural gas prices.

Other operation and maintenance expenses for both Holdings and Niagara Mohawk have increased in
the first six months of 2001 as compared to the same period in 2000, primarily
as a result of an increase in transmission expense of $27.1 million in part due
to TCCs purchased through the auction process conducted by the NYISO, an
increase in bad debt expense of $7.4 million which reflects the impact of the
higher natural gas prices being passed on to customers, a higher systems benefit
charge of $7.7 million, and a higher management incentive pay out of $3.0
million. The systems benefits charge and the TCC expense are both offset in
electric revenues. The increase in the common stock price of Holdings, due to
the pending merger, also increased the expense recognized for stock incentive
programs of $6.2 million. The incremental merger related costs for the first six
months of 2001 were approximately $1.9 million.

The decrease in other taxes for both Holdings and Niagara Mohawk is due to lower GRT rates and an
increase in GRT credits ($22.1 million) 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.

Holdings other incomedecreased primarily as a result of the recognition of an impairment
charge of $44.0 million as a result of its assessment of its investment in
Telergy, Inc., a development stage telecommunications company.

Niagara Mohawksother income increased primarily as a result of the receipt of multistate
tax refunds from a previously owned subsidiary of $3.9 million for tax periods
prior to 1995.

Holdings and Niagara Mohawks interest chargesdecreased by $18.4 million
mainly due to the repayment of debt during 2000 and 2001.

The decrease in Holdings and Niagara Mohawks income taxes of approximately $17.0 million and
$12.0 million, respectively, is due primarily to a decrease in state income
taxes of $10.8 million. In addition, the increase is due to lower book income in
the first six months of 2001 and changes in the estimate of the percentage
allocation of income taxes to the first six months of 2001 as compared to the
same period in 2000. 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.

Holdings recorded a cumulative effect for a change in accounting principleof $19.7 million,
net of income taxes of $6.9 million related to the adoption by Niagara Mohawk
Energy of SFAS No. 133 (see Item 1.  Financial Statements  Note.1. Summary of
Significant Accounting Policies  Derivatives and Hedging
Activities).

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There were no material changes in Holdings market risk or market risk strategies during the six months
ended June 30, 2001. For a detail discussion of market risk, see Holdings and
Niagara Mohawks combined Form 10-K for fiscal period ended December 31,
2000, Part II, Item 7A. Quantitative and Qualitative Disclosures About Market
Risk. For a discussion of the proposed energy supply agreement that Niagara
Mohawk entered into that would substantially mitigate market price fluctuations
and production risks in existing supply contracts, see Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations,
Energy Supply Agreement with Tractebel. See Item 1. Financial
Statements - Note 4. Segment Information for a discussion of the potential sale
of Niagara Mohawk Energys energy marketing business. See Item 2. Managements Discussion
and Analysis of Financial Condition and Results of Operations, Results of Operations for a discussion
of the recognition of an impairment charge of Holdings entire investment in Telergy, Inc.

NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES

PART II

ITEM 1.   LEGAL PROCEEDINGS

DEC Air Pollution Notice of Violation

On May 25, 2000, the DEC
issued an air pollution notice of violation to Niagara Mohawk regarding the
operation of its two formerly owned coal-fired generation plants (Huntley and
Dunkirk). The notice of violation was also issued to NRG Energy, Inc.
(NRG), the current owner and operator of both plants. The notice
alleges violations of the federal Clean Air Act and the New York State
Environmental Conservation Law resulting from the alleged failure of the
companies to obtain permits for plant modifications and the alleged failure to
install air pollution control equipment. While no specific relief was sought in
the notice of violation, the DEC and the New York State Attorney General have
indicated in meetings with Niagara Mohawk and NRG that they will be seeking
substantial fines against Niagara Mohawk and NRG as well as the imposition of
pollution controls. The New York State Attorney General has also indicated that
they will be pursuing mitigation of alleged environmental harm. It is Niagara
Mohawks position that the cost of pollution controls should be borne by
NRG.

In May 2001, the New York State Attorney General advised Niagara Mohawk and NRG of its intent to file suit
on or after July 16, 2001, alleging that the plants are in violation of the
federal Clean Air Act. However, there has been no action from the Attorney
General to date.

On July 13, 2001, Niagara
Mohawk filed a declaratory judgment action against NRG in New York State Supreme
Court. Niagara Mohawk is seeking a declaratory judgment that NRG is responsible
for any control upgrades and mitigation resulting from the above-referenced
enforcement action.

Niagara Mohawk is unable to predict whether or not the results of this enforcement
action will have an adverse material effect on its financial position and results of operation.

Fourth Branch Associates Mechanicville

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 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. On June 19,
2001, the Court of Appeals denied Fourth Branchs appeal. 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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At Holdings annual meeting on May 15, 2001,

(1)   The Election of Directors was as follows:

Shares Withheld
                        Shares Voted For     Authority
                        ----------------  ---------------

Salvatore H. Alfiero      139,734,029      2,744,599
Albert J. Budney, Jr.     139,243,468      3,235,160
Robert L. Culver          139,695,295      2,783,333
Dr. Bonnie G. Hill        139,597,240      2,881,388
Clark A. Johnson          139,724,071      2,754,557

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

    Exhibit 11 - Computation of the Average Number of Shares of Common Stock Outstanding for the Three Months Ended
    June 30, 2001 and 2000.

    Exhibit 15 - Accountants' Acknowledgement Letter.

    In accordance with Paragraph 4(iii) of Item 601(b) of Regulation S-K, the Company agrees to furnish to the
    Securities and Exchange Commission, upon request, a copy of the agreements comprising the $804 million senior debt
    facility that the Company completed with a bank group on June 1, 2000.  The total amount of long-term debt
    authorized under such agreement does not exceed 10 percent of the total consolidated assets of the Company and its
    subsidiaries.

    Exhibit 99 - Press release of Holdings issued on August 13, 2001, realting to its second quarter earnings.

    (b) Reports on Form 8-K:

        Niagara Mohawk Holdings, Inc.

        Form 8-K Reporting Date - May 7, 2001
        Items reported:
        (1)  Item 5. Other Events
             Holdings filed a press release relating to its first quarter earnings for 2001.
        (2)  Item 7.  Financial Statements and Exhibits
             Exhibit 99 - Press release of Holdings issued on May 7, 2001 relating to its first quarter earnings.

        Niagara Mohawk Power Corporation

        Form 8-K Reporting Date - May 7, 2001
        Items reported:
        (1)  Item 5. Other Events
             Registrant filed a press release relating to its first quarter earnings for 2001.
        (2)  Item 7.  Financial Statements and Exhibits
             Exhibit 99 - Press release of Holdings issued on May 7, 2001 relating to its first quarter earnings.

NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIESSIGNATURES
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:  August 14, 2001       
                
                
    
By:    
/s/ Steven W. Tasker
Steve W. Tasker

                
                
                
                
              
         
Vice PresidentController and

                
                
                
                
              
         
Principal Accounting Officer
NIAGARA MOHAWK POWER CORPORATION
                
                
                
                
                
                
     (Registrant)
Date:  August 14,  2001       
                
                
    
By:    
/s/ Steven W. Tasker
Steve W. Tasker

                
                
                
                
               
         
Vice PresidentController and

                
                
                
                
                
        
Principal Accounting Officer

NIAGARA MOHAWK HOLDINGS, INC. AND SUBSIDIARY COMPANIES
EXHIBIT INDEX

ExhibitNumber
                
                
                
Description

11
                
                
           
Niagara Mohawk Holdings, Inc.
                
                
                
Computation of the Average Number of Shares
                
                
                
of Common Stock Outstanding for the Three
                
                
                
Months Ended June 30, 2001 and 2000.
15
                
                
          
Accountants Acknowledgement Letter.
99
                
                
          
Press release of Holdings issued on August 13, 2001,
                
                
                
relating to its second quarter earnings
Exhibit 11

NIAGARA MOHAWK HOLDINGS, INC.AND SUBSIDIARY COMPANIES

Computation of the Average Number of Shares of Common Stock Outstanding
For the Three Months and Six Months Ended June 30, 2001
(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 June 30:
                                            -----------------------------------

April 1 - June 30, 2001     160,239,818       91         14,581,823,438          160,239,818
                            ===========                  ==============          ===========
April 1 - June 30, 2000     176,630,863       91         16,073,408,533

Shares repurchased by
   Niagara Mohawk            12,231,316      (a)            504,367,232
                            -----------                  --------------
                            164,399,547                  15,569,041,301          171,088,366
                            ===========                  ==============          ===========

                                             For the Six Months Ended June 30:
                                             ---------------------------------

January 1 - June 30, 2001   160,239,818      181         29,003,407,058          160,239,818
                            ===========                  ==============          ===========
January 1 - June 30, 2000   177,364,863      182         32,280,405,066

Shares repurchased by
   Niagara Mohawk            12,965,316      (a)            572,335,232
                            -----------                  --------------
                            164,399,547                  31,708,069,834          174,220,164
                            ===========                  ==============          ===========


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

Note:  Earnings per share calculated on both a primary and fully diluted basis are the same due to
       the effects of rounding.

Exhibit 15
August 14, 2001

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

We are aware that our report dated August 14, 2001 on our review of interim financial information of Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation as of and for the period ended June 30, 2001 and included in Niagara Mohawk Holdings, Inc. and
Niagara Mohawk Power Corporation combined 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).
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP