FORM 10-Q


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

                                       OR

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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                          COMMISSION FILE NUMBER 1-3571


                          LONG ISLAND LIGHTING COMPANY

               INCORPORATED PURSUANT TO THE LAWS OF NEW YORK STATE


       INTERNAL REVENUE SERVICE - EMPLOYER IDENTIFICATION NO. 11-1019782


              175 EAST OLD COUNTRY ROAD, HICKSVILLE, NEW YORK 11801
                                 (516) 755-6650

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE  PRECEDING 12 MONTHS (OR FOR SUCH  SHORTER  PERIOD THAT THE  REGISTRANT  WAS
REQUIRED  TO FILE  SUCH  REPORTS)  AND  (2)  HAS  BEEN  SUBJECT  TO SUCH  FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

                           YES [X]          NO [ ]


THE TOTAL  NUMBER OF SHARES OF THE  REGISTRANT'S  COMMON  STOCK,  $5 PAR  VALUE,
OUTSTANDING ON SEPTEMBER 30, 1997, WAS 121,355,976.




<PAGE>




                          LONG ISLAND LIGHTING COMPANY






                                                                        PAGE NO.

PART I - FINANCIAL INFORMATION

     ITEM 1.  FINANCIAL STATEMENTS

                   STATEMENT OF INCOME                                   3

                   BALANCE SHEET                                         6

                   STATEMENT OF CASH FLOWS                               8

                   NOTES TO FINANCIAL STATEMENTS                         9

     ITEM 2.   MANAGEMENT'S DISCUSSION AND
                  ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF OPERATIONS                                 12


PART II - OTHER INFORMATION

     ITEM 1.  LEGAL PROCEEDINGS                                         22

     ITEM 2.  CHANGES IN SECURITIES                                     22

     ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                           22

     ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
              OF SECURITY HOLDERS                                       22

     ITEM 5.  OTHER INFORMATION                                         22

     ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                          22

     SIGNATURE                                                          23






                                      -2-




<PAGE>
                                             

                          LONG ISLAND LIGHTING COMPANY
                               STATEMENT OF INCOME
                                   (UNAUDITED)
                (THOUSANDS OF DOLLARS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                           THREE MONTHS ENDED
                                                              SEPTEMBER 30
                                                     ---------------------------
                                                           1997           1996
                                                     ---------------------------
<S>                                                     <C>            <C>
REVENUES
Electric                                                $790,331       $780,158
Gas                                                       62,078         69,617
                                                     ------------  -------------
Total Revenues                                           852,409        849,775
                                                     ------------  -------------

EXPENSES
Operations - fuel and purchased power                    206,666        203,305
Operations - other                                        87,502         98,547
Maintenance                                               26,885         27,173
Depreciation and amortization                             39,268         38,305
Base financial component amortization                     25,243         25,243
Rate moderation component amortization                     9,126         (7,992)
Regulatory liability component amortization              (22,143)       (22,143)
Other regulatory amortization                             28,559         49,301
Operating taxes                                          122,337        121,550
Federal income tax - current                              21,103          8,292
Federal income tax - deferred and other                   65,251         72,792
                                                     ------------  -------------
Total Expenses                                           609,797        614,373
                                                     ------------  -------------
OPERATING INCOME                                         242,612        235,402
                                                     ------------  -------------

OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges                 5,933          6,513
Class Settlement                                          (4,167)        (4,930)
Other income and deductions, net                             727            372
Allowance for other funds used during construction           964            798
Federal income tax - current                                (946)             -
Federal income tax - deferred and other                     (250)           856
                                                     ------------  -------------
Total Other Income and (Deductions)                        2,261          3,609
                                                     ------------  -------------
INCOME BEFORE INTEREST CHARGES                           244,873        239,011
                                                     ------------  -------------

INTEREST CHARGES AND (CREDITS)
Interest on long-term debt                                87,746         92,892
Other interest                                            13,995         17,098
Allowance for borrowed funds used during construction     (1,252)        (1,002)
                                                     ------------  -------------
Total Interest Charges and (Credits)                     100,489        108,988
                                                     ------------  -------------

NET INCOME                                               144,384        130,023
Preferred stock dividend requirements                     12,948         13,051
                                                     ------------  -------------
EARNINGS FOR COMMON STOCK                               $131,436       $116,972
                                                     ============  =============
AVERAGE COMMON SHARES OUTSTANDING (000)                  121,341        120,493
EARNINGS PER COMMON SHARE                                  $1.09          $0.97

DIVIDENDS DECLARED PER COMMON SHARE                       $0.445         $0.445
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                      -3-

<PAGE>


                          LONG ISLAND LIGHTING COMPANY
                               STATEMENT OF INCOME
                                   (UNAUDITED)
                (THOUSANDS OF DOLLARS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                            SIX MONTHS ENDED
                                                              SEPTEMBER 30
                                                     ---------------------------
                                                           1997           1996
                                                     ---------------------------
<S>                                                  <C>            <C>       
REVENUES
Electric                                             $1,350,417     $1,357,121
Gas                                                     166,480        187,256
                                                     ------------  -------------
Total Revenues                                        1,516,897      1,544,377
                                                     ------------  -------------

EXPENSES
Operations - fuel and purchased power                   398,443        407,196
Operations - other                                      181,808        188,526
Maintenance                                              54,667         57,124
Depreciation and amortization                            78,162         76,257
Base financial component amortization                    50,485         50,485
Rate moderation component amortization                   18,324        (18,596)
Regulatory liability component amortization             (44,286)       (44,286)
Other regulatory amortization                            41,611        107,291
Operating taxes                                         231,660        232,845
Federal income tax - current                             43,718         18,454
Federal income tax - deferred and other                  75,614         92,611
                                                     ------------  -------------
Total Expenses                                        1,130,206      1,167,907
                                                     ------------  -------------
OPERATING INCOME                                        386,691        376,470
                                                     ------------  -------------

OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges               11,914         12,788
Class Settlement                                         (8,366)        (9,939)
Other income and deductions, net                          3,097         10,558
Allowance for other funds used during construction        1,923          1,415
Federal income tax - current                             (1,647)             -
Federal income tax - deferred and other                    (438)        (1,243)
                                                     ------------  -------------
Total Other Income and (Deductions)                       6,483         13,579
                                                     ------------  -------------
INCOME BEFORE INTEREST CHARGES                          393,174        390,049
                                                     ------------  -------------

INTEREST CHARGES AND (CREDITS)
Interest on long-term debt                              175,662        188,917
Other interest                                           30,269         32,398
Allowance for borrowed funds used during construction    (2,303)        (1,818)
                                                     ------------  -------------
Total Interest Charges and (Credits)                    203,628        219,497
                                                     ------------  -------------

NET INCOME                                              189,546        170,552
Preferred stock dividend requirements                    25,917         26,122
                                                     ------------  -------------
EARNINGS FOR COMMON STOCK                              $163,629       $144,430
                                                     ============  =============
AVERAGE COMMON SHARES OUTSTANDING (000)                 121,244        120,357
EARNINGS PER COMMON SHARE                                 $1.35          $1.20

DIVIDENDS DECLARED PER COMMON SHARE                       $0.89          $0.89
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                      -4-

<PAGE>


                          LONG ISLAND LIGHTING COMPANY
                               STATEMENT OF INCOME
                                   (UNAUDITED)
                (THOUSANDS OF DOLLARS - EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                            NINE MONTHS ENDED
                                                               SEPTEMBER 30
                                                      --------------------------
                                                            1997           1996
                                                      --------------------------
<S>                                                   <C>            <C>       
REVENUES
Electric                                              $1,908,207     $1,916,389
Gas                                                      459,871        492,203
                                                      -----------  -------------
Total Revenues                                         2,368,078      2,408,592
                                                      -----------  -------------

EXPENSES
Operations - fuel and purchased power                    700,309        717,465
Operations - other                                       277,481        292,395
Maintenance                                               84,008         87,612
Depreciation and amortization                            116,722        113,822
Base financial component amortization                     75,728         75,728
Rate moderation component amortization                    24,231        (33,922)
Regulatory liability component amortization              (66,429)       (66,429)
Other regulatory amortization                             53,830        134,503
Operating taxes                                          349,174        352,873
Federal income tax - current                              67,096         31,292
Federal income tax - deferred and other                  109,237        136,361
                                                      -----------  -------------
Total Expenses                                         1,791,387      1,841,700
                                                      -----------  -------------
OPERATING INCOME                                         576,691        566,892
                                                      -----------  -------------

OTHER INCOME AND (DEDUCTIONS)
Rate moderation component carrying charges                17,834         18,688
Class Settlement                                         (12,862)       (15,311)
Other income and deductions, net                           3,742         16,478
Allowance for other funds used during construction         2,640          2,134
Federal income tax - current                              (1,647)             -
Federal income tax - deferred and other                      350          1,208
                                                      -----------  -------------
Total Other Income and (Deductions)                       10,057         23,197
                                                      -----------  -------------
INCOME BEFORE INTEREST CHARGES                           586,748        590,089
                                                      -----------  -------------

INTEREST CHARGES AND (CREDITS)
Interest on long-term debt                               265,830        291,174
Other interest                                            46,928         49,370
Allowance for borrowed funds used during construction     (3,252)        (2,759)
                                                      -----------  -------------
Total Interest Charges and (Credits)                     309,506        337,785
                                                      -----------  -------------

NET INCOME                                               277,242        252,304
Preferred stock dividend requirements                     38,885         39,194
                                                      -----------  -------------
EARNINGS FOR COMMON STOCK                               $238,357       $213,110
                                                      ===========  =============
AVERAGE COMMON SHARES OUTSTANDING (000)                  121,158        120,219
EARNINGS PER COMMON SHARE                                  $1.97          $1.77

DIVIDENDS DECLARED PER COMMON SHARE                       $1.335         $1.335
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                      -5-

<PAGE>

<TABLE>
<CAPTION>
                          LONG ISLAND LIGHTING COMPANY
                                  BALANCE SHEET
                             (THOUSANDS OF DOLLARS)

                                                     SEPTEMBER 30      MARCH 31        DECEMBER 31
                                                         1997            1997             1996
ASSETS                                                (UNAUDITED)     (UNAUDITED)       (AUDITED)
                                                    --------------  --------------   --------------
<S>                                                    <C>             <C>              <C>           
UTILITY PLANT
Electric                                                $3,969,609      $3,900,264       $3,882,297
Gas                                                      1,192,451       1,171,183        1,154,543
Common                                                     268,467         263,267          260,268
Construction work in progress                              119,520         108,850          112,184
Nuclear fuel in process and in reactor                      15,529          15,503           15,454
                                                     --------------  --------------   --------------
                                                         5,565,576       5,459,067        5,424,746
                                                     --------------  --------------   --------------
Less - Accumulated depreciation and
  amortization                                           1,823,933       1,759,110        1,729,576
                                                     --------------  --------------   --------------
Total Net Utility Plant                                  3,741,643       3,699,957        3,695,170
                                                     --------------  --------------   --------------


REGULATORY ASSETS
Base financial component (less accumulated
  amortization of $833,010, $782,525 and $757,282)       3,205,820       3,256,305        3,281,548
Rate moderation component                                  402,815         409,512          402,213
Shoreham post-settlement costs                           1,004,104         996,270          991,795
Shoreham nuclear fuel                                       67,518          68,581           69,113
Unamortized cost of issuing securities                     173,625         187,309          194,151
Postretirement benefits other than pensions                350,485         357,668          360,842
Regulatory tax asset                                     1,754,413       1,767,164        1,772,778
Other                                                      190,362         200,137          199,879
                                                     --------------  --------------   --------------
Total Regulatory Assets                                  7,149,142       7,242,946        7,272,319
                                                     --------------  --------------   --------------

                                                     --------------  --------------   --------------
NONUTILITY PROPERTY AND OTHER INVESTMENTS                   50,584          18,870           18,597
                                                     --------------  --------------   --------------

CURRENT ASSETS
Cash and cash equivalents                                  121,485          64,539          279,993
Special deposits                                            66,949          37,631           38,266
Customer accounts receivable (less allowance for
 doubtful accounts of $24,350, $23,675 and $25,000         315,392         305,436          255,801
Other accounts receivable                                   44,769          42,946           65,764
Accrued unbilled revenues                                  118,926         141,389          169,712
Materials and supplies at average cost                      53,219          55,454           55,789
Fuel oil at average cost                                    37,171          49,703           53,941
Gas in storage at average cost                              81,250          10,893           73,562
Deferred tax asset                                          25,176          93,349          145,205
Prepayments and other current assets                        12,074           8,805            8,569
                                                     --------------  --------------   --------------
Total Current Assets                                       876,411         810,145        1,146,602
                                                     --------------  --------------   --------------

                                                     --------------  --------------   --------------
DEFERRED CHARGES                                            80,212          77,656           76,991
                                                     --------------  --------------   --------------
TOTAL ASSETS                                           $11,897,992     $11,849,574      $12,209,679
                                                     ==============  ==============   ==============
</TABLE>


SEE NOTES TO FINANCIAL STATEMENTS.

                                      -6-

<PAGE>


                          LONG ISLAND LIGHTING COMPANY
                                  BALANCE SHEET
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                    SEPTEMBER 30        MARCH 31         DECEMBER 31
                                                        1997              1997              1996
CAPITALIZATION AND LIABILITIES                       (UNAUDITED)       (UNAUDITED)        (AUDITED)
                                                    --------------    --------------    --------------
<S>                                                   <C>               <C>               <C>        
CAPITALIZATION
Long-term debt                                         $4,371,675        $4,471,675        $4,471,675
Unamortized discount on debt                              (14,117)          (14,628)          (14,903)
                                                      ------------    --------------    --------------
                                                        4,357,558         4,457,047         4,456,772
                                                      ------------    --------------    --------------

Preferred stock - redemption required                     637,450           638,500           638,500
Preferred stock - no redemption required                   63,565            63,598            63,664
                                                      ------------    --------------    --------------
Total Preferred Stock                                     701,015           702,098           702,164
                                                      ------------    --------------    --------------

Common stock                                              606,973           605,022           603,921
Premium on capital stock                                1,138,693         1,131,576         1,127,971
Capital stock expense                                     (48,189)          (48,915)          (49,330)
Retained earnings                                         917,477           861,751           840,867
Treasury stock, at cost                                      (902)             (385)              (60)
                                                      ------------    --------------    --------------
Total Common Shareowners' Equity                        2,614,052         2,549,049         2,523,369
                                                      ------------    --------------    --------------

                                                      ------------    --------------    --------------
Total Capitalization                                    7,672,625         7,708,194         7,682,305
                                                      ------------    --------------    --------------

REGULATORY LIABILITIES
Regulatory liability component                            138,879           178,558           198,398
1989 Settlement credits                                   120,532           125,138           127,442
Regulatory tax liability                                   93,891           100,377           102,887
Other                                                     173,039           158,660           139,510
                                                      ------------    --------------    --------------
Total Regulatory Liabilities                              526,341           562,733           568,237
                                                      ------------    --------------    --------------

CURRENT LIABILITIES
Current maturities of long-term debt                      101,000             1,000           251,000
Current redemption requirements of preferred stock          1,050             1,050             1,050
Accounts payable and accrued expenses                     242,883           230,189           289,141
LRPP payable                                               40,499            40,499            40,499
Accrued taxes (including federal income tax
  of $44,960, $49,262 and $25,884)                         57,140            51,157            63,640
Accrued interest                                          147,305           143,983           160,615
Dividends payable                                          58,600            58,474            58,378
Class Settlement                                           60,000            58,333            55,833
Customer deposits                                          29,045            29,173            29,471
                                                      ------------    --------------    --------------
Total Current Liabilities                                 737,522           613,858           949,627
                                                      ------------    --------------    --------------

DEFERRED CREDITS
Deferred federal income tax                             2,422,020         2,420,443         2,442,606
Class Settlement                                           65,730            89,487            98,497
Other                                                      35,141            20,889            39,447
                                                      ------------    --------------    --------------
Total Deferred Credits                                  2,522,891         2,530,819         2,580,550
                                                      ------------    --------------    --------------

OPERATING RESERVES
Pensions and other postretirement benefits                392,700           387,048           381,996
Claims and damages                                         45,913            46,922            46,964
                                                      ------------    --------------    --------------
Total Operating Reserves                                  438,613           433,970           428,960
                                                      ------------    --------------    --------------

COMMITMENTS AND CONTINGENCIES                                   -                 -                 -
                                                      ------------    --------------    --------------


TOTAL CAPITALIZATION AND LIABILITIES                  $11,897,992       $11,849,574       $12,209,679
                                                      ============    ==============    ==============

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                      -7-

<PAGE>


                          LONG ISLAND LIGHTING COMPANY
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED       SIX MONTHS ENDED         NINE MONTHS ENDED
                                                              SEPTEMBER 30,             SEPTEMBER 30,            SEPTEMBER 30,
                                                             1997        1996         1997        1996          1997        1996
                                                          ----------- -----------   ----------  ----------   ----------- -----------
OPERATING ACTIVITIES
<S>                                                         <C>         <C>          <C>         <C>           <C>         <C>     
Net Income                                                  $144,384    $130,023     $189,546    $170,552      $277,242    $252,304
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
      CASH PROVIDED BY OPERATING ACTIVITIES
  Provision for doubtful accounts                              4,984       9,974        8,854      13,821        13,675      18,649
  Depreciation and amortization                               39,268      38,305       78,162      76,257       116,722     113,822
  Base financial component amortization                       25,243      25,243       50,485      50,485        75,728      75,728
  Rate moderation component amortization                       9,126      (7,992)      18,324     (18,596)       24,231     (33,922)
  Regulatory liability component amortization                (22,143)    (22,143)     (44,286)    (44,286)      (66,429)    (66,429)
  Other regulatory amortization                               28,559      49,301       41,611     107,291        53,830     134,503
  Rate moderation component carrying charges                  (5,933)     (6,513)     (11,914)    (12,788)      (17,834)    (18,688)
  Class Settlement                                             4,167       4,930        8,366       9,939        12,862      15,311
  Amortization of cost of issuing and redeeming securities     7,014       8,280       14,948      16,962        23,035      26,448
  Federal income tax - deferred and other                     65,428      71,936       76,052      93,854       108,887     135,153
  Allowance for other funds used during construction            (964)       (798)      (1,923)     (1,415)       (2,640)     (2,134)
  Pensions and Other Post Retirement Benefits                 11,872       3,246       13,265      10,604        26,761      10,735
  Gas Cost Adjustment                                         (4,007)     (9,094)      (1,495)     (2,221)       (9,386)     16,969
  Other                                                       25,796      20,976       47,396      29,356        58,387      44,767
CHANGES IN OPERATING ASSETS AND LIABILITIES
  Accounts receivable                                        (73,038)    (35,684)     (18,383)     24,879       (50,021)     20,887
  Accrued unbilled revenues                                   24,043       4,347       22,463       2,888        50,786      38,660
  Materials and supplies, fuel oil and gas in storage        (24,416)    (32,402)     (55,590)    (80,604)       11,652     (36,902)
  Accounts payable and accrued expenses                      (20,790)    (23,409)      12,695        (415)      (46,257)    (32,412)
  Accrued taxes                                               14,070      32,067        5,983     (16,881)       (6,500)    (27,130)
  Accrued interest                                           (11,072)    (13,971)       3,322     (10,045)      (13,310)    (16,014)
  Class Settlement                                           (19,817)    (14,910)     (30,456)    (26,129)      (41,462)    (31,495)
  Special deposits                                               967         351      (28,683)     27,510       (28,683)     27,510
  Other                                                       (3,277)      4,319      (45,595)    (17,781)      (58,562)    (24,052)
                                                          ----------- -----------   ----------  ----------   ----------- -----------
Net Cash Provided by Operating Activities                    219,464     236,382      353,147     403,237       512,714     642,268
                                                          ----------- -----------   ----------  ----------   ----------- -----------

INVESTING ACTIVITIES

Construction and nuclear fuel expenditures                   (49,207)    (69,769)    (117,468)   (132,363)     (167,843)   (176,552)
Shoreham post-settlement costs                                (8,954)    (10,439)     (20,936)    (24,746)      (33,040)    (40,544)
Investment in subsidiary                                     (30,000)          -      (30,000)          -       (30,000)          -
Other                                                           (556)       (910)      (1,293)       (906)       (1,133)     (2,112)
                                                          ----------- -----------   ----------  ----------   ----------- -----------
Net Cash Used in Investing Activities                        (88,717)    (81,118)    (169,697)   (158,015)     (232,016)   (219,208)
                                                          ----------- -----------   ----------  ----------   ----------- -----------

FINANCING ACTIVITIES
 
Proceeds from sale of common stock                             4,724       4,658        9,034       9,411        13,674      14,083
Redemption of long-term debt                                       -           -            -    (415,000)     (250,000)   (415,000)
Redemption of preferred stock                                 (1,050)     (1,050)      (1,050)     (1,050)       (1,050)     (1,050)
Preferred stock dividends paid                               (12,968)    (13,072)     (25,937)    (26,143)      (38,906)    (39,215)
Common stock dividends paid                                  (53,910)    (53,499)    (107,754)   (106,880)     (161,503)   (160,127)
Other                                                            (68)        (87)        (797)         46        (1,421)       (313)
                                                         ----------- -----------   ----------  ----------   ----------- -----------
Net Cash Used in Financing Activities                        (63,272)    (63,050)    (126,504)   (539,616)     (439,206)   (601,622)
                                                          ----------- -----------   ----------  ----------   ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents         $67,475     $92,214      $56,946   ($294,394)    ($158,508)  ($178,562)
                                                          =========== ===========   ==========  ==========   =========== ===========
Cash and cash equivalents at beginning of period             $54,010     $80,677      $64,539    $467,285      $279,993    $351,453
Net increase (decrease) in cash and cash equivalents          67,475      92,214       56,946    (294,394)     (158,508)   (178,562)
                                                          =========== ===========   ==========  ==========   =========== ===========
Cash and Cash Equivalents at end of period                  $121,485    $172,891     $121,485    $172,891      $121,485    $172,891
                                                          =========== ===========   ==========  ==========   =========== ===========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                      -8-

<PAGE>



                         NOTES TO FINANCIAL STATEMENTS
                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
                                  (UNAUDITED)


NOTE 1. BASIS OF PRESENTATION

These Notes to Financial  Statements  reflect  events  subsequent to January 31,
1997,  the date of the most recent Report of Independent  Auditors,  through the
date of this Report on Form 10-Q for the three months ended  September 30, 1997.
These  Notes  to  Financial  Statements  should  be  read  in  conjunction  with
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations  for the three,  six and nine months ended  September  30, 1997,  the
Company's  Transition  Report  for the three  months  ended  March 31,  1997 and
Quarterly  Report on Form 10-Q for the three  months ended June 30, 1997 and the
Company's  Annual Report on Form 10-K/A filed June 30, 1997,  for the year ended
December 31, 1996, and the Company's Joint Proxy Statement/Prospectus filed June
30, 1997.

The financial  statements  furnished are unaudited.  However,  in the opinion of
management,  the financial  statements  include all  adjustments,  consisting of
normal recurring  accruals,  necessary for a fair  presentation of the financial
statements for the three month period presented. Operating results for the three
month  period are not  necessarily  indicative  of results to be expected for an
entire year due to seasonal, operating and other factors.

On April 11, 1997,  the Company  changed its year-end to March 31.  Accordingly,
the Company's financial statements have been presented on the new basis, as well
as its historical basis for comparative purposes.

Certain prior year amounts have been  reclassified to be consistent with current
year presentation.

NOTE 2. BROOKLYN UNION/LONG ISLAND POWER AUTHORITY PROPOSED TRANSACTION

BROOKLYN UNION TRANSACTION

Effective  September 29, 1997, The Brooklyn Union Gas Company  (Brooklyn  Union)
reorganized into a holding company  structure,  with KeySpan Energy  Corporation
(KeySpan)  becoming its parent holding  company.  As contemplated in the Amended
and Restated  Agreement  and Plan of Exchange  and Merger,  dated as of June 26,
1997, by and between the Company and Brooklyn Union (Share Exchange  Agreement),
the parties  entered into an Amendment,  Assignment  and  Assumption  Agreement,
dated as of September 29, 1997,  which,  among other  things,  amended the Share
Exchange Agreement and related stock option agreements to reflect the

                                   - 9 -

<PAGE>



assignment  by Brooklyn  Union to KeySpan and the  assumption  by KeySpan of all
Brooklyn Union's rights and obligations under such agreements.

LONG ISLAND POWER AUTHORITY TRANSACTION

In July  1997,  the  Company  filed  an  application  with  the  Federal  Energy
Regulatory  Commission  (FERC) seeking approval of the transfer of the Company's
electric transmission and distribution system to the Long Island Power Authority
(LIPA) in  connection  with  LIPA's  purchase of the stock of the  Company.  The
Company's  application  explained  how the proposed LIPA  transaction  meets the
three  major  concerns  of the FERC  which  are that the  transfer  must have no
adverse effect on rates, competition and regulation.

On October 1, 1997,  the Company filed with the FERC its proposed  rates for the
sale of  capacity  and energy to LIPA as  contemplated  in the LIPA  transaction
agreements. The Company proposed a rate that is to be frozen for five years with
the exception that certain rate  components,  such as property  taxes,  could be
adjusted for experienced changes. The filing also contemplates that either party
may seek to adjust the allowed  return on common  equity if  long-term  interest
rates vary from present  rates by 200 basis points or more. On November 4, 1997,
LIPA,  the Public  Service  Commission  (PSC) and an  organization  known as the
"Consumers  and  Potential  Competitors  of LILCO and  LIPA"  filed  motions  to
intervene and protest the Company's  filing.  LIPA's motion requests (i) summary
rejection of the Company's filing, and, in the alternative,  summary disposition
in LIPA's favor on particular issues; or (ii) that FERC set evidentiary hearings
on the Company's  proposed rates to be charged to LIPA,  subject to refund.  The
PSC's  motion  questions  several  of  the  cost  projections  contained  in the
Company's  filing and requests the  opportunity  to explore  these and any other
issues that may affect the  Company's  ratepayers.  The  Consumers and Potential
Competitors   allege  that  the  Company's  proposal  would  diminish  potential
competition on Long Island and result in excessive rates.

The  Company is unable to  determine  the outcome of the  proceedings  discussed
above  or  when  or if the  approval  of the  FERC  will  be  obtained  in  such
proceedings.

In July 1997,  the Company and the Brooklyn  Union Gas Company  formed a limited
partnership  and each invested $30 million in order to purchase an interest rate
swap option  instrument to protect LIPA against market risk  associated with the
municipal bond financing contemplated by the LIPA transaction  agreements.  Upon
the closing of the LIPA transaction, each limited partner will receive from LIPA
$30 million plus interest thereon, based on each partners' average weighted cost
of  capital.  In the event that the LIPA  transaction  is not  consummated,  the
maximum

                                   - 10 -

<PAGE>



potential  loss to the  Company  is the  amount  originally  invested  plus  the
interest  accrued  thereon.  In the event of a loss,  the Company plans to defer
such amount and  petition the PSC to allow  recovery of such loss from  electric
ratepayers.

NOTE 3. RATE MATTERS

In May 1997,  the Company  filed a petition  with the PSC,  seeking  among other
things,  to: (a) re-institute the gas excess earnings mechanism for the gas rate
year ending  November 30, 1997 whereby  earnings in excess of a return on common
equity of 11.0% would be allocated  equally between  ratepayers and shareowners,
with the ratepayers'  share of these earnings  credited to the costs  associated
with manufactured gas plant site investigation and remediation; and (b) continue
I) the Rate  Moderation  Component  (RMC);  II) the Long Island  Ratemaking  and
Performance Plan (LRPP)  mechanisms (as discussed in the Company's Annual Report
on Form 10-K/A,  filed June 30, 1997 for the year ended December 31, 1996);  and
III) the  performance  incentive  programs  for the  electric  rate year  ending
November  30, 1997.  As of the date of this  report,  the PSC has not rendered a
decision with respect to this filing.



                                   - 11 -

<PAGE>



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

EARNINGS

Earnings for common stock for the three  months  ended  September  30, 1997 were
$131.4  million or $1.09 per common share  compared with $117.0 million or $0.97
per common share for the same period in 1996.

Earnings  for common  stock for the six months ended  September  30, 1997,  were
$163.6  million or $1.35 per common share  compared with $144.4 million or $1.20
per common share for the same period in 1996.

Earnings  for common  stock for the nine months  ended  September  30, 1997 were
$238.4  million or $1.97 per common share  compared with $213.1 million or $1.77
per common share for the same period in 1996.

Electric business  earnings  increased for the three, six and nine month periods
ended September 30, 1997,  when compared to the same periods last year.  Factors
contributing to these  increases  included the Company's  continuing  efforts to
control  operations  and  maintenance  expenses  and the  efficient  use of cash
generated by operations to retire maturing debt.

Gas business  earnings  increased for the three month period ended September 30,
1997, when compared to the same period last year, primarily as a result of lower
operations and  maintenance  expenses.  For the six month period ended September
30, 1997,  earnings for the gas business were comparable to the same period last
year.  Gas  business  earnings  also  increased  for the nine month period ended
September 30, 1997, when compared to the same period last year, as a result of a
one-time revenue enhancement (recorded in March 1997) relating to an Independent
Power  Production  (IPP) contract and lower operation and maintenance  expenses.

REVENUES

Electric

The increase in electric  revenues of approximately  $10.2 million for the three
months ended  September 30, 1997,  when compared to the same period in 1996, was
due to higher sales volumes  resulting  from warmer  weather  experienced in the
region during July 1997. The decrease in electric revenues of approximately $6.7
million and $8.2 million for the six and nine months ended  September  30, 1997,
respectively, when compared to the same

                                   - 12 -

<PAGE>



periods  in 1996,  was due to lower  sales  volumes  resulting  from the  milder
weather  experienced  in the region  relative to the same periods last year. The
decrease  for the nine months  ended  September  30, 1997 was  mitigated  by the
increased  sales  volumes  experienced  during July 1997,  as noted  above.  The
increase  or  decrease  in revenues  resulting  from these  variations  in sales
volumes,  however,  had no  effect  on  earnings  due to the  Company's  current
electric rate structure which includes a revenue  reconciliation  mechanism that
eliminates  the  impact on  earnings  of sales  volumes  that are above or below
adjudicated levels.

Gas

The decrease in gas revenues of  approximately  $7.5 million,  $20.8 million and
$32.3  million for the three,  six and nine months  ended  September  30,  1997,
respectively,  when  compared to the same  periods in 1996,  was  primarily  the
result of lower fuel  expense  recoveries  driven by lower sales  volumes in the
Company's  service  territory during 1997.  Variations in weather have a limited
impact  on  net  revenues  (revenues  net of  fuel  expenses),  however,  as the
Company's gas rate structure  includes a weather  normalization  mechanism which
mitigates the impact on net revenues of  experiencing  weather that is warmer or
colder than normal.

FUEL AND PURCHASED POWER

Fuel and  purchased  power  expenses  for the three,  six and nine months  ended
September 30, 1997 and 1996 were as follows:


                Three Months Ended      Six Months Ended      Nine Months Ended
                  9/30/97  9/30/96      9/30/97  9/30/96       9/30/97  9/30/96
                   (In Millions)          (In Millions)          (In Millions)
                   -------------          -------------          -------------
ELECTRIC SYSTEM
 Oil              $ 32       $ 35        $ 50       $ 61        $ 87      $127
 Gas                67         50         119         87         157        94
 Nuclear             4          4           7          8          11        12
 Purchases          78         85         153        166         239       248
                    --         --         ---        ---         ---       ---
Total
  Electric         181        174         329        322         494       481

GAS SYSTEM          26         29          69         85         206       236
                  ----       ----        ----       ----        ----      ----
Total             $207       $203        $398       $407        $700      $717
                  ====       ====        ====       ====        ====      ====


Electric

For the three,  six and nine month  periods ended  September 30, 1997,  electric
fuel costs  increased,  when compared to the same periods in 1996.  The increase
for the three month period ended  September 30, 1997, is primarily the result of
higher sales

                                   - 13 -

<PAGE>



volumes coupled with higher fuel oil and purchased  power prices.  This increase
in electric fuel costs was mitigated, however, as the Company was able to reduce
purchases and oil fired generation by increasing production with more economical
gas as a result of the  completion in May 1997 of the conversion of an oil fired
steam generating unit at Port Jefferson to dual-fuel capability.

For the six and nine months ended  September 30, 1997,  electric fuel costs were
higher,  when compared to the same periods in 1996, despite lower sales volumes,
as a result of higher fuel oil and  purchased  power  prices.  In addition,  the
increase for the nine months ended September 30, 1997, when compared to the same
period in the prior year was exaggerated by the absence of profits  generated by
the sale of electric  business  unit gas supplies to  non-traditional  customers
(off-system  sales).  Off-system  gas sales  decreased when compared to the same
period  last year as a result of low  demand for gas  brought  about by the mild
winter weather.  Profits from such gas sales are used to offset the cost of fuel
for electric  generation,  supporting the Company's  goal of providing  electric
energy to customers at the lowest cost possible.

Of the  Company's 11 steam  generation  units,  nine burn natural gas;  seven of
which can also burn oil. This dual-fuel capability provides the Company with the
ability to burn the most cost efficient fuel available, consistent with seasonal
environmental  requirements.  In an effort to maximize the  Company's  operating
flexibility,  the  Company  is in the  process  of  adding  natural  gas  firing
capability  to one  of its  two  remaining  oil  only  steam  generating  units.
Completion is scheduled for the spring of 1998.

Electric Energy Available

The percentages of total electric energy  available by type of fuel for electric
operations for the three,  six and nine months ended September 30, 1997 and 1996
were as follows:


            Three Months Ended      Six Months Ended      Nine Months Ended
            9/30/97    9/30/96      9/30/97  9/30/96      9/30/97   9/30/96
            -------    -------      -------  -------      -------   -------
Oil           16%        18%         14%       17%          16%       25%
Gas           47         33          46        31           41        23
Nuclear        8          9           8        10            9        10
Purchases     29         40          32        42           34        42
             ----       ----        ----      ----         ----      ---
Total        100%       100%        100%      100%         100%      100%
             ====       ====        ====      ====         ====      ====

The use of gas for electric  generation  increased  for the three,  six and nine
months ended  September 30, 1997, as gas was more  economical  than fuel oil and
purchased power.




                                   - 14 -

<PAGE>



Gas

For the three months ended  September  30, 1997,  gas fuel costs  decreased  for
operating  the gas  business,  when  compared to the same  period in 1996,  as a
result of a decrease in sales volumes partially offset by an increase in average
gas prices. For the six and nine months ended September 30, 1997, gas fuel costs
were also lower than the prior year as a result of a decrease  in sales  volumes
and lower average gas prices.  Also contributing to the decrease in the gas fuel
costs is the operation of the Gas Cost Adjustment (GCA) mechanism which requires
the  Company  to  increase  or  decrease  the  current  year fuel  expenses  for
differences  between amounts  collected in rates and amounts  actually spent for
fuel  during  the  previous  year.  For the  three,  six and nine  months  ended
September 30, 1997, the amounts being  refunded,  via the GCA, were greater than
that for the same periods in 1996.

OPERATIONS AND MAINTENANCE EXPENSES

For the three,  six and nine months ended  September  30, 1997,  operations  and
maintenance  (O&M) expenses,  excluding fuel and purchased  power,  decreased by
$11.3 million,  $9.2 million and $18.5 million,  respectively,  when compared to
the same periods in 1996.  These  decreases  are primarily  attributable  to the
Company's cost containment programs.

RATE MODERATION COMPONENT

The  Rate  Moderation  Component  (RMC)  reflects  the  difference  between  the
Company's electric revenue  requirements  under conventional  ratemaking and the
revenues  provided by its electric rate structure.  The RMC is adjusted  monthly
for the operation of the Company's Fuel Moderation Component (FMC) mechanism and
the difference  between the Company's  share of actual  operating  costs at Nine
Mile Point 2 Nuclear Power Station  (NMP2) and amounts  provided for in electric
rates.

For the three,  six and nine  months  ended  September  30,  1997,  the  Company
recorded non-cash charges to income of approximately $9.1 million, $18.3 million
and $24.2 million,  respectively, as operating income generated by the Company's
electric rate structure  exceeded that required under a conventional  ratemaking
calculation.  For the three,  six and nine months ended  September 30, 1996, the
Company recorded non-cash credits to income of approximately $8.0 million, $18.6
million and $33.9 million,  respectively,  as operating  income generated by the
Company's  electric rate  structure was below that required under a conventional
ratemaking calculation.

The Company  continues to believe that the full amortization and recovery of the
RMC balance,  which at September 30, 1997 was approximately  $403 million,  will
take place within the time frame

                                   - 15 -

<PAGE>



established by the Rate Moderation  Agreement (RMA), in accordance with the rate
plans submitted to the Public Service  Commission (PSC) for the single rate year
1997 and the three year rate period  1997  through  1999.  In the event that the
Long Island  Power  Authority  (LIPA)  transaction  is  terminated,  the Company
expects that the PSC will issue an order providing for, among other things,  the
continuing   recovery,   through  rates,   of  the  RMC  balance,   one  of  the
Shoreham-related  regulatory  assets.  If such an  electric  rate  order  is not
obtained or does not provide for the continuing recovery of the RMC balance, the
Company may be required to write-off  the amount not expected to be provided for
in rates. For a further discussion of the LIPA transaction,  see the Joint Proxy
Statement/Prospectus filed June 30, 1997.

For a further  discussion  of the RMC,  RMA and FMC,  see the  Company's  Annual
Report on Form 10-K/A filed June 30, 1997, for the year ended December 31, 1996.

OTHER REGULATORY AMORTIZATION

For the  three  months  ended  September  30,  1997 and 1996,  other  regulatory
amortization was a non-cash charge to income of $28.6 million and $49.3 million,
respectively.  For the six  months  ended  September  30,  1997 and 1996,  other
regulatory  amortization  was a non-cash  charge to income of $41.6  million and
$107.3 million,  respectively.  For the nine months ended September 30, 1997 and
1996,  other  regulatory  amortization  was a non-cash charge to income of $53.8
million and $134.5 million, respectively.  These variances are due to regulatory
mechanisms  discussed  below,  and have no impact on earnings since they reflect
the net deferral of income and expense  resulting from the Company's  ratemaking
mechanisms.

The  components of other  regulatory  amortization  for the three,  six and nine
months ended September 30, 1997 and 1996 were as follows:

                                                        (In millions of dollars)
--------------------------------------------------------------------------------
                                   Three Months     Six Months      Nine Months
                                  1997     1996    1997    1996     1997    1996
--------------------------------------------------------------------------------
Net Margin                         12       20      12      49        2      47
Amortization of LRPP Deferral       -       15       -      32        -      48
Excess Earnings - Electric          8        -       2       -       13       -
Excess Earnings - Gas               1        3      10       6       12       8
Other                               8       11      18      20       27      32
-------------------------------------------------------------------------------
                                   29       49      42     107       54     135
===============================================================================


NET  MARGIN-  An  electric  business  unit  revenue  reconciliation   mechanism,
established  under the LILCO  Ratemaking  and  Performance  Plan  (LRPP),  which
eliminates the impact on earnings of experiencing  sales that are above or below
adjudicated  levels by  providing a fixed  annual net margin  level  (defined as
sales

                                   - 16 -

<PAGE>



revenue,  net of fuel and gross receipts taxes).  Variations in electric revenue
resulting  from  differences  between  actual and  adjudicated  net margin sales
levels are deferred on a monthly  basis during the rate year through a charge or
credit to other regulatory amortization. These deferrals are then refunded to or
recovered from ratepayers as explained below under "LRPP Amortization."

For the three,  six and nine  months  ended  September  30,  1997,  the  Company
recorded  non-cash  charges to income of $12.2  million,  $12.2 million and $2.0
million,  respectively.  For the three,  six and nine months ended September 30,
1996, the Company recorded  non-cash  charges to income of $19.8 million,  $48.6
million and $46.6 million, respectively.

LRPP  AMORTIZATION- As established under the LRPP,  deferred balances  resulting
from the net margin,  electric property tax  reconciliation,  earned performance
incentives,  and associated  carrying  charges are accumulated  during each rate
year.  The first $15 million of the total deferral is recovered from or credited
to electric  ratepayers by increasing  or  decreasing  the RMC balance.  Amounts
deferred in excess of $15 million,  upon approval by the PSC, are refunded to or
recovered from ratepayers  through the FCA mechanism over a subsequent  12-month
period, with the offset being recorded in other regulatory amortization.

For the three, six and nine months ended September 30, 1997, the amortization of
the  deferred  LRPP  balance in excess of $15  million  related to the rate year
ended  November  30,  1995,  has not  begun as the  Company  has yet to  receive
approval  from  the PSC to  begin  refunding  the  amount  owed to its  electric
ratepayers.  For the three,  six and nine months ended  September 30, 1996,  the
Company recognized $15.9 million, $31.8 million and $48.1 million, respectively,
of non-cash charges to income representing the amortization of the deferred LRPP
balance  related  to the rate  year  ended  November  30,  1994.  For a  further
discussion of the LRPP, see Note 3 of Notes to Financial  Statements included in
the  Company's  Annual  Report on Form 10-K/A filed June 30, 1997,  for the year
ended December 31, 1996.

EXCESS EARNINGS- Also recorded in other regulatory amortization,  if applicable,
are non-cash charges  representing:  (a) 100% of electric earnings  generated by
the  Company in excess of  amounts  provided  for in  electric  rates,  which is
returned to the electric  customer  through a reduction to the RMC balance;  and
(b) 50% of the gas  earnings  generated  by the  Company  in excess  of  amounts
provided for in gas rates,  which will be returned to the gas customer through a
reduction  in the amount due from gas  ratepayers  related to  manufactured  gas
plant site (MGP) clean-up costs.  These rate year excess earnings are calculated
and  recorded  on the  Company's  books  on a  quarterly  basis to  reflect  the
Company's best estimate of amounts earned in excess of the

                                   - 17 -

<PAGE>



Company's 11% allowed return on common equity.  The Company's 11% allowed return
on common  equity has been approved by the PSC for the electric  business  unit.
The Company expects approval of the same rate for the gas business unit prior to
November 30, 1997.

For the three,  six and nine  months  ended  September  30,  1997,  the  Company
recorded non-cash charges of approximately $7.5 million,  $1.9 million and $12.5
million,  respectively, of electric excess earnings. The Company did not earn in
excess of its allowed return on common equity for its electric  business for the
three, six and nine months ended September 30, 1996.

For the three months ended  September 30, 1997,  the Company  recorded  non-cash
charges of  approximately  $1.1 million of gas excess earnings  bringing the six
and nine month totals of gas excess  earnings to $9.8 million and $11.6 million,
respectively.  The Company recorded approximately $3.0 million, $5.8 million and
$8.2  million of gas excess  earnings  for the three,  six and nine months ended
September 30, 1996.

FEDERAL INCOME TAX

For the three, six and nine months ended September 30, 1997,  federal income tax
(FIT) expense increased as a result of increases in pre-tax book income.

The current  operating  portion of the FIT  liability for the three months ended
September 30, 1997 totaled $21.1 million,  of which $9.8 million was Alternative
Minimum  Tax  (AMT).  The  operating  FIT  liability  for the six  months  ended
September  30, 1997 totaled $43.7  million,  of which $20.9 million was AMT. The
operating  FIT  liability  for the nine months ended  September 30, 1997 totaled
$67.1 million, of which $52.1 million was AMT. The increase in the FIT liability
over  the  comparable  periods  last  year  was  primarily  attributable  to the
Company's full utilization of the AMT net operating loss during 1996.

OTHER INCOME AND DEDUCTIONS

Other income and deductions  decreased for the three,  six and nine months ended
September 30, 1997,  when  compared to the same periods in 1996,  primarily as a
result of lower interest income from short term investments caused by lower cash
balances. In addition, for the six and nine months ended September 30, 1997, the
Company recognized less income under its fuel incentive program, than during the
same periods in the prior year due to higher electric fuel costs.

INTEREST EXPENSE

Interest  expense  decreased for the three,  six and nine months ended September
30, 1997,  when  compared to the same periods in 1996, as a result of lower debt
levels.

                                   - 18 -

<PAGE>




LIQUIDITY AND CAPITAL RESOURCES

At September  30, 1997,  the  Company's  cash and cash  equivalents  amounted to
approximately  $121  million,  compared to $65 million at March 31,  1997.  This
increase  in cash and  cash  equivalents  was  primarily  attributable  to funds
provided by operating activities,  as revenues from the summer sales period were
converted to cash.

At September  30, 1997,  March 31, 1997 and  December  31, 1996,  the  Company's
capitalization and ratios were as follows:

                                                      (In millions of dollars)
--------------------------------------------------------------------------------
                            9/30/97            3/31/97           12/31/96
                        Amount   Percent   Amount   Percent   Amount   Percent
--------------------------------------------------------------------------------
                                    %                 %                  %
--------------------------------------------------------------------------------
Long-term debt          $4,459     57.4    $4,458    57.8    $4,708     59.3
Preferred stock            702      9.0       703     9.1       703      8.9
Common shareowners'
 equity                  2,614     33.6     2,549    33.1     2,523     31.8
--------------------------------------------------------------------------------
                        $7,775    100.0    $7,710   100.0    $7,934    100.0
================================================================================

The Company has no current  plans to access the  capital  markets for  permanent
financing  as cash  from  operations  should  be  sufficient  to meet  operating
requirements and debt maturities through 1998, including $100 million of General
and Refunding  Bonds and $1 million of Pollution  Control Revenue Bonds maturing
in 1998.  The  Company  may,  from time to time,  access  such  markets,  should
economic  conditions  prove favorable,  to refinance  existing high cost debt or
preferred  stock,  subject to any restrictions  contained in the agreements,  as
amended,  with KeySpan Energy  Corporation,  the parent  holding  company of The
Brooklyn Union Gas Company, or LIPA.

A $250  million  line of  credit,  secured  by a first  lien upon the  Company's
accounts receivable and fuel oil inventories,  is available to the Company under
its Revolving Credit Agreement (RCA). The lending banks participating in the RCA
have agreed to extend their  commitments  through  October 1, 1998.  In February
1997, the Company utilized $30 million in interim financing under the RCA, which
was repaid in March  1997,  and $40  million  in July 1997,  which was repaid in
August 1997. The Company will, in order to satisfy short-term cash requirements,
continue to avail itself of such interim financing through its RCA as necessary.



                                   - 19 -

<PAGE>




CAPITAL REQUIREMENTS AND CAPITAL PROVIDED

Capital  requirements  and capital  provided for the three,  six and nine months
ended September 30, 1997 were as follows:

                                                        (In millions of dollars)
--------------------------------------------------------------------------------
                     Three Months Ended   Six Months Ended     Nine Months Ended
                     September 30, 1997  September 30, 1997   September 30, 1997
--------------------------------------------------------------------------------
Capital Requirements
Construction                   $ 49                $118                $168
--------------------------------------------------------------------------------
Redemptions and Dividends
Long-term debt                    -                   -                 250
Preferred stock                   1                   1                   1
Preferred stock dividends        13                  26                  39
Common stock dividends           54                 108                 162
--------------------------------------------------------------------------------
Total Redemptions and
  Dividends                      68                 135                 452
--------------------------------------------------------------------------------
Shoreham post-settlement
  Costs                           9                  21                  33
--------------------------------------------------------------------------------
Total Capital Requirements     $126                $274                $653
================================================================================

Capital Provided

Cash generation from
  operations                   $220                $353                $513
Decrease (Increase) in cash
  balances                      (68)               (57)                 158
Common stock issued               5                  9                   14
Hedge funding                   (30)               (30)                 (30)
Other investing and financing
 Activities                      (1)                (1)                  (2)
--------------------------------------------------------------------------------

Total Capital Provided         $126                $274                $653
================================================================================


For further information, see the Statement of Cash Flows.

INVESTMENT RATING

The Company's  securities  are rated by Standard and Poor's  Corporation  (S&P),
Moody's Investors Service (Moody's),  Fitch Investors Service,  L.P. (Fitch) and
Duff and Phelps, Inc. (D&P).

In October  1997,  as part of an overall  revision of its ratings of the utility
industry's  senior  secured debt, S&P announced that it raised the rating on the
Company's  senior  secured  debt to BBB from  BBB-.  S&P  indicated  that it now
incorporates  into its ratings of corporate issues a more vigorous analysis of a
utility's  underlying  collateral assets and the amount of securities that could
be issued under its mortgage  indenture.  The ratings on the Company's unsecured
debt and preferred stock remain unchanged.

For a further  discussion of the Company's credit ratings see Investment  Rating
in the  Company's  Annual  Report Form 10-K/A filed June 30, 1997,  for the Year
Ended December 31, 1996.

                                   - 20 -

<PAGE>



RATE MATTERS

For a discussion of Rate Matters, see Note 3 of Notes to Financial Statements.

BROOKLYN UNION TRANSACTION

For a further discussion on the Brooklyn Union Transaction,  see Note 2 of Notes
to Financial Statements.

LONG ISLAND POWER AUTHORITY TRANSACTION

For a further  discussion on the Long Island Power  Authority  Transaction,  see
Note 2 of Notes to Financial Statements.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements which, to the extent they are not recitations of
historical fact, constitute  "forward-looking  statements" within the meaning of
the  Securities  Litigation  Reform  Act of 1995.  In this  respect,  the  words
"estimate," "project,"  "anticipate,"  "expect," "intend," "believe" and similar
expressions  are  intended  to  identify  forward-looking  statements.  All such
forward-looking  statements  are  intended  to be  subject  to the  safe  harbor
protection  provided by the Reform Act. A number of important  factors affecting
the  Company's  business and  financial  results  could cause actual  results to
differ  materially from those stated in the  forward-looking  statements.  Those
factors  include the proposed  transactions  with The Brooklyn Union Gas Company
and LIPA as discussed under the heading  "Brooklyn Union  Transaction" and "Long
Island Power Authority Proposed Transactions", state and federal regulatory rate
proceedings,  competition,  and certain  environmental matters each as discussed
herein, in the Company's Annual Report on Form 10-K/A,  filed June 30, 1997, for
the year ended  December 31, 1996,  the Joint Proxy  Statement/Prospectus  filed
June 30, 1997 or in other reports filed by the Company with the  Securities  and
Exchange Commission.


                                   - 21 -

<PAGE>



PART II.          OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

                  None.

ITEM 2.           CHANGES IN SECURITIES

                  None.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

                  None.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  None.

ITEM 5.           OTHER INFORMATION

                    The  Company  has been  notified  that it is one of  several
                    potentially responsible parties (PRP) that may be liable for
                    the cost to  remediate  the  Port  Refinery  Superfund  site
                    located in Westchester  County,  New York. Port Refinery was
                    engaged in the business of purchasing, selling, refining and
                    processing  mercury and the Company may have  shipped  waste
                    products containing mercury to this site. Tests conducted by
                    the Environmental Protection Agency (EPA) indicated that the
                    site and certain adjacent  properties were contaminated with
                    mercury.  As a  result,  the EPA has  performed  a  response
                    action at the site and seeks to recover its costs, currently
                    totaling  approximately $4.4 million, plus interest from the
                    PRP's.  The Company is  currently  unable to  determine  its
                    share, if any, of the costs to remediate this site.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  A.          EXHIBIT 27

  *(1)            Financial Data Schedule UT for the six-month period ended
                  September 30, 1997.

                  B.          REPORTS ON FORM 8-K

                  In its current  report on Form 8-K dated  September  19, 1997,
                  the  Company  filed  unaudited  pro forma  combined  condensed
                  financial  statements for LILCO and Brooklyn Union at June 30,
                  1997 and for the twelve months ended June 30, 1997, as well as
                  Brooklyn Union's quarterly report on Form 10-Q for the quarter
                  ended June 30, 1997.

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

                                   - 22 -

<PAGE>



                                   SIGNATURE

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



                                      LONG ISLAND LIGHTING COMPANY
                                              (Registrant)


                                      By /s/ Anthony Nozzolillo
                                      -------------------------
                                           ANTHONY NOZZOLILLO
                                       Senior Vice President and
                                       Principal Financial Officer


Dated: November 14, 1997




                                   - 23 -