SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification Number
1-14174 AGL RESOURCES INC. 58-2210952
(A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-9470
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1997.
Common Stock, $5.00 Par Value
Shares Outstanding at December 31, 1997 ..............................56,799,765
<PAGE>
AGL RESOURCES INC.
Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 1997
Table of Contents
Item Page
Number Number
PART I -- FINANCIAL INFORMATION
1 Financial Statements
Condensed Consolidated Income Statements 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 13
PART II -- OTHER INFORMATION
1 Legal Proceedings 21
5 Other Information 21
6 Exhibits and Reports on Form 8-K 26
SIGNATURES 27
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED
DECEMBER 31, 1997 AND 1996
(MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Three Months Twelve Months
------------------------------- -----------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues $ 402.3 $ 379.6 $1,310.3 $1,271.0
Cost of Gas 257.1 231.1 792.5 762.6
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Margin 145.2 148.5 517.8 508.4
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Other Operating Expenses 92.8 88.3 354.1 345.1
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Operating Income 52.4 60.2 163.7 163.3
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Other Income 5.2 2.4 13.2 15.1
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Income Before Interest and Income Taxes 57.6 62.6 176.9 178.4
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Expense and Preferred Stock Dividends
Interest expense 14.1 13.6 52.7 49.9
Dividends on preferred stock of subsidiaries 2.4 1.1 7.5 4.4
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Total interest expense and preferred stock
dividends 16.5 14.7 60.2 54.3
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Income Before Income Taxes 41.1 47.9 116.7 124.1
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Income Taxes 15.4 18.3 43.9 48.0
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Net Income $ 25.7 $ 29.6 $ 72.8 $ 76.1
===================================================================================================================================
Basic and Diluted Earnings Per Share
of Common Stock (See Note 7) $ 0.45 $ 0.53 $ 1.29 $ 1.37
Cash Dividends Paid Per Share of Common Stock $ 0.27 $ 0.27 $ 1.08 $ 1.065
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS)
<CAPTION>
(Unaudited)
December 31, September 30,
---------------------- -------------
ASSETS 1997 1996 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 7.9 $ 1.1 $ 4.8
Receivables (less allowance for uncollectible accounts
of $5.0 at December 31, 1997, $3.9 at December 31,
1996, and $2.6 at September 30, 1997) 225.8 222.9 93.9
Inventories
Natural gas stored underground 109.3 113.1 151.8
Liquefied natural gas 17.7 17.4 17.5
Materials and supplies 6.7 6.5 8.2
Other 6.3 2.8 6.0
Deferred purchased gas adjustment 33.1 31.4 8.5
Other 1.9 10.0 2.0
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 408.7 405.2 292.7
- ------------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Utility plant 2,091.3 1,982.7 2,069.1
Less accumulated depreciation 661.4 615.8 648.8
- ------------------------------------------------------------------------------------------------------------------------
Utility plant - net 1,429.9 1,366.9 1,420.3
- ------------------------------------------------------------------------------------------------------------------------
Nonutility property 108.2 88.0 105.8
Less accumulated depreciation 30.9 27.0 29.5
- ------------------------------------------------------------------------------------------------------------------------
Nonutility property - net 77.3 61.0 76.3
- ------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment - net 1,507.2 1,427.9 1,496.6
- ------------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Unrecovered environmental response costs 53.3 40.7 55.0
Investment in joint ventures 37.2 33.2 32.7
Unrecovered Integrated Resource Plan costs 1.3 9.6 2.0
Other 42.5 37.2 46.0
- ------------------------------------------------------------------------------------------------------------------------
Total deferred debits and other assets 134.3 120.7 135.7
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,050.2 $ 1,953.8 $ 1,925.0
========================================================================================================================
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(MILLIONS)
<CAPTION>
(Unaudited)
December 31, September 30,
---------------------- -------------
LIABILITIES AND CAPITALIZATION 1997 1996 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Liabilities
Accounts payable-trade $ 96.6 $ 107.5 $ 65.1
Short-term debt 150.5 188.8 29.5
Redemption requirements on preferred stock 0.3 44.5
Customer deposits 31.6 29.9 29.2
Interest 19.2 18.4 29.6
Taxes 30.3 24.0 19.1
Other 29.4 32.7 26.4
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 357.6 401.6 243.4
- ------------------------------------------------------------------------------------------------------------------
Accumulated Deferred Income Taxes 188.6 170.0 191.7
- ------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Accrued environmental response costs 37.3 31.3 37.3
Accrued pension costs 6.6
Accrued postretirement benefits costs 36.9 34.5 34.3
Deferred credits 59.7 60.5 61.9
- ------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 133.9 132.9 133.5
- ------------------------------------------------------------------------------------------------------------------
Capitalization
Long-term debt 660.0 584.5 660.0
Subsidiary obligated mandatorily redeemable
preferred securities 74.3 74.3
Preferred stock of subsidiary, cumulative $100 par or
stated value, shares issued and outstanding of
0.6 at December 31, 1996 58.5
Common stock, $5 par value, shares issued and
outstanding of 56.8 at December 31, 1997, 55.9 at 635.8 606.3 622.1
December 31, 1996, and 56.6 at September 30, 1997
- ------------------------------------------------------------------------------------------------------------------
Total capitalization 1,370.1 1,249.3 1,356.4
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Capitalization $ 2,050.2 $ 1,953.8 $ 1,925.0
==================================================================================================================
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
AGL RESOURCES INC. AND SUBISIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 1997 AND 1996
(MILLIONS)
(UNAUDITED)
<CAPTION>
Three Months Twelve Months
---------------------------- -------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 25.7 $ 29.6 $ 72.8 $ 76.1
Adjustments to reconcile net income to
net cash flow from operating activities
Depreciation and amortization 18.4 17.4 71.2 68.3
Deferred income taxes (1.3) 2.6 16.3 26.3
Non-cash compensation expense 0.3 0.3 2.2 0.1
Other (0.6) (0.2) (2.4) (0.8)
Changes in certain assets and liabilities (72.4) (84.0) (4.3) (57.8)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating
activities (29.9) (34.3) 155.8 112.2
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Sale of common stock, net of expenses 0.7 0.3 2.2 1.8
Sale of preferred securities, net of expenses 74.3
Sale of long-term debt 30.0 75.5 30.0
Short-term borrowings, net 121.0 36.8 (39.8) 32.5
Redemptions and purchase fund requirements
of preferred securities (44.5) (59.2)
Dividends paid on common stock (13.0) (12.6) (51.2) (49.5)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flow from financing
activities 64.2 54.5 1.8 14.8
- --------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Utility plant expenditures (25.2) (29.0) (119.7) (134.0)
Non-utility plant expenditures (2.5) (0.3) (25.5) (1.2)
Cash received from joint ventures 0.3 0.1 2.2 2.9
Investment in joint ventures (3.0) 0.5 (4.5) 0.9
Cost of removal, net of salvage (0.8) 0.9 (3.3) (0.3)
- --------------------------------------------------------------------------------------------------------------------------
Net cash flow used in investing
activities (31.2) (27.8) (150.8) (131.7)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 3.1 (7.6) 6.8 (4.7)
Cash and cash equivalents
at beginning of period 4.8 8.7 1.1 5.8
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ 7.9 $ 1.1 $ 7.9 $ 1.1
==========================================================================================================================
Cash Paid During the Year for
Interest $ 23.6 $ 21.0 $ 51.3 $ 46.4
Income taxes $ 1.4 $ 0.2 $ 29.5 $ 19.5
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Principles of Consolidation
AGL Resources Inc. (AGL Resources), a Georgia corporation, became the
holding company for Atlanta Gas Light Company (AGL), AGL's wholly owned
natural gas utility subsidiary, Chattanooga Gas Company (Chattanooga), and
AGL's nonregulated subsidiaries upon receipt of shareholder and regulatory
approval on March 6, 1996. At that time each share of AGL common stock was
converted into one share of AGL Resources common stock, and AGL became the
primary subsidiary of AGL Resources. AGL comprises substantially all of AGL
Resources' assets, revenues, and earnings. The consolidated financial
statements of AGL Resources include the financial statements of AGL,
Chattanooga, and the nonregulated subsidiaries as though AGL Resources had
existed in all periods shown and had owned all of AGL's outstanding common
stock prior to March 6, 1996. Intercompany balances and transactions have
been eliminated.
2. Subsidiaries
Unless noted specifically or otherwise required by the context,
references to AGL Resources include AGL, AGL Interstate Pipeline Company
(AGL Interstate Pipeline), AGL Peaking Services, Inc. (AGL Peaking
Services), and AGL Resources' nonregulated subsidiaries. AGL Resources
engages in natural gas distribution through AGL and AGL's wholly owned
subsidiary, Chattanooga. AGL is a public utility that distributes and
transports natural gas in Georgia and Tennessee and is subject to
regulation by the Georgia Public Service Commission (Georgia Commission)
and the Tennessee Regulatory Authority (TRA), with respect to its rates for
service, maintenance of its accounting records, and various other matters.
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles, which give appropriate
recognition to the rate-making and accounting practices and policies of the
Georgia Commission and the TRA.
AGL Resources engages in nonregulated business activities through its
wholly owned subsidiaries, AGL Energy Services, Inc. (AGL Energy Services),
a gas supply services company; AGL Investments, Inc. (AGL Investments), a
subsidiary established to develop and manage certain nonregulated
businesses; The Energy Spring, Inc., a retail energy marketing company; and
AGL Resources Service Company. AGL Energy Services has one nonregulated
subsidiary, Georgia Gas Company. AGL Investments has six nonregulated
subsidiaries: AGL Propane, Inc. (formerly known as Georgia Gas Service
Company) (AGL Propane); AGL Consumer Services, Inc.; AGL Gas Marketing,
Inc.; AGL Power Services, Inc.; AGL Energy Wise Services, Inc. and Trustees
Investments, Inc.
3. Interim Financial Statements
In the opinion of management, the unaudited condensed consolidated
financial statements included herein reflect all normal recurring accruals
necessary for a fair statement of the results of the interim periods
reflected. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted from these condensed consolidated
financial statements pursuant to applicable rules and regulations of the
Securities and Exchange Commission. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the annual reports on Form 10-K of AGL Resources for the fiscal
years ended September 30, 1997, and September 30, 1996. Certain 1996
amounts have been reclassified for comparability with 1997 amounts.
<PAGE>
4. Earnings
AGL Resources' principal business is the distribution of natural gas
to customers in central, northwest, northeast and southeast Georgia and the
Chattanooga, Tennessee area through its natural gas distribution
subsidiary, AGL. Since consumption of natural gas is dependent to a large
extent on weather, the majority of AGL Resources' income is realized during
the winter months. Earnings for a three-month period are not indicative of
the earnings for a twelve-month period.
5. Environmental Matters - AGL
AGL has identified nine sites in Georgia where it currently owns all
or part of a manufactured gas plant (MGP) site. In addition, AGL has
identified three other sites in Georgia which AGL does not own, but that
may have been associated with the operation of MGPs by AGL or its
predecessors.
Those sites are potentially subject to a variety of regulatory
programs. AGL's response to MGP sites in Georgia is proceeding under two
state regulatory programs: the Georgia Hazardous Waste Management Act
(HWMA) and the Hazardous Site Response Act (HSRA). AGL is planning to
undertake some degree of response action, under one or both of those
programs, at most of the Georgia sites.
AGL also has identified three sites in Florida which may have been
associated with AGL or its predecessors. AGL does not own any of the former
MGP sites in Florida. However, AGL has been contacted by the current owners
of two of those sites. In addition, AGL has received a "Special Notice
Letter" from the U.S. Environmental Protection Agency (EPA) with respect to
one of the two sites and a "General Notice Letter" with respect to the
other. AGL expects to undertake some degree of response action at those two
sites. AGL currently is negotiating with both regulatory authorities and
other potentially responsible parties to determine the extent of its
responsibility for the two sites.
AGL has estimated the investigation and remediation expenses likely
to be associated with the former MGP sites. First, AGL has identified
several sites where it has concluded that no significant response actions
are reasonably likely in the foreseeable future and therefore has not made
any cost projections for these sites. Second, since response cost
liabilities are often spread among potentially responsible parties, AGL's
ultimate liability will, in some cases, be limited to AGL's equitable share
of such expenses under the circumstances. Therefore, where reasonably
possible, AGL has attempted to estimate the range of AGL's equitable share,
given current cost sharing arrangements, combined with AGL's current
knowledge of relevant facts, including the current methods of equitable
apportionment and the solvency of potential contributors. Where such an
estimation was not reasonably possible, AGL has estimated a range of
expenses without adjustment for AGL's equitable share. Finally, AGL has,
with the assistance of outside consultants, prepared estimates of the range
of future investigation and remediation costs for those sites where further
action appears likely.
Applying these concepts to those sites where some future action
presently appears reasonably possible, AGL currently estimates that the
future cost to AGL of investigating and remediating the former MGP sites
could be as low as $37.3 million or as high as $76.5 million. That range
does not include other expenses, such as unasserted property damage claims,
for which AGL may be held liable, but for which neither the existence nor
the amount of such liabilities can be reasonably forecast. Within the
stated range of $37.3 million to $76.5 million, no amount within the range
can be identified reliably as a better estimate than any other estimate.
Therefore, a liability at the low end of that range has been recorded in
the financial statements.
<PAGE>
AGL has two means of recovering the expenses associated with the
former MGP sites. First, the Georgia Commission has approved the recovery
by AGL of Environmental Response Costs, as defined, pursuant to an
Environmental Response Cost Recovery Rider (ERCRR). For purposes of the
ERCRR, Environmental Response Costs include investigation, testing,
remediation and litigation costs and expenses or other liabilities relating
to or arising from MGP sites. A regulatory asset in the amount of $53.3
million has been recorded in the financial statements to reflect the
recovery of those costs through the ERCRR.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP
sites, cleanup activities at the sites, and environmental response costs
that have been incurred for purposes of the ERCRR. The Georgia Commission
has scheduled a hearing for March 16, 1998 to consider three issues
relating to the ERCRR. Specifically, the Georgia Commission is to consider
whether the term "Environmental Response Costs" should include punitive
damages, whether AGL should be required to provide an annual accounting for
revenue recovered from customers through the ERCRR, and whether a schedule
should be established for site remediation.
Second, AGL intends to seek recovery of appropriate costs from its
insurers and other potentially responsible parties. During the twelve month
period ended December 31, 1997, AGL recovered $4.6 million from its
insurance carriers and other potentially responsible parties. In accordance
with provisions of the ERCRR, AGL recognized other income of $1.1 million
and established regulatory liabilities for the remainder of the recoveries.
On February 10, 1995, a class action lawsuit captioned Trinity
Christian Methodist Episcopal Church, et al. v. Atlanta Gas Light Company,
No. 95-RCCV-93, was filed in the Superior Court of Richmond County,
Georgia, seeking to recover for damage to property owned by persons
adjacent to and nearby the former MGP site in Augusta, Georgia. On December
13, 1996, the parties reached a preliminary settlement, which was approved
by the Court on April 15, 1997. Pursuant to the settlement, there is a
claims process before an umpire to determine either the full fair market
value of properties tendered to AGL or the diminution in fair market value
of properties not tendered to AGL. Settlements have been paid to 188
property owners in the class totaling approximately $2.9 million, including
legal fees and expenses of the plaintiffs. There are seven settlements yet
to be paid. One settlement of approximately $64,000, including attorney's
fees, is pending reconsideration, and AGL has filed motions to vacate six
settlements totaling approximately $4.3 million. Orders were entered
denying the motions to vacate. AGL has filed notices of appeal with the
Georgia Court of Appeals seeking to reverse the denial of the motions to
vacate.
6. Competition - AGL
Alternative Fuels and Competitive Pricing. AGL competes to supply
natural gas to interruptible customers who are capable of switching to
alternative fuels, including propane, fuel and waste oils, electricity and,
in some cases, combustible wood by-products. AGL also competes to supply
gas to interruptible customers who might seek to bypass its distribution
system.
AGL can price distribution services to interruptible customers four
ways. First, multiple rates are established under the rate schedules of
AGL's tariff approved by the Georgia Commission. If an existing tariff rate
does not produce a price competitive with a customer's relevant competitive
alternative, three alternate pricing mechanisms exist: Negotiated
Contracts, Interruptible Transportation and Sales Maintenance (ITSM)
discounts and Special Contracts.
<PAGE>
On February 17, 1995, the Georgia Commission approved a settlement
that permits AGL to negotiate contracts with customers who have the option
of bypassing AGL's facilities (Bypass Customers) to receive natural gas
from other suppliers. The bypass avoidance contracts (Negotiated Contracts)
can be renewable, provided the initial term does not exceed five years,
unless a longer term specifically is authorized by the Georgia Commission.
The rate provided by the Negotiated Contract may be lower than AGL's filed
rate, but not less than AGL's marginal cost of service to the potential
Bypass Customer. Service pursuant to a Negotiated Contract may commence
without Georgia Commission action, after a copy of the contract is filed
with the Georgia Commission. Negotiated Contracts may be rejected by the
Georgia Commission within 90 days of filing; absent such action, however,
the Negotiated Contracts remain in effect. All of the Negotiated Contracts
filed to date with the Georgia Commission are in effect.
The settlement also provides for a bypass loss recovery mechanism to
operate until the earlier of September 30, 1998, or the effective date of
new rates for AGL resulting from a general rate case. Under the recovery
mechanism, AGL is allowed to recover from other customers 75% of the
difference between (a) the nongas cost revenue that was received from the
potential Bypass Customer during the most recent twelve-month period and
(b) the nongas cost revenue that is calculated to be received from the
lower Negotiated Contract rate applied to the same volumetric level.
Concerning the remaining 25% of the difference, AGL is allowed to retain
44% of firm customers' share of capacity release revenues in excess of $5
million until AGL is made whole for discounts from Negotiated Contracts.
In addition to Negotiated Contracts, which are designed to serve
existing and potential Bypass Customers, AGL's ITSM Rider continues to
permit discounts for short-term transactions to compete with alternative
fuels. Revenue shortfalls, if any, from interruptible customers as measured
by the test-year interruptible revenues determined by the Georgia
Commission in AGL's 1993 rate case, will continue to be recovered under the
ITSM Rider.
The settlement approved by the Georgia Commission also provides that
AGL may file contracts (Special Contracts) for Georgia Commission approval
if the service cannot be provided through the ITSM Rider, existing rate
schedules, or Negotiated Contract procedures. A Special Contract, for
example, could involve AGL providing a long-term service contract to
compete with alternative fuels where physical bypass is not the relevant
competition.
Pursuant to the approved settlement, AGL has filed and is providing
service pursuant to 55 Negotiated Contracts. Additionally, AGL is providing
service pursuant to six Special Contracts.
On November 27, 1996, the TRA approved an experimental rule allowing
Chattanooga to negotiate contracts with large commercial and industrial
customers who have long-term competitive options, including bypass. The
experimental rule provides that before any such customer is allowed a
discounted rate, both the large customer and Chattanooga must petition the
TRA for approval of the rates set forth in the contract. On October
7, 1997, the TRA denied petitions filed by Chattanooga and four large
customers for discounted rates pursuant to the experimental rule upon a
finding that customer bypass was not imminent. On January 14, 1998,
however, the FERC issued an order authorizing the bypass of Chattanooga by
Southern Natural Gas Company (Southern) to serve an interruptible customer.
AGL is continuing to negotiate with the customer to determine whether a
compromise can be reached to retain the customer, and Southern has not yet
constructed the facilities necessary to complete the bypass. Management
does not expect the order issued by the FERC to have a material adverse
effect on the consolidated financial statements of AGL Resources.
<PAGE>
Atlanta Gas Light Company - Unbundling and Rate Filing. The Natural
Gas Competition and Deregulation Act (Georgia Gas Act) was signed into law
on April 14, 1997. The act provides a legal framework for comprehensive
deregulation of many aspects of the natural gas business in Georgia.
On November 26, 1997, AGL filed with the Georgia Commission notice of
its election to be subject to this new law and to establish separate rates
for unbundled services. AGL filed contemporaneously an application with the
Georgia Commission to have its distribution rates, charges, classifications
and services regulated pursuant to performance-based regulation. The filing
requests an increase in revenues of $18.6 million annually. The requested
increase includes the costs to support changes in AGL's business systems to
ensure reliable service to customers and that the systems are in place to
serve new gas suppliers in the competitive marketplace.
Within seven months from the date of such filing, the Georgia
Commission must issue an order approving the plan as filed or with
modification. Retail marketing companies, including AGL affiliates, may now
file with the Georgia Commission separate certificate of authority
applications to sell natural gas to firm customers connected to AGL's
delivery system. It is currently anticipated that marketers who become
certificated by the Georgia Commission may begin offering natural gas sales
services to customers of AGL by November 1998.
The Georgia Gas Act provides a transition period leading to a
condition of effective competition in all natural gas markets. AGL, as an
electing distribution company, will unbundle all services to its natural
gas customers, allocate firm delivery capacity to certificated marketers
selling the gas commodity and create a secondary market for interruptible
transportation capacity. Certificated marketers, including nonregulated
affiliates of AGL, will compete to sell natural gas to all customers at
market-based prices. AGL will continue to provide intrastate delivery of
gas to end users through its existing system, subject to continued rate
regulation by the Georgia Commission. As a result of the election to be
subject to the Georgia Gas Act, it is expected that the purchased gas
adjustment provisions included in AGL's rate schedules will be discontinued
during fiscal 1999. The November 26, 1997 filing contains a provision to
true-up any over-recovery or under-recovery that may exist at the time such
purchased gas adjustment provisions are discontinued. Accordingly, AGL will
no longer defer any over-recoveries or under-recoveries of gas costs when
the purchased gas adjustment provisions are discontinued. In addition, the
Georgia Commission will continue to regulate safety, access and quality of
service pursuant to an alternative form of regulation.
The Georgia Gas Act provides marketing standards and rules of
business practice to ensure the benefits of a competitive natural gas
market are available to all customers on AGL's system. The act imposes on
marketers an obligation to serve with a corresponding universal service
fund that provides a funding mechanism for uncollectible accounts and
enables AGL to expand its facilities and serve the public interest.
Hearings in this proceeding are scheduled for the weeks of March 9,
1998, April 28, 1998 and May 18, 1998, and a decision by the Georgia
Commission is expected in June 1998.
Pursuant to the Georgia Gas Act, the Georgia Commission issued rules
and regulations on December 30, 1997, for certification of marketers and
assignment of firm customers to marketers for customers who ultimately do
not select a marketer after competition is fully developed. Additionally,
the Georgia Commission issued a Notice of Inquiry to address certain
aspects of random assignment of customers and marketer certification not
fully resolved in the rulemakings.
<PAGE>
7. Earnings Per Share
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
(SFAS 128), which establishes standards for computing and presenting
earnings per share. AGL Resources adopted SFAS 128 in October 1997.
Earnings per share are based on the weighted average number of common
and common stock equivalent shares outstanding. The average number of
common shares used in the calculation of basic earnings per share and the
weighted average number of shares and common stock equivalent shares used
in the calculation of diluted earnings per share for the three-month and
twelve-month periods ended December 31, 1997 and 1996, were as follows:
(In millions)
Basic Diluted
Three-months ended
December 31, 1997 56.7 56.8
December 31, 1996 55.8 55.9
Twelve-months ended
December 31, 1997 56.3 56.4
December 31, 1996 55.5 55.6
The only common stock equivalent shares are those related to stock
options outstanding during the respective years whose exercise price was
less than the average market price of the common shares for the respective
periods. Additional options to purchase common stock were outstanding, but
were not included in the computation of diluted earnings per share because
the exercise price of those options was greater than the average market
price of the common shares for the respective periods.
8. Accounting Developments
During its July 1997 meeting, the Financial Accounting Standards
Board's Emerging Issues Task Force (EITF) concluded that once legislation
is passed to deregulate a segment of a utility and that legislation
includes sufficient detail for the enterprise to determine how the
transition plan will affect that segment, Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71), should be discontinued for that segment. The state
of Georgia has enacted legislation, the Georgia Gas Act, that allows for
the deregulation of the merchant function and unbundling of certain
ancillary services of local gas distribution companies. AGL has filed its
election to become an electing distribution company. The rates to transport
natural gas through the intrastate pipe system of the local gas
distribution company will be regulated by the Georgia Commission. Since
AGL's regulatory assets and liabilities associated with its gas
distribution activities continue to be regulated, AGL has determined that
the continued application of SFAS 71 related to those distribution
activities remains appropriate. See Part II, Item 5 - "Other Information,
State Regulatory Matters" in this Form 10-Q.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" (SFAS 130) and Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). AGL Resources will adopt SFAS 130 and SFAS 131 in
fiscal year 1999. SFAS 130 establishes standards for the reporting and
displaying of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements.
SFAS 131 establishes standards for the way that
<PAGE>
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders.
Management does not expect these new pronouncements to have a
significant impact on the presentation of AGL Resources' consolidated
financial statements.
During November 1997, the EITF published Issue No. 97-13 "Accounting
for Costs Incurred in Connection with a Consulting Contract or an Internal
Project That Combines Business Process Reengineering and Information
Technology Transformation." Issue No. 97-13 addresses costs which have been
incurred by organizations related to advances in computer technologies.
Some of the costs which have been incurred include consulting fees paid for
business process reengineering and information technology transformation.
The EITF concluded that these costs should be expensed as incurred rather
than capitalized. The EITF requires items previously capitalized to be
written off during the quarter which includes November 20, 1997. The
impacts of applying the effects of this consensus were not significant to
the financial results for the quarter ended December 31, 1997.
9. Year 2000
AGL Resources uses several computer application programs written over
many years using two-digit year fields to define the applicable year,
rather than four-digit year fields. Programs that are time-sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000.
That misinterpretation of the year could result in incorrect computation or
computer shutdown.
With the assistance of an independent consultant, AGL Resources has
identified the systems that could be affected by the year 2000 issue and
has developed a plan to resolve the issue. The plan provides for, among
other things, the replacement or modification of existing data processing
systems as necessary. Implementation of the plan has begun, and the cost
estimates associated with the implementation are not expected to
significantly impact AGL Resources' consolidated financial statements.
Management believes that with the appropriate modification, AGL
Resources will be able to operate its time-sensitive business systems
through the turn of the century.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides for the
use of cautionary statements accompanying forward-looking statements.
Disclosures provided contain forward-looking statements concerning, among
other things, deregulation, restructuring and environmental remediation.
Important factors that could cause actual results to differ
materially from those in the forward-looking statements include, but are
not limited to, the following: changes in price and demand for natural gas
and related products; uncertainty as to state and federal legislative and
regulatory issues; the effects of competition, particularly in markets
where prices and providers historically have been regulated; changes in
accounting policies and practices; uncertainty with regard to environmental
issues and competitive issues in general.
<PAGE>
Results of Operations
Three-Month Periods Ended December 31, 1997 and 1996
Explained below are the major factors that had a significant effect
on results of operations for the three-month period ended December 31,
1997, compared with the same period in 1996.
Operating revenues increased 6.0% for the three-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
(1) an increase in the cost of gas supply recovered from customers under
the purchased gas provisions of AGL's rate schedules, as explained in the
following paragraph, as a result of increased volumes of gas sold due to
weather that was 36.5% colder than during the same period in 1996, (2)
increased operating revenues attributable to a nonregulated retail
marketing company formed in July 1996 and the acquisition of propane
operations during February and June, 1997 and (3) growth in the number of
customers served.
AGL balances the cost of gas with revenues collected from customers
under the purchased gas provisions of its rate schedules. Under-recoveries
or over-recoveries of gas costs are deferred and recorded as current assets
or liabilities, thereby eliminating the effect that recovery of gas costs
would otherwise have on net income. Cost of gas increased 11.3% for the
three-month period ended December 31, 1997, compared with the same period
in 1996 primarily due to (1) increased volumes of gas sold as a result of
weather that was 36.5% colder than during the same period in 1996 and (2)
increased cost of gas attributable to a nonregulated retail marketing
company formed in July 1996 and the acquisition of propane operations
during February and June, 1997. The increase in the cost of gas was offset
partly by a shift by certain interruptible customers from interruptible
sales to transportation service.
Operating margin decreased 2.2% for the three-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
(1) decreased consumption patterns not related to weather conditions
attributable to AGL's firm-service customers and (2) decreased expenses
pursuant to an Integrated Resource Plan (IRP) which are recovered through
an IRP Cost Recovery Rider approved by the Georgia Commission. The decrease
in operating margin was offset partly by margins resulting from the
acquisition of propane operations during February and June, 1997. Weather
normalization adjustment riders (WNARs), approved by the Georgia Commission
and the TRA, stabilized operating margin at the level which would occur
with normal weather for the three-month periods ended December 31, 1997 and
1996. As a result of the WNARs, weather conditions experienced do not have
a significant impact on the comparability of operating margin.
Operating expenses increased 5.1% for the three-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
(1) operating expenses of propane operations acquired during February and
June, 1997, (2) increased distribution maintenance expenses and (3)
increased depreciation expense recorded as a result of increased
depreciable property. The increase in operating expenses was offset partly
by decreased expenses recovered pursuant to an IRP Cost Recovery Rider. AGL
balances IRP expenses which are included in operating expenses with
revenues collected under the rider, thereby eliminating the effect that
recovery of IRP expenses would otherwise have on net income.
Other income increased $2.8 million primarily due to increased income
from a gas marketing joint venture.
<PAGE>
Interest expense increased $0.5 million for the three-month period
ended December 31, 1997, compared with the same period in 1996 primarily
due to increased amounts of long-term debt outstanding during the period.
The increase in interest expense was offset partly by decreased amounts of
short-term debt outstanding.
Dividends on preferred stock of subsidiaries increased $1.3 million
for the three-month period ended December 31, 1997, compared with the same
period in 1996 primarily due to dividend requirements related to the
issuance of $75 million principal amount of Capital Securities in June
1997, as more fully described below within the caption "Financial
Condition."
Income taxes decreased $2.9 million for the three-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
decreased taxable income.
Net income for the three-month period ended December 31, 1997, was
$25.7 million, compared with net income of $29.6 million for the same
period in 1996. Basic and diluted earnings per share of common stock were
$0.45 for the three-month period ended December 31, 1997, compared with
basic and diluted earnings per share of $0.53 for the same period in 1996.
The decreases in net income and earnings per share were primarily due to
(1) decreased operating margin, (2) increased operating expenses and (3)
increased preferred dividend requirements. The decreases in net income and
earnings per share were offset partly by increased other income.
Twelve-Month Periods Ended December 31, 1997 and 1996
Explained below are the major factors that had a significant effect
on results of operations for the twelve-month period ended December 31,
1997, compared with the same period in 1996.
Operating revenues increased 3.1% for the twelve-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
(1) increased operating revenues attributable to a nonregulated retail
marketing company formed in July 1996 and the acquisition of propane
operations during February and June, 1997, (2) increased operating revenues
from a nonregulated gas supply services company formed in July 1996 and (3)
growth in the number of customers served. The increase in operating
revenues was offset substantially by a shift by certain interruptible
customers from interruptible sales to transportation service. Operating
revenues are less when gas is transported for a customer than when it is
sold to that customer. The utility's transportation rate generates the same
operating margin as the applicable sales rate schedule for interruptible
sales of gas; therefore, earnings are not affected.
Cost of gas increased 3.9% for the twelve-month period ended December
31, 1997, compared with the same period in 1996 primarily due to (1)
increased cost of gas attributable to a nonregulated retail marketing
company formed in July 1996 and the acquisition of propane operations
during February and June, 1997 and (2) increased cost of gas from a
nonregulated gas supply services company formed in July 1996. The increase
in cost of gas was offset substantially by a shift by certain interruptible
customers from interruptible sales to transportation service.
Operating margin increased 1.8% for the twelve-month period ended
December 30, 1997, compared with the same period in 1996 primarily due to
(1) an increase in operating margin attributable to a nonregulated gas
supply services company formed in July 1996 and the acquisition of propane
operations during February and June, 1997 and (2) growth in the number of
customers served. The increase in operating margin was offset partly by
decreased expenses pursuant to an IRP which are recovered through an IRP
Cost Recovery Rider approved by the Georgia Commission. WNARs, approved by
the Georgia Commission and
<PAGE>
the TRA, stabilized operating margin at the level which would occur with
normal weather for the twelve-month periods ended December 31, 1997
and 1996. As a result of the WNARs, weather conditions experienced
do not have a significant impact on the comparability of operating margin.
Operating expenses increased 2.6% for the twelve-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
increased (1) depreciation expense recorded as a result of increased
depreciable property, (2) uncollectible accounts expense and (3)
maintenance of general plant. The increase in operating expenses was offset
partly by decreased expenses recovered pursuant to an IRP Cost Recovery
Rider. AGL balances IRP expenses which are included in operating expenses
with revenues collected under the rider, thereby eliminating the effect
that recovery of IRP expenses would otherwise have on net income.
Other income decreased $1.9 million for the twelve-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
(1) increased carrying costs on recoveries from insurance carriers and
third parties related to environmental response costs and (2) decreased
income from a power marketing joint venture. The decrease in other income
was offset partly by the recovery from utility customers of increased
carrying costs not included in base rates related to storage gas
inventories.
Interest expense increased 5.6% for the twelve-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
increased amounts of long-term debt outstanding during the period. The
increase in interest expense was offset partly by decreased amounts of
short-term debt outstanding.
Dividends on preferred stock of subsidiaries increased $3.1 million
for the twelve-month period ended December 31, 1997, compared with the same
period in 1996 primarily due to dividend requirements related to the
issuance of $75 million principal amount of Capital Securities in June 1997
as more fully described below within the caption "Financial Condition."
Income taxes decreased $4.1 million for the twelve-month period ended
December 31, 1997, compared with the same period in 1996 primarily due to
(1) decreased taxable income and (2) a decrease in the effective tax
accrual rate as a result of payment of tax deductible interest on
subordinated debt to fund dividends on Capital Securities issued in June
1997.
Net income for the twelve-month period ended December 31, 1997, was
$72.8 million, compared with net income of $76.1 million for the same
period in 1996. Basic and diluted earnings per share of common stock was
$1.29 for the twelve-month period ended December 31, 1997, compared with
basic and diluted earnings per share of $1.37 for the same period in 1996.
The decreases in net income and earnings per share were primarily due to
(1) increased operating expenses, (2) increased interest expense and
preferred dividend requirements and (3) decreased other income. The
decreases in net income and earnings per share were offset partly by
increased operating margin.
Financial Condition
AGL Resources' primary gas utility business is highly seasonal in
nature and typically shows a substantial increase in accounts receivable
from customers from September 30 to December 31 as a result of colder
weather. The utility also uses gas stored underground to serve its
customers during periods of colder weather. As a result, accounts
receivable increased $131.9 million and inventory of gas stored underground
decreased $42.5 million during the quarter ended December 31, 1997.
Accounts payable increased $31.5 million during the quarter ended December
31, 1997, primarily due to an increase in accounts payable to gas
<PAGE>
suppliers. Accounts payable decreased $10.9 million from December 31, 1996
to December 31, 1997, primarily due to a $8.5 million decrease in accounts
payable to gas suppliers.
The gas purchasing practices of AGL are subject to review by the
Georgia Commission under legislation enacted by the Georgia General
Assembly (Gas Supply Plan Legislation). The Gas Supply Plan Legislation
establishes procedures for review and approval, in advance, of gas supply
plans for gas utilities and gas cost adjustment factors applicable to firm
service customers of gas utilities. Pursuant to AGL's approved Gas Supply
Plan for fiscal year 1998, gas supply purchases are being recovered under
the purchased gas provisions of AGL's rate schedules. The plan also allows
recovery from the customers of AGL of Federal Energy Regulatory
Commission's (FERC) Order No. 636 transition costs that are currently being
charged by AGL's pipeline suppliers.
Based on filings with the FERC by its pipeline suppliers, AGL
currently estimates that its total portion of transition costs associated
with the FERC's Order No. 636 from all of its pipeline suppliers will be
approximately $104.8 million. Approximately $94.4 million of such costs has
been incurred by AGL as of December 31, 1997, and is being recovered from
its customers under the purchased gas provisions of AGL's rate schedules.
AGL's Gas Supply Plan for fiscal year 1998 includes limited gas
supply hedging activities. AGL is authorized to enter into an expanded
program to hedge up to one half of its estimated monthly winter wellhead
purchases and establish a price for those purchases at an amount other than
the beginning of the month index price to create an additional element of
diversification and price stability. The financial results of all hedging
activities are passed through to firm service customers under the purchased
gas provisions of AGL's rate schedules. Accordingly, there is no earnings
impact as a result of the hedging program.
Additionally, the approved plan contains a gas supply incentive
mechanism for off-system and capacity release sales that is consistent with
the incentive mechanism in the Georgia Gas Act signed into law on April 14,
1997, whereby AGL and the firm customers share in any benefits produced
from incremental use of gas supply assets.
As noted above, AGL recovers the cost of gas under the purchased gas
provisions of its rate schedules. AGL was in an under-recovery position of
$8.5 million as of September 30, 1997, an under-recovery position of $31.4
million as of December 31, 1996, and an under-recovery position of $33.1
million as of December 31, 1997. Under the provisions of the utility's rate
schedules, any under-recoveries or over-recoveries of purchased gas costs
are included in current assets or liabilities and have no effect on net
income.
The expenditures for plant and other property totaled $27.7 million
for the three-month and $145.2 million for the twelve-month periods ended
December 31, 1997, respectively. Effective February 1, 1997, AGL Propane, a
subsidiary of AGL Investments, acquired eight related companies engaged in
the retail sale and delivery of propane gas. Effective June 12, 1997, AGL
Propane acquired a retail propane distribution company headquartered in
Blairsville, Georgia through the issuance of common stock. Those
acquisitions were accounted for using the purchase method of accounting.
AGL has accrued liabilities of $37.3 million as of December 31, 1997,
$31.3 million as of December 31, 1996, and $37.3 million as of September
30, 1997, for estimated future expenditures covering investigation and
remediation of MGP sites which are expected to be made over a period of
several years. The Georgia Commission has approved the recovery by AGL of
Environmental Response Costs pursuant to the ERCRR. In connection with the
ERCRR, the staff of the Georgia Commission has undertaken a financial
<PAGE>
and management process audit related to the MGP sites, cleanup activities
at the sites and environmental response costs that have been incurred for
purposes of the ERCRR.
The Georgia Commission has scheduled a hearing for March 16, 1998 to
consider three issues relating to the ERCRR. Specifically, the Georgia
Commission is to consider whether the term "Environmental Response Costs"
should include punitive damages, whether AGL should be required to provide
an annual accounting for revenue recovered from customers through the
ERCRR, and whether a schedule should be established for site remediation.
See Note 5 to Notes to Condensed Consolidated Financial Statements in this
Form 10-Q.
In June 1997, AGL Capital Trust, a Delaware business trust (the
Trust), of which AGL Resources owns all of the common voting securities,
issued and sold to certain initial investors $75 million in principal
amount of 8.17% Capital Securities (liquidation amount $1,000 per Capital
Security), the proceeds of which were used to purchase from AGL Resources
8.17% Junior Subordinated Deferrable Interest Debentures due June 1, 2037.
The Capital Securities are subject to mandatory redemption upon repayment
of the Junior Subordinated Debentures on the stated maturity date of June
1, 2037, upon the earlier occurrence of certain events or upon the optional
prepayment by AGL Resources on or after June 1, 2007. AGL Resources has
fully and unconditionally guaranteed all of the Trust's obligations with
respect to the Capital Securities. Net proceeds to AGL Resources from the
sale of the Junior Subordinated Debentures of $74.3 million was used to
repay short-term debt, to redeem certain of AGL's outstanding issues of
preferred stock and for other corporate purposes.
On August 15, 1997, AGL redeemed its 4.5% Cumulative Preferred Stock,
4.72% Cumulative Preferred Stock, 5% Cumulative Preferred Stock, 7.84%
Cumulative Preferred Stock, and 8.32% Cumulative Preferred Stock at the
call price in effect for each issue for an aggregate principal amount of
$14.7 million. Those issues of preferred stock have been retired in full.
On December 1, 1997, AGL redeemed its 7.70% depositary preferred shares at
the redemption price of $100 per share for an aggregate principal amount of
$44.5 million.
Long-term debt outstanding increased $75.5 million during the
twelve-month period ended December 31, 1997, as a result of the issuance in
July 1997 by AGL of the remaining $75.5 million of $300 million aggregate
principal amount of Medium-Term Notes Series C. Net proceeds from the
issuance of Medium-Term Notes were used to fund capital expenditures, to
repay short-term debt and for other corporate purposes.
Short-term debt increased $121.0 million for the three-month period
ended December 31, 1997 primarily to meet increased working capital
requirements and redemption requirements related to the 7.70% depositary
preferred shares described above. Short-term debt decreased $38.3 million
for the twelve-month period ended December 31, 1997 primarily due to the
issuance of Capital Securities and long-term debt.
On February 17, 1995, the Georgia Commission approved a settlement
that permits AGL to negotiate contracts with customers who have the option
of bypassing AGL's facilities (Bypass Customers) to receive natural gas
from other suppliers. The bypass avoidance contracts (Negotiated Contracts)
can be renewable, provided the initial term does not exceed five years,
unless a longer term specifically is authorized by the Georgia Commission.
The rate provided by the Negotiated Contract may be lower than AGL's filed
rate, but not less than AGL's marginal cost of service to the potential
Bypass Customer. Service pursuant to a Negotiated Contract may commence
without Georgia Commission action, after a copy of the contract is filed
with the Georgia Commission. Negotiated Contracts may be rejected by the
Georgia Commission within 90
<PAGE>
days of filing; absent such action, however, the Negotiated Contracts
remain in effect. All of the Negotiated Contracts filed to date with the
Georgia Commission are in effect.
The settlement also provides for a bypass loss recovery mechanism to
operate until the earlier of September 30, 1998, or the effective date of
new rates for AGL resulting from a general rate case. See Note 6 to Notes
to Condensed Consolidated Financial Statements in this Form 10-Q.
On November 27, 1996, the TRA approved an experimental rule allowing
Chattanooga to negotiate contracts with large commercial or industrial
customers who have long-term competitive options, including bypass. The
experimental rule provides that before any such customer is allowed a
discounted rate, both the large customer and Chattanooga must petition the
TRA for approval of the rates set forth in the contract. On October
7, 1997, the TRA denied petitions filed by Chattanooga and four large
customers for discounted rates pursuant to the experimental rule upon a
finding that customer bypass was not imminent. On January 14, 1998,
however, the FERC issued an order authorizing the bypass of Chattanooga by
Southern to serve an interruptible customer. AGL is continuing to
negotiate with the customer to determine whether a compromise can be
reached to retain the customer, and Southern has not yet constructed the
facilities necessary to complete the bypass. Management does not expect
the order issued by the FERC to have a material adverse effect on the
consolidated financial statements of AGL Resources.
The Georgia Gas Act was signed into law on April 14, 1997. The act
provides a legal framework for comprehensive deregulation of many aspects
of the natural gas business in Georgia. On November 26, 1997, AGL filed
with the Georgia Commission notice of its election to be subject to this
new law and to establish separate rates for unbundled services. AGL filed
contemporaneously an application with the Georgia Commission to have its
distribution rates, charges, classifications and services regulated
pursuant to performance-based regulation. The filing requests an increase
in revenues of $18.6 million annually. The requested increase includes the
costs to support changes in AGL's business systems to ensure reliable
service to customers and that the systems are in place to serve new gas
suppliers in the competitive marketplace. The Georgia Gas Act provides a
transition period leading to a condition of effective competition in all
natural gas markets. See Note 6 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
On May 1, 1997, Chattanooga filed a rate proceeding with the TRA
seeking an increase in revenues of $4.4 million annually. Revenues from the
rate increase will be used to improve and expand Chattanooga's natural gas
distribution system; to recover increased operation, maintenance and tax
expenses; and to provide a reasonable return to investors. Under the TRA's
rules and regulations, the effective date of the requested new rates was
suspended until November 1, 1997. Hearings in the rate proceeding were
scheduled to begin on October 13, 1997. On October 3, 1997, all parties to
the proceeding filed a motion with the TRA requesting that the hearings be
continued and that the suspended effective date for new rates be extended
to afford an opportunity to pursue settlement discussions. The hearings in
this proceeding began on February 9, 1998.
Year 2000
AGL Resources uses several computer application programs written over
many years using two-digit year fields to define the applicable year,
rather than four-digit year fields. Programs that are time-sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000.
That misinterpretation of the year could result in incorrect computation or
computer shutdown.
<PAGE>
With the assistance of an independent consultant, AGL Resources has
identified the systems that could be affected by the year 2000 issue and
has developed a plan to resolve the issue. The plan provides for, among
other things, the replacement or modification of existing data processing
systems as necessary. Implementation of the plan has begun and the cost
estimates associated with the implementation of the plan are not expected
to significantly impact AGL Resources' consolidated financial statements.
Management believes that with the appropriate modification, AGL
Resources will be able to operate its time-sensitive business systems
through the turn of the century.
Accounting Developments
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per Share,"
(SFAS 128), which establishes standards for computing and presenting
earnings per share. AGL Resources adopted SFAS 128 in October 1997. See
Note 7 in Notes to Condensed Consolidated Financial Statements in this Form
10-Q.
During its July 1997 meeting, the Financial Accounting Standard
Board's Emerging Issues Task Force (EITF) concluded that once legislation
is passed to deregulate a segment of a utility and that legislation
includes sufficient detail for the enterprise to determine how the
transition plan will affect that segment, Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71), should be discontinued for that segment. The state
of Georgia has enacted legislation, the Georgia Gas Act, that allows for
the deregulation of the merchant function and unbundling of certain
ancillary services of local gas distribution companies. AGL has filed its
election to become an electing distribution company. The rates to transport
natural gas through the intrastate pipe system of the local gas
distribution company will be regulated by the Georgia Commission. Since
AGL's regulatory assets and liabilities associated with its gas
distribution activities continue to be regulated, AGL has determined that
the continued application of SFAS 71 related to those distribution
activities remains appropriate.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" (SFAS 130) and Statement of Financial Accounting
Standard No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). AGL Resources will adopt SFAS 130 and SFAS 131 in
fiscal year 1999. SFAS 130 establishes standards for the reporting and
displaying of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements.
SFAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
Management does not expect these new pronouncements to have a
significant impact on the presentation of AGL Resources' consolidated
financial statements.
During November 1997, the EITF published Issue No. 97-13 "Accounting
for Costs Incurred in Connection with a Consulting Contract or an Internal
Project That Combines Business Process Reengineering and Information
Technology Transformation." Issue No. 97-13 addresses costs which have been
incurred by organizations related to advances in computer technologies.
Some of the costs which have been incurred include consulting fees paid for
business process reengineering and information technology transformation.
The EITF concluded that these costs should be expensed as incurred rather
than capitalized. The EITF requires items previously capitalized to be
written off during the quarter which includes November
<PAGE>
20, 1997. The impacts of applying the effects of this consensus were not
significant to the financial results for the quarter ended December 31,
1997.
PART II -- OTHER INFORMATION
"Part II -- Other Information" is intended to supplement information
contained in the Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, and should be read in conjunction therewith.
ITEM 1. LEGAL PROCEEDINGS
See Item 5.
ITEM 5. OTHER INFORMATION
Federal Regulatory Matters
FERC Order 636 Transition Costs Settlement Agreements. Based on
filings with the FERC by its pipeline suppliers, AGL currently estimates
that its total portion of transition costs associated with the FERC's Order
No. 636 from all of its pipeline suppliers will be approximately $104.8
million. Approximately $94.4 million of such costs has been incurred by AGL
as of December 31, 1997, and is being recovered from its customers under
the purchased gas provisions of AGL's rate schedules.
FERC Rate Proceedings. AGL also is participating in various rate
proceedings before the FERC involving applications for rate changes filed
by its pipeline suppliers. These proceedings typically involve numerous
issues concerning the pipeline's cost of service, allocation of costs to
different services, and rate design. A variety of cost allocation and rate
design proposals typically are advanced by the pipeline's customers, making
it impossible to forecast the precise effect of any given rate change
filing on AGL's operations. AGL is authorized to recover the costs paid to
its pipeline suppliers from its customers through the purchased gas
provisions of its rate schedules. To the extent that these cases have not
been settled, as described below, the rates filed in these proceedings have
been accepted, and made effective subject to refund and the outcome of the
FERC proceedings.
Southern. As noted above, the FERC's orders approving Southern's
restructuring settlement, which resolves all issues between AGL and
Southern for Southern's outstanding rate proceedings, are final and no
longer subject to judicial review.
ANR Pipeline. On October 17, 1997, ANR filed a proposed settlement of
its current rate case which, if approved, will provide AGL with reductions
of approximately $3 million in rates, prospectively, as well as rate
refunds.
Other FERC Proceedings. Tennessee has filed for authority to replace
an existing no-fee transportation service performed on behalf of Southern's
injections and withdrawals at the Bear Creek storage facility, which is
jointly owned by Southern and Tennessee, with service under Tennessee's
generally applicable firm transportation rate schedule at Tennessee's
generally applicable firm transportation rate. AGL has filed comments
opposing Tennessee's proposal, due to the likely effect of the proposal on
Southern's rates to AGL and due to the possible effect of the change in the
terms and conditions of the service on Southern's no-notice firm
transportation service to AGL, which relies in part upon the Bear Creek
storage facility.
<PAGE>
AGL cannot predict the outcome of those federal proceedings nor
determine the ultimate effect, if any, such proceedings may have on AGL.
State Regulatory Matters
Atlanta Gas Light Company - Unbundling and Rate Filing. The Georgia
Gas Act was signed into law on April 14, 1997. The act provides a legal
framework for comprehensive deregulation of many aspects of the natural gas
business in Georgia.
On November 26, 1997, AGL filed with the Georgia Commission notice of
its election to be subject to this new law and to establish separate rates
for unbundled services. AGL filed contemporaneously an application with the
Georgia Commission to have its distribution rates, charges, classifications
and services regulated pursuant to performance-based regulation. The filing
requests an increase in revenues of $18.6 million annually. The requested
increase includes the costs to support changes in AGL's business systems to
ensure reliable service to customers and that the systems are in place to
serve new gas suppliers in the competitive marketplace.
Within seven months from the date of such filing, the Georgia
Commission must issue an order approving the plan as filed or with
modification. Retail marketing companies, including AGL affiliates, may now
file with the Georgia Commission separate certificate of authority
applications to sell natural gas to firm customers connected to AGL's
delivery system. It is currently anticipated that marketers who become
certificated by the Georgia Commission may begin offering natural gas sales
services to customers of AGL by November 1998.
The Georgia Gas Act provides a transition period leading to a
condition of effective competition in all natural gas markets. AGL, as an
electing distribution company, will unbundle all services to its natural
gas customers, allocate firm delivery capacity to certificated marketers
selling the gas commodity and create a secondary market for interruptible
transportation capacity. Certificated marketers, including nonregulated
affiliates of AGL, will compete to sell natural gas to all customers at
market-based prices. AGL will continue to provide intrastate delivery of
gas to end users through its existing system, subject to continued rate
regulation by the Georgia Commission. As a result of the election to be
subject to the Georgia Gas Act, it is expected that the purchased gas
adjustment provisions included in AGL's rate schedules will be discontinued
during fiscal 1999. The November 26, 1997, filing contains a provision to
true-up any over-recovery or under-recovery that may exist at the time such
purchased gas adjustment provisions are discontinued. Accordingly, AGL will
no longer defer any over-recoveries or under-recoveries of gas costs when
the purchased gas adjustment provisions are discontinued. In addition, the
Georgia Commission will continue to regulate safety, access and quality of
service pursuant to an alternative form of regulation.
The Georgia Gas Act provides marketing standards and rules of
business practice designed to ensure the benefits of a competitive natural
gas market are available to all customers on AGL's system. The act imposes
on marketers an obligation to serve with a corresponding universal service
fund that provides a funding mechanism for uncollectible accounts and
enables AGL to expand its facilities and serve the public interest.
Hearings in this proceeding are scheduled for the weeks of March 3,
1998, April 28, 1998 and May 18, 1998, and a decision by the Georgia
Commission is expected in June 1998.
Pursuant to the Georgia Gas Act, the Georgia Commission issued rules
and regulations on December 30, 1997, for certification of marketers and
assignment of firm customers to marketers for customers who
<PAGE>
ultimately do not select a marketer after competition is fully developed.
Additionally, the Georgia Commission issued a Notice of Inquiry to
address certain aspects of random assignment of customers and marketer
certification not fully resolved in the rulemakings.
AGL supported the regulatory initiatives provided for by the Georgia
Gas Act for several reasons. AGL currently makes no profit on the purchase
and sale of gas because actual gas procurement costs are passed through to
customers under the purchased gas provisions of AGL's rate schedules.
Earnings are provided through revenues received for intrastate
transportation of the commodity. Consequently, allowing AGL to cease its
sales service function and the associated sales obligation would not affect
AGL's ability to earn a return on its distribution system investment.
Allowing gas to be sold to all customers by numerous retail marketing
companies, including nonregulated subsidiaries of AGL Resources, would
provide new business opportunities.
On May 21, 1996, the Georgia Commission adopted a Policy Statement
concerning changes in state regulatory guidelines to respond to trends
toward increased competition in natural gas markets. Consistent with the
specific goals expressed in the Policy Statement, AGL filed on June 10,
1996, the Natural Gas Service Provider Selection Plan (the Plan), a
comprehensive plan for serving interruptible markets. The Plan proposed
further unbundling of services to provide large customers more service
options and the ability to purchase only those services they required. As a
result of various procedural delays, a decision on the proposed Plan had
not been reached by the Georgia Commission prior to AGL's election to be
subject to the Georgia Gas Act. Since implementation of the Plan would be
unlikely to occur significantly in advance of implementation of AGL's
election under the Georgia Gas Act, the Plan could not serve as a
meaningful opportunity for AGL, marketers and end-use customers to gain
experience with pooling and aggregation of loads. Consequently,
simultaneous with the filings of the notice of election under the Georgia
Gas Act on November 26, 1997, AGL filed with the Georgia Commission a
notice of withdrawal of the Plan.
Atlanta Gas Light Company - Other. On January 8, 1998, the Georgia
Commission issued a Procedural and Scheduling Order to establish a schedule
for certain hearings and pre-hearings in connection with alleged pipeline
safety violations. Hearings in this proceeding have been scheduled for
March 31 and April 1, 1998. On January 16, 1998, AGL filed with the Georgia
Commission a petition for reconsideration of the order citing the Georgia
Commission's violation of its rules by denying AGL the opportunity to
respond to the alleged safety violations in the manner prescribed by such
rules. The petition for reconsideration is still pending.
Chattanooga Gas Company - Rate Filing. On May 1, 1997, Chattanooga
filed a rate proceeding with the TRA seeking an increase in revenues of
$4.4 million annually. Revenues from the rate increase would be used to
improve and expand Chattanooga's natural gas distribution system; to
recover increased operation, maintenance and tax expenses; and, to provide
a reasonable return to investors. Under the TRA's rules and regulations,
the effective date of the requested new rates was suspended until November
1, 1997. Hearings in the rate proceeding were scheduled to begin on October
13, 1997. On October 3, 1997, all parties to the proceeding filed a motion
with the TRA requesting that the hearings be continued and that the
suspended effective date for new rates be extended to afford an opportunity
to pursue settlement discussions. On October 7, 1997, the TRA granted the
motion. The hearings in this proceeding began on February 9, 1998.
AGL cannot predict the outcome of those state regulatory proceedings
nor determine the ultimate effect, if any, such proceeding may have on AGL.
<PAGE>
Environmental Matters
AGL has identified nine sites in Georgia where it currently owns all
or part of an MGP site. In addition, AGL has identified three other sites
in Georgia which AGL does not own, but that may have been associated with
the operation of MGPs by AGL or its predecessors.
Those sites are potentially subject to a variety of regulatory
programs. AGL's response to MGP sites in Georgia is proceeding under two
state regulatory programs, HWMA and HSRA, as previously defined in Note 5
to Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
AGL is planning to undertake some degree of response action, under one or
both of those programs, at most of the Georgia sites.
AGL also has identified three sites in Florida which may have been
associated with AGL or its predecessors. AGL does not own any of the former
MGP sites in Florida. However, AGL has been contacted by the current owners
of two of those sites. In addition, AGL has received a "Special Notice
Letter" from the U.S. EPA with respect to one of the two sites and a
"General Notice Letter" with respect to the other. AGL expects to undertake
some degree of response action at those two sites. AGL currently is
negotiating with both regulatory authorities and other potentially
responsible parties to determine the extent of its responsibility for the
two sites.
AGL has estimated the investigation and remediation expenses likely
to be associated with the former MGP sites. First, AGL has identified
several sites where it has concluded that no significant response actions
are reasonably likely in the foreseeable future and therefore has not made
any cost projections for these sites. Second, since response cost
liabilities are often spread among potentially responsible parties, AGL's
ultimate liability will, in some cases, be limited to AGL's equitable share
of such expenses under the circumstances. Therefore, where reasonably
possible, AGL has attempted to estimate the range of AGL's equitable share,
given current cost sharing arrangements, combined with AGL's current
knowledge of relevant facts, including the current methods of equitable
apportionment and the solvency of potential contributors. Where such an
estimation was not reasonably possible, AGL has estimated a range of
expenses without adjustment for AGL's equitable share. Finally, AGL has,
with the assistance of outside consultants, prepared estimates of the range
of future investigation and remediation costs for those sites where further
action appears likely.
Applying these concepts to those sites where some future action
presently appears reasonably possible, AGL currently estimates that the
future cost to AGL of investigating and remediating the former MGP sites
could be as low as $37.3 million or as high as $76.5 million. That range
does not include other expenses, such as unasserted property damage claims,
for which AGL may be held liable, but for which neither the existence nor
the amount of such liabilities can be reasonably forecast. Within the
stated range of $37.3 million to $76.5 million, no amount within the range
can be identified reliably as a better estimate than any other estimate.
Therefore, a liability at the low end of that range has been recorded in
the financial statements.
AGL has two means of recovering the expenses associated with the
former MGP sites. First, the Georgia Commission has approved the recovery
by AGL of Environmental Response Costs, as defined, pursuant to an ERCRR.
For purposes of the ERCRR, Environmental Response Costs include
investigation, testing, remediation and litigation costs and expenses or
other liabilities relating to or arising from MGP sites. A regulatory asset
in the amount of $53.3 million has been recorded in the financial
statements to reflect the recovery of those costs through the ERCRR.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP
sites, cleanup activities at the sites, and environmental
<PAGE>
response costs
that have been incurred for purposes of the ERCRR. The Georgia Commission
has scheduled a hearing for March 16, 1998 to consider three issues
relating to the ERCRR. Specifically, the Georgia Commission is to consider
whether the term "Environmental Response Costs" should include punitive
damages, whether AGL should be required to provide an annual accounting for
revenue recovered from customers through the ERCRR, and whether a schedule
should be established for site remediation.
Second, AGL intends to seek recovery of appropriate costs from its
insurers and other potentially responsible parties. During the twelve month
period ended December 31, 1997, AGL recovered $4.6 million from its
insurance carriers and other potentially responsible parties. In accordance
with provisions of the ERCRR, AGL recognized other income of $1.1 million
and established regulatory liabilities for the remainder of the recoveries.
On February 10, 1995, a class action lawsuit captioned Trinity
Christian Methodist Episcopal Church, et al. v. Atlanta Gas Light Company,
No. 95-RCCV-93, was filed in the Superior Court of Richmond County,
Georgia, seeking to recover for damage to property owned by persons
adjacent to and nearby the former manufactured gas plant site in Augusta,
Georgia. On December 13, 1996, the parties reached a preliminary
settlement, which was approved by the Court on April 15, 1997. Pursuant to
the settlement, there is a claims process before an umpire to determine
either the full fair market value of properties tendered to AGL or the
diminution in fair market value of properties not tendered to AGL.
Settlements have been paid to 188 property owners in the class totaling
approximately $2.9 million, including legal fees and expenses of the
plaintiffs. There are seven settlements yet to be paid. One settlement of
approximately $64,000, including attorney's fees, is pending
reconsideration, and AGL has filed motions to vacate six settlements
totaling approximately $4.3 million. Orders were entered denying the
motions to vacate. AGL has filed notices of appeal with the Georgia Court
of Appeals seeking to reverse the denial of the motions to vacate.
Other Legal Proceedings
With regard to other legal proceedings, AGL Resources is a party, as
both plaintiff and defendant, to a number of other suits, claims and
counterclaims on an ongoing basis. Management believes that the outcome of
all litigation in which it is involved will not have a material adverse
effect on the consolidated financial statements of AGL Resources.
Joint Ventures
On December 1, 1997, AGL Resources, through its subsidiary AGL
Interstate Pipeline, entered into a joint venture with Transcontinental Gas
Pipe Line Corporation (Transco) known as Cumberland Pipeline Company
(Cumberland), to provide interstate pipeline services to customers in
Georgia and Tennessee. The transaction is subject to various regulatory
approvals. Initially, the 135-mile Cumberland pipeline will include
existing pipeline infrastructure owned by the two companies extending from
Walton County, Georgia, to Catoosa County, Georgia. Projected to enter
service by November 1, 2000, Cumberland will be positioned to serve AGL,
Chattanooga and other markets throughout the eastern Tennessee Valley,
northwest Georgia and northeast Alabama. Affiliates of Transco and AGL
Resources each will own 50% of Cumberland, and an affiliate of Transco will
serve as operator. It currently is anticipated that an open season for
subscriptions for capacity on Cumberland will be announced during the first
quarter of calendar year 1998, and the project will be submitted to the
FERC for approval during fiscal year 1998.
On December 15, 1997, AGL Resources, through its subsidiary AGL
Peaking Services, and Southern, a subsidiary of Sonat Inc., entered into an
agreement to jointly construct, own and operate a new liquefied natural gas
peaking facility, Etowah LNG (Etowah), in Polk County, Georgia. The
transaction is subject to
<PAGE>
regulatory approvals. AGL Peaking Service and
Southern each will own 50 percent of Etowah, the operations of which will
be subject to jurisdiction of the FERC.
The proposed plant will connect directly into AGL's and Southern's
pipelines. Etowah will provide natural gas storage and peaking services to
AGL and other southeastern customers. The new facility will cost
approximately $90 million, with 2.5 billion-cubic-feet of natural gas
storage capacity and 300 million-cubic-feet per day of vaporization
capacity. Affiliates of AGL Resources will manage the construction of the
facility and operate it. Southern will provide administrative services.
The companies held an open season from December 1, 1997 to January
30, 1998 for Etowah subscriptions for peaking services and expect to file a
certificate application with the FERC in March 1998. Subject to receiving
timely FERC approval, construction will begin in early 1999 in order to
provide peaking services during the 2001-2002 winter heating season.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Executive Compensation Plans and Arrangements.
10.1.a - Third Amendment to the AGL Resources Inc.
Nonqualified Savings Plan (Exhibit 10.1.h, AGL
Resources Inc. Form 10-K for the fiscal year ended
September 30,1997).
10.1.b - AGL Resources Inc. 1998 Common Stock Equivalent Plan
for Non-Employee Directors.
10.2 - Extension of Service Agreements #904480 under Rate
Schedule FT; #904481 under Rate Schedule FT-NN; and
#S20140 under Rate Schedule CSS, all dated November 1,
1994, between Atlanta Gas Light Company and Southern
Natural Gas Company (Exhibits 10.30; 10.32 and 10.33,
respectively, AGL Resources Inc. Form 10-K for the
fiscal year ended September 30, 1997).
27 - Financial Data Schedule.
(b)Reports on Form 8-K.
On January 22, 1998, AGL Resources filed a Current Report on Form 8-K dated
January 21, 1998, containing: "Item 5 Other Events"; Exhibits 99 - Form of
Press Release, dated January 15, 1998.
<PAGE>
SIGNATURES
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.
AGL Resources Inc.
(Registrant)
Date February 17, 1998 /s/ J. Michael Riley
----------------- --------------------------------------------
J. Michael Riley
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
THIRD AMENDMENT TO THE
AGL RESOURCES INC.
NONQUALIFIED SAVINGS PLAN
THIS THIRD AMENDMENT to the AGL Resources Inc. Nonqualified Savings
Plan (the "Plan") hereby is made by AGL Resources Inc. (the "Controlling
Company") as of the 7th day of November, 1997.
W I T N E S S E T H :
WHEREAS, the Controlling Company desires to amend the Plan to provide
that a Covered Employee who has met the eligibility requirements of the Plan
will continue as an Active Participant in the Plan even upon a change in Covered
Employee status;
WHEREAS, the Board of Directors of the Controlling Company has
authorized the officers to take this action and Section 10.1 of the Plan permits
the Company to amend the Plan at any time;
NOW, THEREFORE, the Controlling Company hereby amends the Plan as
follows:
1.
Effective as of January 1, 1998, Section 2.3(c) of the Plan is hereby
amended by deleting that section in its entirety and by substituting in lieu
thereof the following:
"(c) Change by Participant. If an Active Participant changes
his status of employment (but remains employed) so that he is
no longer a Covered Employee, he shall continue his active
participation in the Plan until he separates from service with
a Participating Company (and all other Participating
Companies), and he shall continue to be a Participant until he
no longer has an Account under the Plan."
2.
Except as specifically set forth above, the terms of the Plan shall
remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Third Amendment to be
executed by its duly authorized officer as of the date first above written.
AGL RESOURCES INC.
By: /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
b409604
I:\CORP_SEC\FORMS\NSP\3AMDT.
<PAGE>
AGL RESOURCES INC.
1998 COMMON STOCK EQUIVALENT PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Establishment and Purpose. AGL Resources Inc., a Georgia corporation
(the "Company"), hereby establishes the AGL Resources Inc. 1998 Common
Stock Equivalent Plan for Non-Employee Directors (the "Plan"), to be
effective as of January 1, 1998. The purpose of the Plan is to (i)
provide Directors participating in the Plan with an opportunity to
obtain a proprietary interest in the Company, (ii) provide such
Directors with an added incentive to continue in the service of the
Company, and (iii) stimulate such Directors' efforts in promoting the
growth, efficiency and profitability of the Company.
2. Definitions.
(a) "Account" shall mean the bookkeeping account to which a
Participant has Deferred Amounts credited under this Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Beneficiary" shall mean the person or persons (including,
without limitation, the trustees of any testamentary or inter
vivos trust) designated from time to time in writing by a
Participant on an election form provided for said purpose to
receive payments under the Plan after the death of such
Participant, or, in the absence of any such designation or in
the event that such designated persons or person shall
predecease such Participant or shall not be in existence or
shall otherwise be unable to receive such payments, the
person or persons designated under such Participant's last
will and testament or, in the absence of such designation, to
the Participant's estate.
(d) "Change in Control" shall mean the occurrence of any one of
the following events (the terms used in this Section 2(c) with
an initial capital letter shall have the meanings set forth in
this Section 2(c) unless otherwise defined in the Plan):
i. the acquisition by a Person, together with Affiliates
and Associates of such Person, whether by purchase,
tender offer, exchange, reclassification,
recapitalization, merger or otherwise, of a
sufficient number of shares of Common Stock or
Equivalents to constitute the Person an Acquiring
Person; or
ii. during any period of two consecutive years,
individuals who at the beginning of such period
constitute the Board cease for any reason to
constitute at least a majority thereof, unless the
election of each director who was not a director at
the beginning of such period has been approved in
advance by a majority of the Continuing Directors
then in office; or
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<PAGE>
iii. any merger or consolidation the result of which is
that less than 90 percent of the common stock, Voting
Securities or other equity interests of the surviving
or resulting corporation or other Person shall be
owned in the aggregate by the former shareholders of
the Company, other than Affiliates or Associates of
any party to such merger or consolidation, as the
same shall have existed immediately prior to such
merger or consolidation; or
iv. the sale by the Company, in one transaction or a
series of related transactions, whether in
liquidation, dissolution or otherwise, of assets or
earning power aggregating more than 50 percent of the
assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person
or Persons.
The following definitions shall apply in determining when a
Change in Control has occurred:
(1) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person,
shall become the Beneficial Owner of 10 percent or more of the
shares of Common Stock then outstanding, but shall not include
the Company, any Subsidiary of the Company, or any Person who
or which, together with all Affiliates and Associates of such
Person, is the Beneficial Owner of 10 percent or more of the
shares of Common Stock as of the effective date of the Plan,
any employee benefit plan of the Company or of any Subsidiary
of the Company [if approved by a majority of the Continuing
Directors], or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any
such plan.
(2) "Affiliate" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended and in effect on
the effective date of the Plan (the "Exchange Act").
(3) "Associate" shall mean:
(a) any corporation or organization, or parent or
subsidiary of such corporation or organization, of
which a Person is an officer, director or partner or
is, directly or indirectly, the Beneficial Owner of
10 percent or more of any class of equity securities;
(b) any trust or other estate in which a Person has a
beneficial interest of 10 percent or more or as to
which such Person serves as trustee or in a similar
fiduciary capacity; and
(c) any brother or sister (whether by whole or half
blood), ancestor, lineal descendant or spouse of a
Person, or any such relative of such spouse.
(4) "Beneficial Owner" shall mean, with respect to any
securities, any Person who, together with such Person's
Affiliates and Associates, directly or indirectly:
corpsec\forms\dircse\plandoc
2
<PAGE>
(a) has the right to acquire such securities (whether
such right is exercisable immediately or only after
the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights,
exchange rights, rights, warrants or options, or
otherwise; provided, a Person shall not be deemed the
Beneficial Owner of, or to Beneficially Own:
(i) Securities acquired by participation in
good faith in a firm commitment underwriting
by a Person engaged in business as an
underwriter of securities until the
expiration of 40 days after the date of such
acquisition; or
(ii) Securities tendered pursuant to a
tender or exchange offer made by such Person
or any of such Person's Affiliates or
Associates until such tendered securities
are accepted for purchase or exchange; or
(iii) Securities issuable upon exercise of
rights issued to all shareholders generally,
which rights are only exercisable upon
separation from the Common Stock, or
securities issuable upon exercise of rights
that have separated from the Common Stock
upon the occurrence of events specified in a
rights agreement between the Company and a
rights agent.
(b) has the right to vote or dispose of or has
Beneficial Ownership (as determined pursuant to Rule
13d-3 of the General Rules and Regulations under the
Exchange Act) of such securities, including pursuant
to any agreement, arrangement or understanding,
whether or not in writing; provided, a Person shall
not be deemed the Beneficial Owner of, or to
Beneficially Own, any security under this
subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if
such agreement, arrangement or understanding:
(i) arises solely from a revocable proxy
given in response to a public proxy or
consent solicitation made pursuant to, and
in accordance with, the applicable
provisions of the General Rules and
Regulations under the Exchange Act; and
(ii) is not also then reportable by such
Person on Schedule 13D under the Exchange
Act (or any comparable or successor report);
or
(iii) with respect to any securities which
are Beneficially Owned, directly or
indirectly, by any other Person (or any
Affiliate or Associate thereof), has any
agreement, arrangement or understanding
(whether or not in writing), for the purpose
of acquiring, holding, voting (except
pursuant to a revocable proxy as described
herein or disposing of any voting securities
of the Company.
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<PAGE>
(5) "Continuing Director" shall mean:
(a) any member of the Board who is not an Acquiring
Person, or an Affiliate or Associate of an Acquiring
Person, or a representative of an Acquiring Person or
of any such Affiliate or Associate, and was a member
of the Board prior to the effective date of the Plan;
or
(b) any Person who subsequently becomes a member of
the Board who is not an Acquiring Person, or an
Affiliate or Associate of an Acquiring Person, or a
representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination
for election or election to the Board is recommended
or approved by a majority of the Continuing
Directors.
(5) "Equivalents" shall mean preferred stock or other entity
securities of the Company having the right to be converted by
the holders thereof into shares of Common Stock, or having the
right to vote generally for the election of directors and on
other matters. For purposes of determining the total amount of
Common Stock and Equivalents owned by any Person, such
Equivalents shall be equal to the number of shares into which
they may be converted by the holders thereof, or in the case
of securities that are not convertible having the right to
vote, shall be equal to the number of votes they are entitled
to cast in elections for directors.
(7) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(8) "Subsidiary" shall mean any corporation, partnership,
joint venture, trust or other entity more than 50 percent of
the Voting Securities of which are Beneficially Owned,
directly or indirectly, by a Person.
(9) "Voting Securities" shall mean any class of then
outstanding shares of stock or other beneficial interests
entitled to vote in election of directors or other Persons
charged with management of a Person.
(e) "Common Stock" shall mean the common stock of the Company, par
value $5.00 per share.
(f) "Common Stock Equivalents" or "CSEs" shall mean the units that
are credited to a Director's Account under this Plan.
(g) "Company" shall mean AGL Resources Inc., a Georgia
corporation, and any successor of the Company.
(h) "Compensation" shall mean the meeting fees received by the Director.
(i) "Deferred Amount" shall mean an amount of Compensation
deferred at the election of the Participant under this Plan.
corpsec\forms\dircse\plandoc
4
<PAGE>
(j) "Director" shall mean any member of the Board of Directors of
the Company who is not an employee of the Company.
(k) "Fair Market Value" shall mean the closing sale price per
share of the Common Stock as published in the Eastern Edition
of The Wall Street Journal report on the New York Stock
Exchange Composite Transactions (or other established exchange
on which the Common Stock is listed) on a particular date. If,
for any reason, the Fair Market Value of the Common Stock
cannot be ascertained or is unavailable for a particular date,
the Fair Market Value of the Common Stock shall be determined
as of the nearest preceding date on which such Fair Market
Value can be ascertained pursuant to the terms hereof.
(l) "Participant" shall mean any Director who elects to defer
Compensation under this Plan.
(m) "Plan" shall mean the AGL Resources Inc. 1998 Common Stock
Equivalent Plan for Non-Employee Directors, as from time to
time amended and in effect.
(n) "Termination of Service" shall mean the termination (by death,
retirement or otherwise) of a Participant's service as a
Director of the Company.
3. Deferral of Compensation. Each Director may elect to defer his or her
Compensation for any calendar year under this Plan. Such election shall
be made on a form prescribed by the Company and filed with the Corporate
Secretary of the Company prior to the beginning of the calendar year
during which such Compensation is to be earned. The election shall be
irrevocable for the first calendar year to which it relates, and it
shall continue in effect for subsequent calendar years until changed
prospectively by the Participant, in writing to the Corporate Secretary
of the Company, before the beginning of the calendar year for which the
change is effective. If an election is made by a person who has been
elected to serve as a Director, but whose term has not yet commenced,
that Director's election shall be effective as of the commencement of
said term.
4. Treatment of Deferred Amounts. The Company shall establish on its books
an Account for each Participant who defers Compensation under this Plan.
Such Account will accurately reflect the Company's liability to such
Participant. The standing balance in each account is hereafter referred
to as the "Account Balance." Despite the maintenance of such Account,
the Company's obligation to make payments under the Plan to a
Participant shall be made from the Company's general assets and
property. The Company may, in its sole discretion, establish a
separate fund or account to make payment of benefits to a Participant or
Beneficiary hereunder. Whether or not the Company, in its sole
discretion, does establish such a fund or account, no Participant,
Beneficiary or any person shall have, under any circumstances, any
interest whatever in any particular property or assets of the Company by
virtue of this Plan.
5. Common Stock Equivalents. Deferred Amounts credited to a Participant's
Account shall be converted into CSEs. The CSEs shall be equal to the
number of shares of Common Stock, to three decimal places, that could be
purchased on the day that the Participant's Deferred Amount would
otherwise be paid, at a per share price equal to the Fair Market Value
of the Common Stock on such date.
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5
<PAGE>
6. Dividends and Stock Splits. On each date on which a dividend, in cash,
property or stock, is distributed on shares of issued and outstanding
Common Stock, the Participant's Account shall be credited with a number
of CSEs based upon the amount of cash or the fair market value of any
property or stock (the "base amount") distributed with respect to a
number of shares issued and outstanding of the Common Stock equal to
the number of CSEs (including fractions) standing to the Participant's
credit in his or her Account on the record date for such distribution
(assuming that fractional shares could be held of record and that
distributions were made with respect thereto). The number of CSEs to be
so credited shall be equal to the number of shares of Common Stock, to
three decimal places, that could be purchased on such dividend
distribution date with the base amount at a per share price equal to the
Fair Market Value of the Common Stock on such date.
7. Payment of Deferred Amounts. Upon a Participant's Termination of
Service, or upon a Change in Control of the Company, a Participant's
Account Balance shall be paid to him or her (or, in the event of the
Participant's death, to the Participant's Beneficiary). The
Participant's Account Balance will, at the irrevocable election of the
Participant on a form prescribed by the Company, be paid to the
Participant in either (i) five annual cash installments; or (ii) one
cash lump sum payment. Payment of such amounts shall commence within
thirty (30) days of such Termination of Service or Change in Control.
In converting a Participant's CSEs in his or her Account into cash for
payment purposes, such conversion shall be made on each payment date to
the Participant based on the then current Fair Market Value of the
shares of Common Stock reflected in the Participant's Account.
8. Amendment or Termination. The Board of Directors may amend or terminate
this Plan at any time; provided, however, that no amendment or
termination shall adversely affect any then existing Deferred Amounts or
rights under this Plan, and provided further that no amendment may be
made to the last sentence of Section 12 hereof.
9. Expenses. The expenses of administering the Plan shall be borne by the
Company, and shall not be charged against any Participant's Account.
10. Applicable Law. The provisions of the Plan shall be construed,
administered and enforced according to the laws of the State of Georgia.
11. No Trust. No action by the Company or its Board of Directors under this
Plan shall be construed as creating a trust, escrow or other secured or
segregated fund or other fiduciary relationship of any kind in favor of
any Participant, Beneficiary, or any other persons. The status of a
Participant or Beneficiary with respect to any liabilities assumed by
the Company hereunder shall be solely those of unsecured creditors of
the Company. Any asset acquired or held by the Company in connection
with liabilities assumed by it hereunder shall not be deemed to be held
under any trust, escrow or other secured or segregated fund or other
fiduciary relationship of any kind for the benefit of a Participant or
Beneficiary, or to be security for the performance of the obligations of
the Company, but shall be, and remain, a general, unpledged,
unrestricted asset of the Company at all times subject to the claims of
general creditors of the Company.
corpsec\forms\dircse\plandoc
6
<PAGE>
12. Assignment; Successors. Neither the Participant nor any other person
shall have the power, voluntarily or involuntarily, to transfer, assign,
anticipate, pledge, mortgage or otherwise encumber, alienate or transfer
any rights hereunder in advance of any of the payments to be made
pursuant to this Plan or any portion thereof. The obligations of the
Company hereunder shall be binding upon any and all successors and
assigns to the Company.
13. Withholding. The Company shall comply with all federal and state laws
and regulations respecting the withholding, deposit and payment of any
income or employment taxes relating to the payment of Deferred Amounts
under this Plan.
14. No Impact on Directorship. This Plan shall not be construed to confer
any right on the part of a Participant to be or remain a Director or to
receive any, or any particular rate of, Compensation.
15. Interpretations. Interpretations of, and determinations related to, this
Plan made by the Company in good faith, including any determinations or
calculations of Deferred Amounts or Account Balances, shall be
conclusive and binding upon all parties; and the Company shall not incur
any liability to a Participant for any such interpretation or
determination so made or for any other action taken by it in connection
with this Plan.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer as of January 1, 1998.
AGL RESOURCES INC.
By: /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
S2-396657.1
corpsec\forms\dircse\plandoc
7
<PAGE>
Southern Natural Gas Company
Post Office Box 2563
Birmingham AL 35202 2563
205 325 7410
SOUTHERN NATURAL GAS
December 16, 1997
Mr. Stephen J. Gunther
Atlanta Gas Light Company
Post Office Box 4569
Atlanta, Georgia 30302-4569
Dear Mr. Gunther:
Atlanta Gas Light Company ("Atlanta") and Southern Natural Gas Company
("Southern") are parties to a firm transportation agreement dated November 1,
1994 (#904480) for 5,173 Mcf/day ("FT Agreement"), a firm transportation
no-notice agreement dated November 1, 1994 (#904481) for 6,764 Mcf/day ("FT-NN
Agreement"), and a contract storage service agreement dated November 1, 1994
(#S20140) for 334,997 Mcf ("CSS Agreement"), as amended by Amendatory Agreement
dated March 1, 1995 (collectively, the "Agreements"). Pursuant to Section 4.1 of
each agreement, the agreement is effective through February 28, 1998, and may be
extended for successive terms of one year each year thereafter if the parties
mutually agree in writing to each yearly extension at least 60 days prior to the
end of the primary term or any subsequent yearly extension. Southern herewith
states its election to extend the Agreements for an additional term of one year,
commencing on March 1, 1998, and terminating on February 28, 1999. If Atlanta is
in agreement, please so indicate by signing both originals and returning one
original to Southern.
Very truly yours,
Larry E. Powell
Senior Vice President-Pipeline Customer Services
Accepted and agreed to this 23rd Accepted and agreed to this 16th
day of December, 1997. day of December, 1997.
ATLANTA GAS LIGHT COMPANY SOUTHERN NATURAL GAS COMPANY
By: /s/ Stephen J. Gunther By: /s/ Larry E. Powell .
--------------------------- ----------------------------
Its: As Agent for Atlanta Gas Light Co. Its: Sr. Vice President .
----------------------------------- ---------------------------------
A SONAT COMPANY
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