FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1997
Commission File Number 333-32949
ENERGYNORTH NATURAL GAS, INC.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0209312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1260 Elm Street, P.O. Box 329, Manchester, New Hampshire 03105
(603-625-4000)
(Address, zip code and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
At December 22, 1997, nonaffiliates held no shares of the
registrant's $25.00 par value common stock, all of which was held
by EnergyNorth, Inc.
At the close of business on December 22, 1997, the registrant had
120,000 shares outstanding of its $25.00 par value common stock.
ENERGYNORTH NATURAL GAS, INC. MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION I(1)(a) and (b) OF FORM 10-K AND THIS REPORT
THEREFORE OMITS CERTAIN INFORMATION.
Page 1 of 41 pages.
Exhibit Index appears on Pages 40 and 41.
<PAGE> 2
TABLE OF CONTENTS
Part I Page No(s).
Item 1. Business
General 3-4
The Gas Distribution Business 4
Summary of Revenues 5
Deregulation 5
Competition 5-6
Gas Supply
General 6
Supply Contracts and Storage 6-7
Cost of Purchased and Produced Gas 7
Supervision and Regulation 7
Employees 8
Item 2. Properties 8
Item 3. Legal Proceedings 8-10
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10-11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-18
Item 8. Financial Statements and Supplementary Data 19-35
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 35
Part III
Item 10. Directors and Executive Officers of the Registrant 35
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and Management 35
Item 13. Certain Relationships and Related Transactions 36
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 36-38
Signatures 39
Exhibit Index 40-41
<PAGE> 3
ENERGYNORTH NATURAL GAS, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
General
The business of EnergyNorth Natural Gas, Inc. (the "Company"),
incorporated in the state of New Hampshire in 1945, is the
purchase, transportation and sale of natural gas for residential,
commercial and industrial use in New Hampshire. The Company is a
wholly-owned subsidiary of EnergyNorth, Inc. ("ENI"), a public
utility holding company, also incorporated in the state of New
Hampshire. Both the Company and ENI are headquartered at 1260 Elm
Street, Manchester, New Hampshire. In 1988, the Company, which
had been named Gas Service, Inc., merged with two other natural
gas distribution subsidiaries of ENI, Manchester Gas Company and
Concord Natural Gas Corporation, and changed its name to
EnergyNorth Natural Gas, Inc.
In general, the senior management of ENI serves as the senior
management of the Company. ENI provides for administrative
support and services and establishes policies, plans and goals.
The service territory of the Company has a population of
approximately 470,000 in 27 communities situated in southern and
central New Hampshire, which includes the communities of Nashua,
Manchester, Concord and Laconia. The service area encompasses
approximately 922 square miles. Located within 30 to 85 miles of
Greater Boston, the Company's service territory offers a
favorable business climate with no general sales or personal
income taxes, a productive labor force and a comfortable, safe
and clean environment for residents and tourists.
The state of New Hampshire's nonfarm job growth continues to be
significantly above average, ranking first among New England
states with a 2.4% growth rate in 1997. This compares to a 2.1% average
growth rate nationally and a 2% average rate for New England for the
same period. New housing permits are expected to increase 8.7% in
1998 over 1997. While the New Hampshire unemployment rate for 1998 is
forecasted at 2.3% compared to 2.6% in 1997, the labor force is
forecasted to increase by 2% in 1998. Job growth and low
unemployment in the Company's service area tend to result in an
increase in volumes transported and sold and numbers of
customers. (All employment and housing statistics are taken from
The New England Economic Project's October 1997 Economic Outlook
for New Hampshire.) In fiscal 1997, the Company experienced net
growth of over 2.9% in total customers compared to fiscal 1996.
The Company's marketing focus continues to stress low cost growth
by concentrating on adding new customers along the Company's more
than 1,000 miles of gas mains and adding load from the existing
customer base, while also expanding its system of mains into
areas in which there is a significant demand for natural gas
service. The Company has an approximate 28% share of the home
heating market (based on households) within its service
territory, creating a potential for increased sales where
<PAGE> 4
the natural gas pipeline is located and alternative fuels are used.
In New Hampshire, fuel oil has a penetration of over 57% of the
home heating market. Currently, the price of natural gas for
heating is comparable to the full-service price of fuel oil.
From a total energy perspective, natural gas is a stronger
competitor with a complete line of gas appliances and uses,
including ranges, water heaters, clothes dryers, fireplaces and
gas logs, outdoor lights and natural gas heat pumps for heating
and cooling. While these multiple uses provide opportunities to
be the total energy provider to new customers, they also provide
opportunities for expansion within the existing customer base.
Due to continued customer conversions from other energy sources
and expansion of its service territory, the Company has an
opportunity for growth in the retail sales market. During the
past five years, the Company has experienced an annual average
customer growth rate of about 2%. This compares to an
approximate 1.6% national average for local distribution
companies, according to the American Gas Association. Additional
growth in distribution operations may also occur as industrial
and commercial customers turn to natural gas for electric
generation because of a price advantage and as a means to ensure
compliance with the provisions of the Clean Air Act. As the
electric industry continues to move toward deregulation, this
option may become more attractive. The development of new gas-
burning technologies for industry has provided opportunities for
increased gas usage in market sectors that are not sensitive to
the weather.
The Gas Distribution Business
The Company distributes natural gas as a regulated utility
pursuant to franchise authority granted by the State of New
Hampshire Public Utilities Commission (the "Commission"). No
operations are outside New Hampshire. While the franchise area
of the Company is primarily residential in character, 58% of
sales volumes are commercial and industrial. As of September 30,
1997, the Company served nearly 68,000 customers, of which
approximately 88% were residential and 12% were commercial and
industrial. During fiscal 1997, no customer purchased more than
4% of the Company's total annual sales and transportation volume.
The Company offers firm and interruptible transportation service
to its commercial and industrial customers. Transportation
service allows a customer to purchase a natural gas supply
directly from a third-party marketer. The marketer delivers
the gas supply to one of the Company's interstate pipeline take
stations. The customer contracts with the Company to transport
the gas from the take station to its facility. To ensure a
continual, uninterrupted supply, the Company also provides an
optional, separate standby service as a backup to the gas
supplies of transportation customers. As of September 30, 1997,
the Company had 45 firm transportation customers.
The Company distributes gas to substantially all of its utility
customers through a system of underground pipelines connected
with its three operations centers in Manchester, Nashua and
Tilton, six take stations located in Manchester, Londonderry,
Windham, Concord, Hooksett and Suncook and four production plant
facilities in Manchester, Nashua, Concord and Tilton. The
pipelines are generally located in public ways and are subject to
licenses granted by municipalities. The Company serves over 75%
of New Hampshire's natural gas customers.
<PAGE> 5
Summary of Revenues
Revenues, in thousands of dollars, attributable to various
categories of gas distribution and related operations (unaudited)
during the last three fiscal years are as follows:
September 30,
---------------------------------
1997 1996 1995
---------------------------------
Sales service $91,670 $76,007 $69,067
Transportation service 1,308 1,503 749
Service and appliance sales 1,949 1,781 1,650
Rentals 750 821 821
---------------------------------
$95,677 $80,112 $72,287
=================================
During the winter period, November 1 through March 31, the
Company's gas revenues are substantially higher than during the
summer months. The increase in gas revenues during the winter,
and the concomitant increase in gas supply requirements, occurs
because approximately 90% of the Company's customers use natural
gas for heating.
Deregulation
The implementation of Federal Energy Regulatory Commission
("FERC") Order 636 provided for the unbundling and deregulation
of the interstate pipeline system and led to the beginning of
unbundling of the intrastate pipeline system in New Hampshire.
In late 1993, the Commission approved gas transportation rates
and separate standby and balancing services for commercial and
industrial customers.
Gas transportation services have allowed customers to utilize the
Company's distribution system for the transportation of gas
purchased from third-party gas marketers, creating competition
from gas marketers for the sale of gas to end users. At
September 30, 1997, the Company had 45 firm transportation
customers. These customers are, for the most part, large
commercial and industrial customers. The volume transported for
transportation customers in fiscal 1997 was 673,000 Mcf,
approximately 5% of the Company's total gas delivered. The
Company expects the number of transportation customers and the
volume of gas transported to increase.
The Company is the sole distributor and transporter of natural
gas in its franchise area. The Tennessee Gas Pipeline Company
("Tennessee") is the only interstate pipeline to serve the
Company's franchise area. For that reason, and because
installation of private transmission mains would typically be
impractical, customers have not attempted to bypass the Company's
distribution system.
Competition
Natural gas competes mainly with electricity and fuel oil. The
principal competitive factors between natural gas and alternative
fuels are the price of the fuel and the conversion costs from one
fuel to another. Competition is greatest among the Company's
commercial and industrial customers who
<PAGE> 6
have the capability to use alternative fuels. The Company provides
flexible rates for users with dual-fuel capabilities in order to
better compete with the alternative fuels.
Under current market conditions, natural gas has a significant
price advantage over electricity in New Hampshire. Natural gas
heating costs are currently less than one-third of electric
heating costs. At the present time, the price of natural gas for
heating is comparable to the full-service price of fuel oil. The
Company continues to add customers who might otherwise elect to
use oil, because energy decisions are also based on factors
other than cost, such as service, cleanliness and environmental
impact. Demand for natural gas is expected to continue to
increase as national attention remains focused on its
environmental advantages, efficiency and security of supply.
Commercial and industrial customers continue to find gas
technologies and equipment attractive as they deal with the
requirements of the Clean Air Act Amendments of 1990 and other
federal environmental legislation.
Gas Supply
General. The Company's gas supply goal is to maintain a balanced
portfolio of supply that will continue to minimize the overall
cost of gas while providing the necessary security to meet demand
requirements.
Supply Contracts and Storage. The Company's gas supply is
principally natural gas transported by the interstate pipeline
system. The Company has contracted with Tennessee to deliver
56,833 Dekatherms ("Dths," a unit of heating value equivalent to
one million British Thermal Units) per day on a firm
transportation basis and up to 8,000 Dths per day on an
interruptible basis. Natural gas supplies are purchased both on a
long-term contract and short-term spot market basis. During
fiscal 1997, the Company purchased approximately 3% of its annual
natural gas requirements in the spot market. The Company's long-
term contracts, under which it has firm supply for approximately
40,529 Dths per day, have remaining terms of two to nine years.
In fiscal 1997, approximately 61% of the gas delivered by the
Company came from domestic pipeline sources, 20% from Canadian
pipeline supplies and approximately 12.5% from supplemental
pipeline supplies. Liquefied petroleum gas ( "propane" or "LP")
and liquefied natural gas ("LNG") purchases from both domestic
and foreign sources made up approximately 1% of the gas delivered
by the Company. Supplemental supplies of gas are produced from
plants owned and operated by the Company. Third-party marketer
supply to end users on the Company's system accounted for 5.5%.
All pipeline volumes are transported by Tennessee under FERC
tariffed rate schedules. The supply from Canada is transported
to Tennessee's system using the TransCanada and the Iroquois Gas
transmission systems.
In addition to long-term supply sources, the Company stores gas
during the summer months under long-term contracts with the
owners of storage facilities located in Pennsylvania and New
York. Gas from these storage facilities, up to 24,304 Dths per
day on a firm basis, is delivered to the Company during the
winter months through the Tennessee system. The Company owns
other on-site storage facilities capable of holding 115,660 Dths
of LP and 13,057 Dths of LNG.
<PAGE> 7
The Company has contracted for 552,000 Dths of supplemental gas
vapor, 75,000 Dths of LNG and an additional 1 million gallons of
LP for the winter of 1997 - 1998.
The Company expects to be able to secure the gas supply required
to meet existing customer and forecasted new customer demands
through long-term commitments and purchases in the spot market.
Cost of Purchased and Produced Gas. The average unit cost of gas
purchased and produced during the twelve months ended September
30, 1997 was approximately $4.28 per Mcf compared to $3.96 per
Mcf for the same period last year. The 1997 average unit cost
reflects the higher cost of gas supply in the marketplace. The
cost of gas adjustment ("CGA") clause authorized by the
Commission permits recovery by the Company from its customers (or
requires refunds to its customers) of gas costs (including
pipeline, LP, LNG and storage) that are higher (or lower) than
the cost of gas included in base rates. The CGA is determined
twice annually, for summer and winter periods.
The Company instituted a Natural Gas Price Risk Management
Program, effective September 3, 1997. The program is designed to
protect customers from sharp increases in the commodity cost of
gas. Under the program, the Company has purchased call options
for the 1997 - 1998 winter period. The options provide the
right, but not the obligation, to purchase gas at a predetermined
price by a certain date. All program costs and benefits will be
passed on to customers through the CGA.
Margins earned on interruptible, 280-day sales and capacity
release are passed on to firm customers through the CGA. In
addition, costs associated with a fuel inventory trust, including
administration fees and carrying costs, are recovered through the
CGA.
The Company is subject to payment of transition costs associated
with FERC Order 636 restructuring. Tennessee began billing these
costs late in fiscal 1993. The Company has incurred $7.9 million
in transition costs through September 30, 1997 and is recovering
these costs through the CGA. As of September 30, 1997, the
Company has recorded additional transition costs of approximately
$1.3 million that will be billed over a period of 15 months.
Meanwhile, the Company's customers are benefiting from the
restructuring, realizing long-term savings in gas costs.
Supervision and Regulation
The Company is subject to regulation by the Commission, which has
authority over accounting, rates and charges, the issuance of
securities and certain operating matters. Changes in utility
rates and charges cannot be made without a 30-day notice to the
Commission, which has the power to suspend, investigate and
change any proposed increase in rates and charges.
The gas distribution business of the Company is subject to
extensive safety regulations and reporting requirements
promulgated by the United States Department of Transportation,
but is not otherwise subject to direct regulation by federal
agencies except as to environmental matters. The Company is also
subject to zoning and other regulations by local authorities.
Its capital expenditures, earnings and operations have not been
materially affected by environmental and local regulation.
<PAGE> 8
Employees
At September 30, 1997, the Company had 107 full-time employees,
represented by two contracts with Local 12012 of the United
Steelworkers of America. The contracts expire in 2001.
Substantially all of the cost of ENI's 115 full-time employees is
allocated to the Company. None of ENI's employees are
represented by labor unions.
ITEM 2. PROPERTIES
The Company's utility gas distribution facilities constitute the
majority of its physical assets. As of September 30, 1997, ENGI
had approximately 1,050 miles of mains and 660 miles of service
connections. The utility's mains and service connections are
adequate to meet service requirements and are maintained through
a regular program of inspection and repair. Offices and
operations centers located in Nashua, Manchester, Concord and
Tilton are adequate for the needs of the Company and are
regularly maintained and in good condition. Substantially all of
the Company's properties are fully utilized. Substantially all
of the Company's utility properties are subject to the liens of
the indentures securing the Company's First Mortgage Bonds. In
some cases, motor vehicles and nonutility assets are subject to
purchase money security interests held by banks.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party in several proceedings of the sort that
arise in the ordinary course of its business. Such actions, for
the most part, are covered by insurance and, to the extent that
they are not fully covered, the damages sought are not material
in amount. The Company is a party to various routine Commission
proceedings relating to operations, none of which is expected to
have a material impact on the Company's earnings or assets.
The Company and certain of its predecessors owned or operated
several facilities for the manufacture of gas from coal, a
process used through the mid-1900s that produced by-products that
may be considered contaminated or hazardous under current law,
and some of which may still be present at such facilities. The
Company accrues environmental investigation and clean-up costs
with respect to former manufacturing sites and other
environmental matters when it is probable that a liability exists
and the amount or range of amounts can be reasonably estimated.
In 1995, the Company completed the disposal of the contents of
the gasholder situated on a former gas manufacturing site in
Concord, New Hampshire. Total remediation costs amounted to
approximately $3.5 million and were recorded in deferred charges.
Recovery of these costs from customers began on July 1, 1995 and
extends over a seven-year period. The unamortized balance of $2.4
million at September 30, 1997 is excluded from rate base. The
Company may not earn a return or charge rates to customers based
on amounts not included in rate base.
The New Hampshire Department of Environmental Services ("NHDES")
has required remedial action for a portion of the Concord site at
which wastes were disposed from approximately 1852 through 1952.
The estimated cost of this remedial action ranges from $1.5
million to $2.6 million, and the
<PAGE> 9
Company has recorded $1.5 million at September 30, 1997 in deferred
charges. The Company has petitioned the Commission for approval
of the Company's proposed five-year recovery from ratepayers of
$1.9 million of investigation, remediation and recovery effort costs
plus carrying costs.
The Company has instituted several lawsuits to recover the costs
of investigation and remediation of the Concord site. On
September 12, 1995, the Company filed a complaint in the United
States District Court for the District of New Hampshire against
UGI Utilities, Inc., as the successor to United Gas Improvement
Company. The Company seeks contribution for expenses incurred at
the Concord site based upon the operation of the manufactured gas
plant by the United Gas Improvement Company during a period of
time the manufactured gas plant was in operation. On December 8,
1995, the Company filed suit in the United States District Court
for the District of New Hampshire against Associated Electric and
Gas Insurance Services, Ltd., American Home Assurance Company,
CIGNA Specialty Insurance Company, International Insurance
Company, Lloyd's, Underwriters at London, Lexington Insurance
Company and National Union Fire Insurance Company, later adding
Columbia Casualty Company as a defendant, seeking declaratory
judgment that they owe the Company a defense and/or
indemnification for environmental claims associated with the
Concord facility. The Company filed suit in the New Hampshire
(Hillsborough County) Superior Court on December 8, 1995 against
the Continental Insurance Company and Netherlands Insurance
Company seeking a declaratory judgment that they owe the Company
a defense and/or indemnification for environmental claims
associated with the Concord facility. Through November 1997, the
Company reached settlements with certain of the defendants in
those suits in an aggregate amount of $1.6 million and further
payment to the Company of a portion of future Concord site
remediation costs. The Company expects that such settlement
amounts will reduce the amount that it will be permitted by the
Commission to recover from its ratepayers.
The Company and Public Service Company of New Hampshire ("PSNH"),
an electric utility company, conducted an environmental site
characterization of a former manufactured gas plant in Laconia,
New Hampshire. The Laconia manufactured gas plant operated
between approximately 1887 and 1952, and the Company owned and
operated the facility for approximately the last seven years of
its active life. Without admitting liability, the Company and
PSNH have entered into an agreement under which the costs of the
site characterization are shared. The Company's share of the
costs of the site characterization and a report to the NHDES
totaled $276,000 and has been recorded in deferred charges as of
September 30, 1997. The report describes conditions at the site,
including the presence of by-products of the manufactured gas
process in site soils, groundwater and sediments in an adjacent
water body. Based upon its review of the report, the NHDES has
directed PSNH and the Company to prepare and submit a remedial
action plan. The Company expects to incur further costs but is
currently unable to predict the magnitude of any liability that
may be imposed on it for the cost of additional studies or the
performance of a remedial action in connection with the Laconia
site. The Company commenced proceedings in New Hampshire
Superior Court and Federal District Court on February 2, 1997
against eighteen of its present and former insurers seeking
recovery of expenses that have been and will be incurred in
connection with the investigation and remediation of
contamination from the Laconia plant. Through November 1997, the
Company reached a settlement with a defendant in that suit in the
amount of $100,000.
<PAGE> 10
The Company is pursuing and intends to pursue recovery from
insurance carriers and claims against any other responsible
parties seeking to ensure that they contribute appropriately to
reimburse the Company for any costs incurred with respect to
environmental matters. The Company intends to seek and expects
to receive approval of rate recovery methods with respect to
environmental matters after it has determined the extent of
contamination, received recommendations with regard to
remediation and commenced remediation efforts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
OMITTED
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) No equity securities of the Company were sold by it during
the period covered by this report. All 120,000 shares of the
Company's outstanding common stock are held by EnergyNorth,
Inc.
(b) Use of Proceeds.
(1) The Company's Registration Statement on Form S-1,
Registration No. 333-32949, was effective September 18,
1997.
(2) The offering commenced on September 18, 1997.
(3) n/a
(4) (i) All registered securities were sold on September 23, 1997.
(ii) The managing underwriter was Edward D. Jones & Co., L.P.
(iii) First Mortgage Bonds designated as 7.40% Series E bonds
Due September 30, 2027 were registered.
(iv) $22,000,000 of Series E Bonds were registered, all
of which were sold at that offering price.
<PAGE> 11
(v) Expenses incurred in connection with the issuance and
distribution of the securities from the effective date
of the Registration Statement through September 30, 1997
were:
<TABLE>
<S> <C>
Underwriting discount $ 880,000
Other expenses 184,610
-----------
Total $ 1,064,610
</TABLE>
(vi) Amount of net offering proceeds from the effective
date of the Registration Statement through
September 30, 1997, representing 100% of the net
proceeds, were used for:
<TABLE>
<S> <C>
Construction of plant, building and facilities $ -
Purchase of real estate -
Acquisition of other business -
Working capital 4,048,594
Temporary investments
Overnight Eurodollar time deposit 5.3749% 1,410,325
Redemption of bonds 6,436,081
Repayment of short-term debt 9,225 000
-----------
Total $21,120,000
</TABLE>
None of such amounts were paid to directors, officers,
10% holders, or affiliates.
(vii) n/a
ITEM 6. SELECTED FINANCIAL DATA
OMITTED
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Earnings
Net income was nearly $6 million in 1997, which represents a
10.3% increase from 1996. The 1997 increase in earnings was
primarily due to successful efforts to contain operating costs.
In addition, the Company earned $649,000, after taxes, as a
result of a favorable net property tax settlement. Partially
offsetting this increase was the impact on operations of the
significantly warmer weather during the 1996 - 1997 heating
season. While the weather was 1.5% warmer than the prior year,
it was 7.3% warmer during the November - March period.
<PAGE> 12
Sales and Revenues
The Company's rates charged to customers are regulated by the
Commission. The Commission is required by New Hampshire law to
allow the Company to charge rates that are just and reasonable,
such that the Company is compensated for the cost of providing
service and allowed a reasonable rate of return on its
investment. The Company regularly assesses whether it is earning
a reasonable return and files for rate increases when it
determines that it is not being permitted to earn a reasonable
return.
The Company generates revenues primarily through the sale and
transportation of natural gas. The Company's gas sales are
divided into two categories: firm, whereby the Company must
supply gas to customers on demand; and interruptible, whereby the
Company may, generally during cooler months, discontinue service
to high-volume commercial and industrial customers. Sales of gas
to interruptible customers do not materially affect the Company's
operating income because all margin on such sales is returned to
the Company's firm customers.
The Company's tariff includes CGA rates that provide for
increases and decreases in the rates charged for gas to reflect
estimated changes in the cost of gas. Although changes in CGA
rates affect revenues, they do not affect total margin because
the CGA is a tariff mechanism designed to provide dollar-for-
dollar recovery of gas costs. Amounts recovered under CGA rates
are reconciled semiannually against actual costs, and future CGA
rates are adjusted accordingly.
The Company's sales are responsive to colder weather because the
majority of its firm customers use natural gas for space heating
purposes. The Company measures weather through the use of degree
days. A degree day is calculated by subtracting the average
temperature for the day from 65 degrees Fahrenheit. The "normal"
number of degree days during any period is calculated based upon
a rolling approximate 30-year average number of degree days
during such period. The table below discloses degree day data as
recorded at the U.S. weather station in Concord, New Hampshire,
comparing actual degree days to the previous period and to
normal. Because of the size and topographical variations of the
Company's service territory, weather conditions within such
territory often vary. The Company considers Concord, New
Hampshire weather data to be representative of weather conditions
within its service territory.
<TABLE>
<CAPTION>
Degree days
-------------------------
Prior Change vs. Change
Actual period Normal prior period vs. normal
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended September 30, 1997 7,373 7,482 7,506 (1.5)% (1.8)%
Fiscal year ended September 30, 1996 7,482 6,834 7,549 9.5% (.9)%
Fiscal year ended September 30, 1995 6,834 7,877 7,525 (13.2)% (9.2)%
</TABLE>
Gas service operating revenues were $93 million in 1997, compared
to $77.5 million in 1996. The increase resulted primarily from
increased CGA rates to cover gas costs deferred in the prior year
and increases in the cost of gas. In addition, the growth in the
average number of customers in 1997 was approximately 2.2%. The
volume of firm gas sendout was slightly less than 1996. The
weather in 1997 was 1.5% warmer than in 1996, although the
November - March winter heating
<PAGE> 13
season was 7.3% warmer. Revenues from gas transported for customers
under firm transportation service rates increased more than 21% to
$1.2 million, due to a more than 37% increase in volumes transported.
This increase included a shift of 132,000 Mcf from firm commercial and
industrial sales customers, representing a decrease of $591,000
in operating revenue attributable to the commodity cost of gas.
Shifts between transportation and sales gas will cause variations
in natural gas revenues since the transportation rate does not
include the commodity cost of gas, which is billed directly to
the customer by its marketer. Prior to August 1, 1997, the
Company's rate structure provided approximately the same margin
for sales service and transportation service. Effective August
1, 1997, transportation rates were reduced by approximately 2.4%.
The Company cannot predict the impact, if any, that the results
of this reduction in transportation rates will have on customers'
decisions to switch to transportation service or the resulting
impact decisions to switch would have on operating income. The
Company will seek an adjustment in overall rates, if it
determines that reductions in transportation rates and increases
in the number of transportation customers impair its ability to
earn its allowed return. At September 30, 1997, the Company had
45 firm transportation customers compared to 27 customers the
previous year.
Cost of Gas Sold
The cost of gas sold was $54.6 million in 1997 and $39.1 million
in 1996. The increase was primarily due to higher prices from
suppliers ($4 million) and timing differences related to the
recovery of gas costs through the CGA ($11.5 million). The
average unit cost of gas sold in 1997 was $4.28 per Mcf compared
to $3.96 per Mcf in 1996. Increases or decreases in purchased
gas costs from suppliers have no significant impact on margin, as
they are passed on to customers through the CGA.
Operating Expenses
Operations and maintenance expense was 1.2% lower than the prior
year. Reductions in the work force, other cost saving
initiatives and workers' compensation insurance refunds offset
most of the increases from liability insurance, uncollectible
accounts and other administrative expenses.
Depreciation and amortization expense increased from $4.7 million
to $5 million in 1997, consistent with the Company's continued
investment in the expansion and upgrading of its distribution
system and facilities and amortization of environmental
remediation costs. Net additions to property, plant and equipment
were $12 million and $7.5 million in 1997 and 1996, respectively.
Taxes other than income taxes decreased $1.1 million to $2.6
million, primarily due to a favorable property tax settlement,
net of adjustments, of more than $1 million, which offset
property tax rate increases and additions to taxable property.
<PAGE> 14
Capital Resources and Liquidity
Because of the seasonal nature of the Company's operations, a
substantial portion of cash receipts is generated during the
November - March heating season, which results in the highest
cash inflow during late winter and early spring. However, cash
requirements for capital expenditures, dividends, long-term debt
retirement and working capital do not track this pattern of cash
receipts. The greatest demand for cash is in the fall and early
winter to support the completion of the annual construction
program and to fund gas inventories and other working capital
requirements.
Cash provided by operations and financing activities was
sufficient to fund investing activities in 1997. Borrowings
against lines of credit during 1997 ranged from zero to a high of
$14.7 million. The Company issued $22 million in First Mortgage
Bonds in September 1997. The proceeds were used to retire all
existing First Mortgage Bonds designated as 8.67% Series A
General and Refunding Mortgage Bonds Due 2002 and to repay
borrowings against lines of credit. At September 30, 1997,
deferred gas cost was in an overcollected position resulting from
winter and summer period activity. The overcollected amounts
will be returned to customers during the next corresponding
periods through the CGA mechanism. The Company's major uses of
cash were capital expenditures of $12 million, environmental
remediation of $1.6 million and retirement of $7.6 million of
long-term debt. The cost to issue the First Mortgage Bonds was
recorded in deferred charges and will be amortized over the life
of the bonds. Included in 1997 construction expenditures was a
major main extension project to serve the town of Milford, New
Hampshire. In addition, dividend payments to ENI totaled $3.7
million in 1997.
Capital expenditures for 1998 are currently projected at
approximately $11.1 million. Additional cash requirements will be
necessary for the payment of dividends, environmental
remediation, annual sinking fund requirements and maturities of
long-term debt and working capital. Cash to fund these
requirements is expected to be provided principally by internally
generated funds and short-term bank borrowings under the
Company's lines of credit. At September 30, 1997, the Company
had available lines of credit aggregating $14.7 million, none of
which was outstanding. In addition, a credit line of $9.5 million
was available at September 30, 1997 under the Company's fuel
inventory trust financing plan. At September 30, 1997, the
Company's fuel inventory in trust in the balance sheet was $7.8
million with an outstanding purchase obligation of $7.9 million.
On September 30, 1997, the Company's capitalization ratio
consisted of 50.2% common equity and 49.8% debt, including short-
term debt.
Environmental Matters
The Company and certain of its predecessors owned or operated
several facilities for the manufacture of gas from coal, a
process used through the mid-1900s that produced by-products that
may be considered contaminated or hazardous under current law,
and some of which may still be present at such facilities. The
Company accrues environmental investigation and clean-up costs
with respect to
<PAGE> 15
former manufacturing sites and other environmental matters when
it is probable that a liability exists and the amount or range
of amounts can be reasonably estimated.
In 1995, the Company completed the disposal of the contents of
the gasholder situated on a former gas manufacturing site in
Concord, New Hampshire. Total remediation costs amounted to
approximately $3.5 million and were recorded in deferred charges.
Recovery of these costs from customers began on July 1, 1995 and
extends over a seven-year period. The unamortized balance of $2.4
million at September 30, 1997 is excluded from rate base. The
Company may not earn a return or charge rates to customers based
on amounts not included in rate base.
The New Hampshire Department of Environmental Services ("NHDES")
has required remedial action for a portion of the Concord site at
which wastes were disposed from approximately 1852 through 1952.
The estimated cost of this remedial action ranges from $1.5
million to $2.6 million, and the Company has recorded $1.5
million at September 30, 1997 in deferred charges. The Company
has petitioned the Commission for approval of the Company's
proposed five-year recovery from ratepayers of $1.9 million of
investigation, remediation and recovery effort costs plus
carrying costs.
The Company has instituted several lawsuits to recover the costs
of investigation and remediation of the Concord site. On
September 12, 1995, the Company filed a complaint in the United
States District Court for the District of New Hampshire against
UGI Utilities, Inc., as the successor to United Gas Improvement
Company. The Company seeks contribution for expenses incurred at
the Concord site based upon the operation of the manufactured gas
plant by the United Gas Improvement Company during a period of
time the manufactured gas plant was in operation. On December 8,
1995, the Company filed suit in the United States District Court
for the District of New Hampshire against Associated Electric and
Gas Insurance Services, Ltd., American Home Assurance Company,
CIGNA Specialty Insurance Company, International Insurance
Company, Lloyd's, Underwriters at London, Lexington Insurance
Company and National Union Fire Insurance Company, later adding
Columbia Casualty Company as a defendant, seeking declaratory
judgment that they owe the Company a defense and/or
indemnification for environmental claims associated with the
Concord facility. The Company filed suit in the New Hampshire
(Hillsborough County) Superior Court on December 8, 1995 against
the Continental Insurance Company and Netherlands Insurance
Company seeking a declaratory judgment that they owe the Company
a defense and/or indemnification for environmental claims
associated with the Concord facility. Through November 1997, the
Company reached settlements with certain of the defendants in
those suits in an aggregate amount of $1.6 million and further
payment to the Company of a portion of future Concord site
remediation costs. The Company expects that such settlement
amounts will reduce the amount that it will be permitted by the
Commission to recover from its ratepayers.
The Company and Public Service Company of New Hampshire ("PSNH"),
an electric utility company, conducted an environmental site
characterization of a former manufactured gas plant in Laconia,
New Hampshire. The Laconia manufactured gas plant operated
between approximately 1887 and 1952, and the Company owned and
operated the facility for approximately the last seven years of
its active life. Without admitting liability, the Company and
PSNH have entered into an agreement under which the costs of the
site characterization are shared. The Company's share of the
costs of the site
<PAGE> 16
characterization and a report to the NHDES totaled $276,000
and has been recorded in deferred charges as of
September 30, 1997. The report describes conditions at the site,
including the presence of by-products of the manufactured gas
process in site soils, groundwater and sediments in an adjacent
water body. Based upon its review of the report, the NHDES has
directed PSNH and the Company to prepare and submit a remedial
action plan. The Company expects to incur further costs but is
currently unable to predict the magnitude of any liability that
may be imposed on it for the cost of additional studies or the
performance of a remedial action in connection with the Laconia
site. The Company commenced proceedings in New Hampshire
Superior Court and Federal District Court on February 2, 1997
against eighteen of its present and former insurers seeking
recovery of expenses that have been and will be incurred in
connection with the investigation and remediation of
contamination from the Laconia plant. Through November 1997, the
Company reached a settlement with a defendant in that suit in the
amount of $100,000.
The Company is pursuing and intends to pursue recovery from
insurance carriers and claims against any other responsible
parties seeking to ensure that they contribute appropriately to
reimburse the Company for any costs incurred with respect to
environmental matters. The Company intends to seek and expects
to receive approval of rate recovery methods with respect to
environmental matters after it has determined the extent of
contamination, received recommendations with regard to
remediation and commenced remediation efforts.
Results of Operations 1996 Compared to 1995
Net income for 1996 was a record $5.4 million, which represents a
45% increase over the $3.7 million net income for 1995. The 1996
increase in earnings was primarily due to greater margins
resulting mostly from growth in volumes delivered. Volumes of
firm gas delivered to utility customers increased 13.1% to 11.4
million Mcf. Weather in the Company's service area was near
normal in 1996, but 9.5% colder than the prior year. In
addition, 1995 earnings included a $215,000 after-tax gain on the
sale of railcars.
Operating revenues were $77.5 million in 1996, compared to $69.8
million in 1995. The increase resulted primarily from increased
volumes delivered to firm residential and commercial heating
customers due to the colder weather and 1.7% customer growth in
1996. Revenues from gas transported for customers under firm
transportation rates increased more than 40% to $979,000, due to
a 45% increase in volumes transported. This increase included a
shift of 162,000 Mcf from firm commercial and industrial sales to
firm transportation sales, representing a decrease of $516,000 in
operating revenue attributable to the commodity cost of gas.
The average unit cost of gas sold in 1996 was $3.96 per Mcf
compared to $3.44 per Mcf in 1995.
Operations and maintenance expense increased $217,000, or 1.2%,
to $18.6 million in 1996. Reductions in the work force, other
cost saving initiatives and workers' compensation and health
insurance refunds helped offset most of the increases from
liability insurance, uncollectible accounts and other
administrative expenses.
<PAGE> 17
A gain of $350,000 from the sale of railcars formerly used to
transport liquid propane is included in other income for 1995.
Fiscal 1996 interest expense decreased 13.4% from 1995, due
mainly to the repayment of $1.7 million of long-term debt and a
decrease in average short-term borrowings and average short-term
interest rates.
Taxes other than income taxes increased $194,000 to $3.7 million,
primarily due to increases in property taxes, resulting from
property tax rate increases and additions to taxable property. A
higher level of pretax income was the main reason for the $1.5
million increase in total federal and state income taxes in 1996.
In addition, as a result of the resolution of certain federal
income tax issues, the Company reduced federal income taxes by
$200,000 in 1995.
Factors That May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages
the use of cautionary statements accompanying forward-looking
statements. The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations includes forward-
looking statements concerning the impact of changes in the cost
of gas and of the CGA mechanism on total margin; projected
capital expenditures and sources of cash to fund expenditures;
and estimated costs of environmental remediation and anticipated
regulatory approval of recovery mechanisms. The Company's future
results, generally and with respect to such forward-looking
statements, may be affected by many factors, among which are
uncertainty as to the regulatory allowance of recovery of
changes in the cost of gas; uncertain demands for capital
expenditures and the availability of cash from various sources;
uncertainty as to whether transportation rates will be reduced in
future regulatory proceedings with resulting decreases in
transportation margins; and uncertainty as to the regulatory
approval of the full recovery of environmental costs, transition
costs and other regulatory assets.
New Accounting Standards and Pronouncements
The Financial Accounting Standards Board issued new accounting
standards that the Company will adopt in future periods.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," establishes standards for computing and
presenting earnings per share, effective fiscal 1998. SFAS No.
130, "Reporting Comprehensive Income," establishes standards for
reporting and the disclosure of comprehensive income and its
components, effective fiscal 1999. It is not expected that the
adoption of SFAS Nos. 128 and 130 will have a material impact on
the Company's financial reporting.
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," establishes standards for the way public
business enterprises report information about operating segments,
including disclosures about products and services, geographic
areas and major customers, effective fiscal 1998. The Company is
currently evaluating the impact of SFAS No. 131.
<PAGE> 18
The American Institute of Certified Public Accountants issued a
Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities." The SOP's objective is to make the timing of the
recognition of environmental obligations more uniform by
discussing the estimation process and providing benchmarks to aid
in determining when to recognize environmental liabilities. The
SOP is effective for the Company in fiscal 1998. The Company
does not expect that the adoption of the SOP will have a material
impact on the Company's financial position or results of
operations.
The "Year 2000" Issue
Many computer systems are currently based on storing two digits
to identify the year of a transaction (for example, "97" for
"1997"), rather than a full four digits, and are not programmed
to consider the start of a new century. Significant processing
inaccuracies and even inoperability could result in the year 2000
and thereafter. The Company's principal computer systems are
currently capable of processing the year 2000, or are in the
process of being upgraded or replaced by systems that are
similarly capable. The Company does not expect that the costs of
addressing the "Year 2000" issue will have a material impact on
the Company's financial position or results of operations.
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) Financial Statements required by Regulation S-X
Statements of Income EnergyNorth Natural Gas, Inc.
(In thousands)
For the years ended September 30, 1997 1996 1995
- -----------------------------------------------------------------------------
Operating revenues:
Utility gas service $91,965 $76,620 $68,988
Other 1,013 890 829
----------------------------
Total operating revenues 92,978 77,510 69,817
----------------------------
Operating expenses:
Cost of gas sold 54,633 39,115 35,602
Operations and maintenance 18,397 18,624 18,407
Depreciation and amortization 4,969 4,693 4,063
Taxes other than income taxes 2,590 3,654 3,460
Federal and state income taxes 3,478 3,224 1,745
----------------------------
Total operating expenses 84,067 69,310 63,277
----------------------------
Operating income 8,911 8,200 6,540
----------------------------
Other income 792 735 1,254
Interest expense:
Interest on long-term debt 2,657 2,747 2,883
Other interest 1,061 761 1,166
----------------------------
Total interest expense 3,718 3,508 4,049
----------------------------
Net income $ 5,985 $ 5,427 $ 3,745
============================
The accompanying notes are an integral part of these financial statements.
<PAGE> 20
<TABLE>
<CAPTION>
Balance Sheets EnergyNorth Natural Gas, Inc.
(In thousands)
September 30, 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Property:
Utility plant, at cost $146,799 $136,198
Accumulated depreciation and amortization 47,811 44,679
------------------
Net utility plant 98,988 91,519
Current assets:
Cash and temporary cash investments 2,753 311
Accounts receivable (net of allowances of $1,309 in 1997 and 1,176 in 1996) 2,997 1,831
Unbilled revenues 602 582
Deferred gas costs - 3,783
Materials and supplies 1,650 1,453
Supplemental gas supplies 8,929 8,825
Prepaid and deferred taxes 1,180 1,562
Recoverable FERC 636 transition costs 1,261 1,733
Prepaid expenses and other 1,088 1,098
------------------
Total current assets 20,460 21,178
------------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,401
Recoverable environmental costs 6,546 6,840
Other deferred charges 1,948 768
------------------
Total deferred charges 10,895 10,009
------------------
Total assets $130,343 $122,706
==================
Stockholder's equity and liabilities
Capitalization (see accompanying statements) $ 86,606 $ 68,459
------------------
Current liabilities:
Notes payable to banks - 9,535
Current portion of long-term debt 484 1,646
Current portion of capital lease obligations - 25
Inventory purchase obligation 7,852 7,867
Accounts payable 5,333 5,287
Accounts payable to affiliates 2,433 589
Deferred gas costs 1,300 -
Accrued interest 303 831
Accrued and deferred taxes 82 1,617
Accrued FERC 636 transition costs 1,261 1,733
Customer deposits, environmental and other 1,950 3,963
------------------
Total current liabilities 20,998 33,093
------------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 17,401 15,619
Unamortized investment tax credits 1,734 1,870
Regulatory liability - income taxes 1,254 1,374
Contributions in aid of construction and other 2,350 2,291
------------------
Total deferred credits 22,739 21,154
------------------
Total stockholder's equity and liabilities $130,343 $122,706
==================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
Statements of Capitalization EnergyNorth Natural Gas, Inc.
(In thousands, except share information)
September 30, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Capitalization:
Common stockholder's equity:
Common stock - par value of $25 per share,
120,000 shares authorized, issued and outstanding $ 3,000 $ 3,000
Amount in excess of par 22,538 22,538
Retained earnings 18,155 15,819
-----------------
Total common stockholder's equity 43,693 41,357
-----------------
Long-term debt:
First Mortgage Bonds
Due 2002 8.67% - 7,088
Due 2009 8.44% 4,000 4,333
Due 2019 9.70% 7,000 7,000
Due 2020 9.75% 10,000 10,000
Due 2027 7.40% 22,000 -
Notes payable
Due through 2001 prime plus .50% 397 327
-----------------
43,397 28,748
Less current portion 484 1,646
-----------------
Total long-term debt 42,913 27,102
-----------------
Total capitalization $86,606 $68,459
=================
</TABLE>
The accompany notes are an integral part of these financial statements.
<PAGE> 22
<TABLE>
<CAPTION>
Statements of Retained Earnings EnergyNorth Natural Gas, Inc.
(In thousands)
For the years ended September 30, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $15,819 $14,027 $13,650
Add - net income 5,985 5,427 3,745
-----------------------------
21,804 19,454 17,395
Deduct - cash dividends on common stock 3,649 3,635 3,368
-----------------------------
Balance at end of year $18,155 $15,819 $14,027
=============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 23
<TABLE>
<CAPTION>
Statements of Cash Flows EnergyNorth Natural Gas, Inc.
(In thousands)
For the years ended September 30, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,985 $ 5,427 $ 3,745
Noncash items:
Depreciation and amortization 5,411 5,177 4,486
Deferred taxes and investment tax credits, net 1,526 1,017 1,066
Changes in:
Accounts receivable, net (1,166) 90 303
Unbilled revenues (20) 4 (42)
Inventories (301) (881) 47
Prepaid expenses and other 10 58 (93)
Deferred gas costs 5,083 (9,428) 909
Accounts payable 46 980 36
Accounts payable to affiliates, net 1,844 (696) 901
Accrued liabilities (687) (279) (104)
Accrued/prepaid taxes (1,153) 1,536 (419)
Payments for environmental costs and other (3,214) (821) (2,672)
------------------------------
Net cash provided by operating activities 13,364 2,184 8,163
------------------------------
Cash flows from investing activities:
Additions to property (11,977) (7,496) (6,407)
------------------------------
Cash flows from financing activities:
Capital contributions from parent - 1,500 -
Issues of long-term debt 22,217 208 149
Change in notes payable to banks (9,535) 8,035 1,500
Increase in inventory purchase obligation 8,025 9,284 6,770
Change in customer deposits and other (370) 81 7
Cash dividends on common stock (3,649) (3,635) (3,368)
Refunding requirements:
Repayment of long-term debt (7,568) (1,664) (1,687)
Repayment of capital lease obligations (25) (43) (41)
Repayment of inventory purchase obligation (8,040) (8,547) (6,974)
------------------------------
Net cash provided by (used for) financing activities 1,055 5,219 (3,644)
------------------------------
Net increase (decrease) in cash and temporary cash investments 2,442 (93) (1,888)
Cash and temporary cash investments, beginning of year 311 404 2,292
------------------------------
Cash and temporary cash investments, end of year $ 2,753 $ 311 $ 404
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 24
ENERGYNORTH NATURAL GAS, INC.
Notes to Financial Statements
Note 1. Accounting Policies
The significant accounting policies followed by EnergyNorth
Natural Gas, Inc. (the "Company") are set forth below.
Business Organization
The Company is a wholly-owned subsidiary of EnergyNorth, Inc.
Transactions between the Company and other affiliated companies
include payments for management, accounting, data processing and
other services. The Company is a regulated gas distribution
utility located in southern and central New Hampshire and also
provides service and sells appliances. The rates and accounting
practices followed by the gas distribution subsidiary are
regulated by the State of New Hampshire Public Utilities
Commission (the "Commission"). The Company's accounting policies
conform to generally accepted accounting principles applicable to
rate-regulated enterprises and reflect the effects of the rate-
making process in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 71, "Accounting for Certain
Types of Regulation."
Revenue Recognition
Utility revenues derived from the sale and transportation of
natural gas are based on rates authorized by the Commission.
Customers' meters are read and bills are rendered on a cycle
basis throughout the month. The Company records unbilled
revenues related to gas delivered but not billed at the end of the
accounting period.
Cost of Gas Adjustment Clause
The Company's tariff includes a cost of gas adjustment ("CGA")
clause that permits billings to customers for changes in its cost
of gas over a base period cost. The tariff provides for a CGA
calculation for a summer period and a winter period. Any
difference between the cost of gas incurred and amounts billed to
customers is deferred for rate-making and accounting purposes to
the next corresponding period. Interest accrues on these amounts
at the prime rate, adjusted quarterly.
Inventories
Inventories are valued on the basis of the lower of average cost
or market.
Depreciation
The Company provides for depreciation on the straight-line basis.
The rates applied are approved by the Commission. Such rates
were equivalent to a composite rate of 3.4% for each of the years
ended September 30, 1997, 1996 and 1995. Under depreciation
practices required by the Commission, when gas utility assets under
the composite method are retired from service, the cost of the
retired assets is removed from the property accounts and charged,
together with any cost of removal, to the accumulated
depreciation accounts. For all other assets, when assets are
sold or retired, the cost of the
<PAGE> 25
assets and their related accumulated depreciation are removed
from the respective accounts, net removal costs are recorded and
any gain or loss is included in income.
Deferred Charges
Total deferred charges consist primarily of regulatory assets and
the cost of issuing debt. The Company has established various
regulatory assets in cases where the Commission has permitted, or
is expected to permit, recovery of specific costs over a period
of time. At September 30, 1997, regulatory assets include $6.5
million for environmental investigation and remediation costs and
$2.4 million of unrecovered deferred state income taxes (see Note
6).
The unamortized cost of issuing debt at September 30, 1997 is
$2.1 million. Deferred financing costs are amortized over the
life of the related security. Other deferred charges are
amortized over the recovery period specified by the Commission.
Investment Tax Credits
Investment tax credits are being amortized over the estimated
useful life of the property that gave rise to the credit.
Fair Value of Financial Instruments
Because of the short maturity of certain assets, which include
cash, temporary cash investments and accounts receivable, and
certain liabilities, which include accounts payable and notes
payable to banks, these instruments are stated at amounts that
approximate fair value.
If long-term debt outstanding at September 30, 1997 had been
refinanced using new issue debt rates of interest that on average
are lower than the outstanding rates, the present value of those
obligations would have increased from the amounts outstanding in
the September 30, 1997 balance sheet by 10.3%. In the event of
refinancing, there would be no gain or loss as, under established
regulatory procedure, any such difference would be reflected in
rates and have no effect on gross income.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect assets and liabilities, the
disclosure of contingent assets and liabilities, and revenues and
expenses. Actual amounts could differ from those estimates.
Reclassifications
Reclassifications are made periodically to previously issued
financial statements to conform to the current year's
presentation.
<PAGE> 26
Note 2. Cash Flows
Supplemental disclosures of cash flow information are as follows
(in thousands):
1997 1996 1995
- ----------------------------------------------------------------------
Cash paid during the year for:
Interest (net of amount capitalized) $3,821 $3,369 $4,132
Income taxes 3,557 508 898
In preparing the accompanying statements of cash flows, all
highly liquid investments having maturities of three months or
less when acquired were considered to be cash equivalents and
classified as cash and temporary cash investments.
Note 3. Inventory Financing
The Company finances gas inventory purchases through the use of a
single purpose trust, which purchases gas with funds loaned to it
by a bank. As the Company requires gas to service customers, gas
is repurchased from the trust at original product cost plus
financing costs and trust fees. The cost of gas and related
financing are recoverable through the CGA.
The bank credit agreement provides for a .375% commitment fee on
the credit line and interest at prime (8.5% at September 30,
1997) with a fixed-rate interest option at less than prime on the
outstanding balance. The trust agreement provides for a
management fee of $8,000 annually. The credit agreement between
the trust and the bank provides for a total commitment of up to
$9.5 million through February 1998.
As of September 30, 1997 and 1996, the gas inventories under the
trust agreement and controlled by the Company totaled $7.8
million and are included in inventories in the accompanying
balance sheets. Inventory purchase obligations under this
financing agreement are reflected as a current liability in the
accompanying balance sheets.
Note 4. Notes Payable to Banks
As of September 30, 1997, the Company had available $14.7 million
under various unsecured bank lines of credit that are renewed
annually, none of which was outstanding. The lines bear interest
at prime, or less than prime on certain of the lines for fixed
periods of time, and are due on demand. For some lines, the
terms of the credit agreements require annual commitment fees of
.25% to .35% of the lines.
Note 5. Long-Term Debt
In September 1997, the Company issued $22 million of 7.40% First
Mortgage Bonds. The proceeds were used to retire all existing
First Mortgage Bonds designated as 8.67% Series A General and
Refunding Mortgage Bonds Due 2002 and to repay the Company's
short-term debt.
<PAGE> 27
Interest payments for the First Mortgage Bonds are due
semiannually. The First Mortgage Bonds are collateralized by
first mortgage liens on substantially all real property and
operating plant facilities.
The aggregate amounts of principal due for all long-term debt for
each of the five years subsequent to September 30, 1997 are as
follows (in thousands):
Fiscal year Amount
- -----------------------------------------------------------------
1998 $484
1999 453
2000 415
2001 371
2002 342
Note 6. Income Taxes
The Company files a consolidated federal income tax return with
its parent company. For financial reporting and rate purposes,
the Company provides taxes on a separate return basis.
At September 30, 1997 and 1996, the SFAS No. 109 regulatory
liability amounted to $960,000 and $1 million, respectively, for
the tax benefit of unamortized investment tax credits, and
$294,000 and $339,000, respectively, for the excess reserves for
deferred taxes as a result of pre-July 1, 1987 deferred income
taxes that were recorded in excess of the current federal
statutory income tax rate.
A deferred state income tax liability and a corresponding
regulatory asset of approximately $2.4 million, representing
revenues the Company expects to recover from gas service
customers, were established at September 30, 1994 as a result of
recording deferred state income taxes on the cumulative temporary
differences due to a change in New Hampshire tax law. Effective
June 2, 1994, the 1% franchise tax assessed on sales of natural
gas was repealed. Prior to the change in tax law, the franchise
tax was permitted as a credit against the New Hampshire Business
Profits Tax ("NHBPT"). Because franchise tax payments exceeded
the NHBPT, the Company never incurred a NHBPT liability;
therefore, no deferred state income taxes related to temporary
differences were recorded.
<PAGE> 28
The tax effects of cumulative differences that gave rise to the
deferred tax liabilities and deferred tax assets for the years
ended September 30, 1997 and 1996 were as follows (in thousands):
1997 1996
- -------------------------------------------------------------------------
Deferred tax assets:
Contributions in aid of construction $ 726 $ 696
Unamortized investment tax credits 590 636
Allowance for doubtful accounts 506 454
Deferred gas costs 240 -
Other 942 821
------------------
Total deferred tax assets 3,004 2,607
------------------
Deferred tax liabilities:
Property-related 15,957 14,742
Deferred gas costs - 1,773
Environmental costs 1,936 1,499
Other 1,787 1,372
------------------
Total deferred tax liabilities 19,680 19,386
------------------
Net deferred tax liability $16,676 $16,779
==================
Deferred income taxes were classified in the accompanying balance
sheets at September 30, 1997 and 1996 as follows (in thousands):
1997 1996
- -------------------------------------------------------------------------
Current $ (725) $ 1,160
Long-term 17,401 15,619
------------------
Total $16,676 $16,779
==================
The components of federal and state income taxes reflected in the
accompanying statements of income for the years ended September
30, 1997, 1996 and 1995 were as follows (in thousands):
1997 1996 1995
- -------------------------------------------------------------------------
Federal:
Current $3,369 $ (323) $ 961
Deferred (378) 3,119 566
Investment tax credits (136) (140) (141)
-------------------------------
Total federal 2,855 2,656 1,386
-------------------------------
State:
Current 701 (129) 227
Deferred (78) 697 132
-------------------------------
Total state 623 568 359
-------------------------------
Total provision for income taxes $3,478 $ 3,224 $ 1,745
===============================
<PAGE> 29
The total federal and state income tax provision, as a percentage
of income before federal and state income taxes, was 36.7%, 37.3%
and 31.8% for the years ended September 30, 1997, 1996 and 1995,
respectively. The following table reconciles the income tax
provision calculated using the federal statutory tax rate of 34%
to the book provision for federal and state income taxes (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax calculated at statutory rate $3,217 $2,941 $1,867
Increase (reduction) in effective tax resulting from:
Amortization of investment tax credit (136) (140) (141)
Adjustment due to change in tax rates (28) (28) (28)
State taxes, net of federal tax benefit 411 375 241
Other, net 14 76 (194)
-------------------------
Total provision for income taxes $3,478 $3,224 $1,745
=========================
</TABLE>
Note 7. Employee Benefit Plans
Pension Plans
The Company has noncontributory defined benefit plans covering
substantially all employees. Benefits are based on years of
credited service and average earnings during the five highest
consecutive years of earnings prior to the normal retirement
date. The Company is also charged for pension expense for the
management pension plan of the parent company.
The Company's funding policy is to annually contribute to the
plans an amount that is not less than the minimum amount required
by the Employee Retirement Income Security Act of 1974 and not
more than the maximum amount deductible for income tax purposes.
Net periodic pension cost included the following components (in
thousands):
1997 1996 1995
- -------------------------------------------------------------------------------
Service cost for benefits earned $ 229 $ 249 $ 236
Interest cost on projected benefit 509 472 458
obligations
Actual return on plan assets (1,975) (542) (953)
Net amortization and deferral 1,311 (90) 369
Parent company allocation 427 344 389
--------------------------
Net periodic pension cost $ 501 $ 433 $ 499
==========================
<PAGE> 30
The following table sets forth the funded status of the plans at
September 30, 1997, 1996 and 1995 (in thousands):
1997 1996 1995
- ---------------------------------------------------------------------------
Vested benefit obligation $6,286 $5,983 $5,239
============================
Accumulated benefit obligation $6,553 $6,228 $5,455
============================
Projected benefit obligation $7,336 $6,971 $6,429
Plan assets at fair value 9,135 7,300 6,839
----------------------------
Funded status 1,799 329 410
Unrecognized transition (asset) obligation (325) (384) (444)
Unrecognized prior service cost 295 351 407
Unrecognized net (gain) loss (851) 447 185
----------------------------
Prepaid pension (pension liability) $ 918 $ 743 $ 558
============================
Assumptions used to determine the projected benefit obligation
were as follows:
1997 1996 1995
- ---------------------------------------------------------------------------
Discount rate 7.5% 7.5% 7.5%
Rate of increase in future compensation levels 4.0% 4.0% 4.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Plan assets are invested in common stocks and bonds.
The Company has an employee 401(k) savings and investment plan
covering substantially all employees. The Company made
contributions of $85,000, $61,000 and $57,000 for the years ended
September 30, 1997, 1996 and 1995, respectively.
Other Postemployment Benefits
In addition to providing pension benefits, the Company provides
certain health care and life insurance benefits to qualified
retired employees.
The expense recorded in fiscal 1997, 1996 and 1995 for providing
postretirement benefits, including amortization of the
accumulated projected benefit obligation over a 20-year period,
was $216,000, $222,000 and $278,000, respectively.
The Company has funded these benefit costs by making cash
contributions, at the same level of expense recorded, to a
voluntary employee benefit association ("VEBA") trust.
<PAGE> 31
The following table sets forth the funded status of the plan at
September 30, 1997 and 1996 (in thousands):
1997 1996
- -------------------------------------------------------------------------------
Accumulated postretirement benefit obligation as of July 31:
Retirees $ 1,299 $ 1,225
Fully eligible active plan participants 480 372
Other active participants 743 685
----------------
2,522 2,282
Plan assets at fair market value (1,064) (738)
Unrecognized transition obligation (2,241) (2,381)
Unrecognized net gain 836 891
----------------
Accrued postretirement benefit cost at July 31 53 54
Contributions for the two-month period ending September 30 54 55
----------------
Accrued postretirement benefit cost at September 30 $ (1) $ (1)
================
The components of net periodic postretirement benefit cost at
September 30, 1997 and 1996 are as follows (in thousands):
1997 1996
- -------------------------------------------------------------------------------
Service cost - benefits attributed to services during the year $ 48 $ 48
Interest cost on accumulated postretirement benefit obligation 167 161
Actual asset return (190) (48)
Net amortization and deferral 191 61
----------------
Net periodic postretirement benefit cost $ 216 $ 222
================
A 10% average annual rate of increase in the per capita costs of
covered health care benefits was assumed for fiscal 1997, reduced
in steps of 1% to a level of 5% at 2002 and thereafter. This
decrease results from changes in estimates of future health care
inflation, assumed changes in health care utilization and related
effects. Increasing the assumed health care cost trend rates by
one percentage point in each year would have resulted in a
$219,000 increase in the accumulated postretirement benefit
obligation as of July 31, 1997 and an increase in the aggregate
of the service cost and interest cost components of net periodic
postretirement benefit cost for fiscal 1997 of $16,000. A
discount rate of 7.5% was used to determine the accumulated
postretirement benefit obligation. The expected long-term rate
of return on plan assets is 9%. Plan assets are invested in
common stocks and bonds.
Note 8. Commitments and Contingencies
Contracts
The Company has various contractual agreements covering the
transportation of natural gas, underground storage facilities and
the purchase of natural gas, which are recoverable under the
Company's CGA. These contracts expire at various times from 1997
to 2011.
<PAGE> 32
Litigation
The Company has been named in certain lawsuits arising from
normal operations. In the opinion of management, the outcome of
these lawsuits will not have a material adverse effect on the
financial position or results of operations of the Company.
Environmental Issues
The Company and certain of its predecessors owned or operated
several facilities for the manufacture of gas from coal, a
process used through the mid-1900s that produced by-products that
may be considered contaminated or hazardous under current law,
and some of which may still be present at such facilities. The
Company accrues environmental investigation and clean-up costs
with respect to former manufacturing sites and other
environmental matters when it is probable that a liability exists
and the amount or range of amounts can be reasonably estimated.
In 1995, the Company completed the disposal of the contents of
the gasholder situated on a former gas manufacturing site in
Concord, New Hampshire. Total remediation costs amounted to
approximately $3.5 million and were recorded in deferred charges.
Recovery of these costs from customers began on July 1, 1995 and
extends over a seven-year period. The unamortized balance of $2.4
million at September 30, 1997 is excluded from rate base. The
Company may not earn a return or charge rates to customers based
on amounts not included in rate base.
The New Hampshire Department of Environmental Services ("NHDES")
has required remedial action for a portion of the Concord site at
which wastes were disposed from approximately 1852 through 1952.
The estimated cost of this remedial action ranges from $1.5
million to $2.6 million, and the Company has recorded $1.5
million at September 30, 1997 in deferred charges. The Company
has petitioned the Commission for approval of the Company's
proposed five-year recovery from ratepayers of $1.9 million of
investigation, remediation and recovery effort costs plus
carrying costs.
The Company has instituted several lawsuits to recover the costs
of investigation and remediation of the Concord site. On
September 12, 1995, the Company filed a complaint in the United
States District Court for the District of New Hampshire against
UGI Utilities, Inc., as the successor to United Gas Improvement
Company. The Company seeks contribution for expenses incurred at
the Concord site based upon the operation of the manufactured gas
plant by the United Gas Improvement Company during a period of
time the manufactured gas plant was in operation. On December 8,
1995, the Company filed suit in the United States District Court
for the District of New Hampshire against Associated Electric and
Gas Insurance Services, Ltd., American Home Assurance Company,
CIGNA Specialty Insurance Company, International Insurance
Company, Lloyd's, Underwriters at London, Lexington Insurance
Company and National Union Fire Insurance Company, later adding
Columbia Casualty Company as a defendant, seeking declaratory
judgment that they owe the Company a defense and/or
indemnification for environmental claims associated with the
Concord facility. The Company filed suit in the New Hampshire
(Hillsborough County) Superior Court on December 8, 1995 against
the Continental Insurance Company and Netherlands Insurance
Company seeking a declaratory judgment that they owe the Company
a defense and/or indemnification for environmental claims
associated with the Concord facility. Through November 1997, the
Company reached settlements with
<PAGE> 33
certain of the defendants in those suits in an aggregate amount
of $1.6 million and further payment to the Company of a portion
of future Concord site remediation costs. The Company expects
that such settlement amounts will reduce the amount that it will
be permitted by the Commission to recover from its ratepayers.
The Company and Public Service Company of New Hampshire ("PSNH"),
an electric utility company, conducted an environmental site
characterization of a former manufactured gas plant in Laconia,
New Hampshire. The Laconia manufactured gas plant operated
between approximately 1887 and 1952, and the Company owned and
operated the facility for approximately the last seven years of
its active life. Without admitting liability, the Company and
PSNH have entered into an agreement under which the costs of the
site characterization are shared. The Company's share of the
costs of the site characterization and a report to the NHDES
totaled $276,000 and has been recorded in deferred charges as of
September 30, 1997. The report describes conditions at the site,
including the presence of by-products of the manufactured gas
process in site soils, groundwater and sediments in an adjacent
water body. Based upon its review of the report, the NHDES has
directed PSNH and the Company to prepare and submit a remedial
action plan. The Company expects to incur further costs but is
currently unable to predict the magnitude of any liability that
may be imposed on it for the cost of additional studies or the
performance of a remedial action in connection with the Laconia
site. The Company commenced proceedings in New Hampshire
Superior Court and Federal District Court on February 2, 1997
against eighteen of its present and former insurers seeking
recovery of expenses that have been and will be incurred in
connection with the investigation and remediation of
contamination from the Laconia plant. Through November 1997, the
Company reached a settlement with a defendant in that suit in the
amount of $100,000.
The Company is pursuing and intends to pursue recovery from
insurance carriers and claims against any other responsible
parties seeking to ensure that they contribute appropriately to
reimburse the Company for any costs incurred with respect to
environmental matters. The Company intends to seek and expects
to receive approval of rate recovery methods with respect to
environmental matters after it has determined the extent of
contamination, received recommendations with regard to
remediation and commenced remediation efforts.
Transition Costs
Federal Energy Regulatory Commission Order 636 allows interstate
pipeline companies to recover transition costs created as they
buy out of long-term, fixed-price gas contracts. Since the
Company's pipeline supplier, Tennessee Gas Pipeline Company,
began billing these costs to the Company on September 1, 1993 as
a component of demand charges, $7.9 million has been billed
through September 30, 1997. The Company has recorded additional
transition costs of approximately $1.3 million that are expected
to be billed over a period of 15 months. The Company is
recovering transition costs through the CGA.
<PAGE> 34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
EnergyNorth Natural Gas, Inc.:
We have audited the accompanying balance sheets and statements of
capitalization of EnergyNorth Natural Gas, Inc. (a New Hampshire
corporation and wholly-owned subsidiary of EnergyNorth, Inc.) as
of September 30, 1997 and 1996, and the related statements of
income, retained earnings, common stockholder's equity and cash
flows for each of the three years in the period ended September
30, 1997. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of EnergyNorth Natural Gas, Inc. as of September 30, 1997 and
1996, and the results of its operations and its cash flows for
each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The financial
statement schedule under part IV, Item 14, is presented for
purposes of additional analysis and is not a required part of the
basic financial statements. This information has been subjected
to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated, in
all material respects, in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 4, 1997
<PAGE> 35
(b) Supplementary Financial Information
Selected Quarterly Financial Data (Unaudited) EnergyNorth Natural Gas, Inc.
Operating Operating Net income
(In thousands) revenues income (loss) (loss) Cash dividends
- --------------------------------------------------------------------------------
First Quarter
1997 $25,360 $ 4,190 $ 3,408 $890
1996 22,661 4,338 3,439 881
- --------------------------------------------------------------------------------
Second Quarter
1997 43,402 6,572 5,892 891
1996 34,577 6,647 5,961 885
- --------------------------------------------------------------------------------
Third Quarter
1997 16,023 (804) (1,513) 934
1996 13,052 (1,043) (1,624) 933
- --------------------------------------------------------------------------------
Fourth Quarter
1997 8,193 (1,047) (1,802) 934
1996 7,220 (1,742) (2,349) 936
- --------------------------------------------------------------------------------
Note: In the opinion of the Company, the quarterly financial data
include all adjustments, consisting of normal recurring
adjustments and reclassifications, necessary for a fair
presentation of such information. Quarterly amounts vary significantly
due to seasonal weather conditions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no such matters during the fiscal year ended September 30, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
OMITTED
ITEM 11. EXECUTIVE COMPENSATION
OMITTED
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
OMITTED
<PAGE> 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OMITTED
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) List of documents filed as part of this Report
(1) Financial Statements
The following financial statements are included herein under
Part II, Item 8:
Page No(s).
in this Report
Statements of Income for the years ended
September 30, 1997, 1996 and 1995 19
Balance Sheets at September 30, 1997 and 1996 20
Statements of Capitalization at September 30, 1997 and 1996 21
Statements of Retained Earnings for the years
ended September 30, 1997, 1996 and 1995 22
Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995 23
Notes to Financial Statements 24-33
Report of Independent Public Accountants 34
Supplementary Financial Information 35
(2) Financial Statement Schedules
The following supplementary financial statement schedules
required by Rule 5-04 of Regulation S-X, and report thereon,
are filed as part of this Form 10-K on the page indicated
below:
Schedule Page No. in
Number Description this Report
II Valuation and Qualifying Accounts for the three
years ended September 30, 1997 38
Report of Independent Public Accountants 34
Schedules other than the one listed above are either
not required or not applicable, or the required
information is shown in the financial statements or
notes thereto.
<PAGE> 37
(3) Exhibits Required by Item 601 of Regulation S-K
See Exhibit Index on pages 40 and 41.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
September 30, 1997.
(c) Exhibits - See Exhibit Index on pages 40 and 41.
(d) Financial Statement Schedules
<PAGE> 38
SCHEDULE II
ENERGYNORTH NATURAL GAS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Reserves that are deducted in the balance sheets
from assets to which they apply:
<TABLE>
<CAPTION>
Additions
------------------------------------
Balance at Charged to Charged to Balance
Year ended beginning costs and other at end
September 30, Description of period expenses accounts(1) Deductions of period
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 Allowance for
doubtful accounts $1,176 $1,190 $136 $1,193 $1,309
1996 Allowance for
doubtful accounts 907 1,130 138 999 1,176
1995 Allowance for
doubtful accounts 992 990 167 1,242 907
</TABLE>
_____________________
(1) Represents recoveries on accounts previously written off
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ENERGYNORTH NATURAL GAS, INC.
Date: December 22, 1997 by: /s/ Robert R. Giordano
Robert R. Giordano
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated on
December 22, 1997.
/s/ Robert R. Giordano Director, President and Chief
Robert R. Giordano Executive Officer (principal
executive officer)
/s/ Michelle L. Chicoine Director, Senior Vice President,
Michelle L. Chicoine Treasurer and Chief Financial Officer
(principal financial officer)
/s/ David A. Skrzysowski Vice President & Controller
David A. Skrzysowski (principal accounting officer)
/s/ Edward T. Borer Director
Edward T. Borer
/s/ N. George Mattaini Director
N. George Mattaini
/s/ Albert J. Hanlon Director
Albert J. Hanlon
/s/ Frank L. Childs Director
Frank L. Childs
<PAGE> 40
EXHIBIT INDEX
The exhibits listed below are filed herewith, or are
incorporated herein by reference to other filings.
Exhibit
Number Description
3.1 Articles of Incorporation of EnergyNorth Natural
Gas, Inc. are incorporated by reference to Exhibit 3.1
to EnergyNorth Natural Gas, Inc.'s Registration
Statement on Form S-1, No. 333-32949, dated August 6,
1997.
3.2 By-Laws of EnergyNorth Natural Gas, Inc., as amended, are
incorporated by reference to Exhibit 3.2 to EnergyNorth
Natural Gas, Inc.'s Amendment No. 2 to Registration Statement
on Form S-1, No. 333-32949, dated September 17, 1997.
4.1 Gas Service, Inc. General and Refunding Mortgage
Indenture, dated as of June 30, 1987, as amended and
supplemented by a First Supplemental Indenture, dated as
of October 1, 1988, and by a Second Supplemental
Indenture, dated as of August 31, 1989, is incorporated
by reference to Exhibit 4.1 to EnergyNorth, Inc.'s Form
10-K (File No. 0-11035) for the fiscal year ended
September 30, 1989.
4.2 Third Supplemental Indenture, dated as of
September 1, 1990, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.2 to
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for
the fiscal year ended September 30, 1990.
4.3 Fourth Supplemental Indenture, dated as of
January 10, 1992, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.3 of
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for
the fiscal year ended September 30, 1992.
4.4 Fifth Supplemental Indenture, dated as of
February 1, 1995, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.4 to
EnergyNorth, Inc.'s Form 10-K (File No. 1-11441) for the
fiscal year ended September 30, 1996.
4.5 Sixth Supplemental Indenture, dated as of
September 15, 1997, to Gas Service, Inc. General and
Refunding Mortgage Indenture, dated as of June 30, 1987,
is incorporated by reference to Exhibit 4.5 to
EnergyNorth Natural Gas, Inc.'s Amendment No. 1 to
Registration Statement on Form S-1, No. 333-32949, dated
September 10, 1997.
<PAGE> 41
10.1 Gas transportation agreement (FT-A), dated as
of September 1, 1993, between Tennessee Gas Pipeline
Company and EnergyNorth Natural Gas, Inc. is
incorporated by reference to Exhibit 10.1 to
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for
the fiscal year ended September 30, 1993.
10.2 Gas transportation agreement (contract No.
632), dated as of September 1, 1993, between Tennessee
Gas Pipeline Company and EnergyNorth Natural Gas, Inc.
is incorporated by reference to Exhibit 10.2 of
EnergyNorth, Inc.'s Form 10-K (File No. 0-11035) for the
fiscal year ended September 30, 1995.
10.3 Tax Sharing Agreement, dated as of October 1,
1988, is incorporated by reference to Exhibit 10.21 to
EnergyNorth Natural Gas, Inc.'s Registration Statement
on Form S-1, No. 333-32949, dated August 6, 1997.
10.4 Cost Allocation Agreement, dated as of October
1, 1996, is incorporated by reference to 10.22 to
EnergyNorth Natural Gas, Inc.'s Amendment No. 2 to
Registration Statement on Form S-1, No. 333-32949, dated
September 17, 1997.
27 Financial Data Schedule of the Registrant.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
EnergyNorth Natural Gas, Inc. balance sheet and the statement of capitalization
at September 30, 1997 and from the statement of income and statement of cash
flows for the twelve months ended September 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 98,988<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 20,460
<TOTAL-DEFERRED-CHARGES> 10,895
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 130,343
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 18,155
<TOTAL-COMMON-STOCKHOLDERS-EQ> 43,693
0
0
<LONG-TERM-DEBT-NET> 42,913
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 484
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 43,253
<TOT-CAPITALIZATION-AND-LIAB> 130,343
<GROSS-OPERATING-REVENUE> 92,978
<INCOME-TAX-EXPENSE> 3,478
<OTHER-OPERATING-EXPENSES> 80,589
<TOTAL-OPERATING-EXPENSES> 84,067
<OPERATING-INCOME-LOSS> 8,911
<OTHER-INCOME-NET> 792
<INCOME-BEFORE-INTEREST-EXPEN> 9,703
<TOTAL-INTEREST-EXPENSE> 3,718
<NET-INCOME> 5,985
0
<EARNINGS-AVAILABLE-FOR-COMM> 5,985
<COMMON-STOCK-DIVIDENDS> 3,649
<TOTAL-INTEREST-ON-BONDS> 2,625
<CASH-FLOW-OPERATIONS> 11,977
<EPS-PRIMARY> $0.00
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $47,815
</FN>
</TABLE>
