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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
OR
/x/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 2-35965
NORTH SHORE GAS COMPANY
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(Exact name of registrant as specified in its charter)
ILLINOIS 36-1558720
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
122 SOUTH MICHIGAN AVENUE, CHICAGO, ILLINOIS 60603
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 431-4000
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (#229.405 of this chapter) 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
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
None.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, without par value, 3,625,887 shares outstanding at November
30, 1994.
Documents Incorporated by Reference
None
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<PAGE>
CONTENTS
Page
Item No. No.
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PART I
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1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
PART II
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5. Market for the Company's Common Stock and Related
Stockholder Matters 8
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
8. Financial Statements and Supplementary Data 15
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 36
PART III
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10. Directors and Executive Officers of the Company 37
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners and
Management 42
13. Certain Relationships and Related Transactions 43
PART IV
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14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 44
Signatures 50
Exhibit Index 51
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<PAGE>
NORTH SHORE GAS COMPANY
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED SEPTEMBER 30, 1994
PART I
ITEM 1. BUSINESS
GENERAL
North Shore Gas Company (Company), an operating public utility, is engaged
primarily in the purchase, storage, distribution, sale, and transportation of
natural gas. It has more than 129,000 residential, commercial, and industrial
retail sales and transportation customers within its service area of
approximately 275 square miles, located in Northeastern Illinois. It serves 54
communities and adjacent areas, including those situated along Lake Michigan
from Winnetka, Illinois, to the Illinois-Wisconsin state line. This area, with
an estimated population of about 400,000, contains residential concentrations
and a diversity of industrial and commercial establishments, as well as some
farm lands. The Company had 247 employees at September 30, 1994.
At September 30, l994, the common stock of the Company and of its
affiliate, The Peoples Gas Light and Coke Company (Peoples Gas), was wholly
owned by Peoples Energy Corporation (Peoples Energy).
COMPETITION
The Company holds certificates of public convenience and necessity issued
by the Illinois Commerce Commission (Commission) for the conduct by the Company
of its operations in the territory that it serves. It holds a license agreement
from Lake County, Illinois, and, with minor exceptions, franchises from all of
the incorporated cities and villages in its service territory. The franchises
are of various terms and expiration dates and are generally subject to various
other conditions, restrictions, or limitations not deemed materially burdensome.
Absent extraordinary circumstances, potential competitors are barred from
constructing competing gas distribution systems in the Company's service
territory by a judicial doctrine known as the "first in the field" doctrine. In
addition, the high cost of installing duplicate distribution facilities would
render the construction of a competing system impractical.
Competition in varying degrees exists between natural gas and other fuels
or forms of energy available to consumers in the Company's service area.
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<PAGE>
ITEM 1. BUSINESS (Continued)
A substantial portion of the gas that the Company delivers to its customers
consists of gas that the Company's customers purchase directly from producers
and marketers rather than from the Company. These direct customer gas purchases
have no effect on net income because the Company provides transportation service
for such gas volumes and recovers margins similar to those applicable to
conventional gas sales.
A pipeline may seek to provide transportation service directly to end-
users. Such direct service by a pipeline to an end-user would bypass the local
distributor's service and reduce the distributor's earnings. However, the
Company's pipeline supplier has not undertaken any service bypassing the
Company. The Company has a bypass rate approved by the Commission which allows
the Company to renegotiate rates with customers that are potential bypass
candidates.
SALES AND RATES
The Company sells natural gas having an average heating value of
approximately 1,000 British thermal units (Btu's) per cubic foot.* Sales are
made and service rendered by the Company pursuant to a rate schedule on file
with the Commission containing various service classifications largely
reflecting customers' different uses and levels of consumption. The Gas Charge
is determined in accordance with the provisions in Rider 2, Gas Charge and
Refund Adjustments, to recover the costs incurred by the Company to purchase,
transport, manufacture, and store gas supplies. The level of the Gas Charge
under the Company's rate schedule is adjusted monthly to reflect increases or
decreases in natural gas supplier charges, purchased storage service costs,
transportation charges, and liquefied petroleum gas costs. In addition, under
the tariffs of the Company, the difference for any fiscal year between costs
recoverable through the Gas Charge and the revenues billed to customers under
the Gas Charge is refunded or recovered over a 12-month billing cycle beginning
the following January 1. Consistent with these tariff provisions, such
difference for any month is recorded either as a current liability or a current
asset (with a contra entry to gas costs), and the fiscal year-end balance is
amortized over the 12-month period beginning the following January 1. The
Company also has been recovering, through its rates, pipeline charges billed for
transition costs resulting from the implementation of Federal Energy Regulatory
Commission (FERC) Order No. 636. (See Notes 1H, 2A, and 2B of the Notes to
Consolidated Financial Statements.)
The business of the Company is influenced by seasonal weather conditions
because a large element of the Company's customer load consists of space
heating. Weather-related deliveries can, therefore, have a significant positive
or negative impact on net income. (For discussion of the effect of the seasonal
nature of gas sales on cash flow, see "Liquidity" in Item 7.)
________________________________________________________________________________
* All volumes of natural gas set forth in this report are stated on a 1,000 Btu
(per cubic foot) billing basis.
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<PAGE>
ITEM 1. BUSINESS (Continued)
The basic marketing plan of the Company is to maintain its existing share
in all market segments and develop opportunities emerging from changes in the
utility environment and technological advances in new, expanded, or current
natural gas applications, including cogeneration, prime movers, natural gas-
fueled vehicles, and air conditioning.
STATE LEGISLATION AND REGULATION
The Company is subject to the jurisdiction of and regulation by the
Commission, which has general supervisory and regulatory powers over practically
all phases of the public utility business in Illinois, including rates and
charges, issuance of securities, services and facilities, systems of accounts,
investments, safety standards, transactions with affiliated interests, as
defined in the Illinois Public Utilities Act, and other matters.
On September 30, 1992, the Commission issued an order in its consolidated
proceedings, initiated in March 1991, regarding the appropriate ratemaking
treatment of environmental costs relating to past manufactured gas operations
incurred by Illinois utilities, including the Company and Peoples Gas, in
connection with the investigation and treatment of residues associated with past
manufactured gas operations ("environmental costs"). In its order, the
Commission approved rate recovery of such environmental costs but required that
the recovery occur over a five-year period without recovery of carrying charges
on unrecovered balances. The Commission's order is on appeal before the
Illinois Supreme Court. (See Note 2A of the Notes to Consolidated Financial
Statements.)
On September 15, 1993, the Commission entered an order initiating an
investigation into the appropriate means of recovery by Illinois gas utilities
of pipeline charges for FERC Order No. 636 transition costs. The Commission
issued its orders on rehearing in this proceeding in September 1994. (See
Notes 1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
On December 16, 1994, the Company filed with the Commission proposed
changes in rates that are designed to increase annual revenues by about
$10.1 million, exclusive of additional charges for revenue taxes. The Company
is seeking a rate of return on original-cost rate base of 10.50 percent, which
reflects a 12.6 percent cost of common equity. The Company expects that the
Commission, following its usual practices, will not issue a decision regarding
the Company's filed rate increase request until November 1995. The Company
cannot predict the outcome of its rate increase request.
FEDERAL LEGISLATION AND REGULATION
By Order entered on December 6, 1968 (Holding Company Act Release No.
16233), the Securities and Exchange Commission, pursuant to Section 3(a)(1) of
the Public Utility Holding Company Act of 1935 (Act), exempted Peoples Energy
and its subsidiary companies as such (including the Company) from the provisions
of the Act, other than Section 9(a)(2) thereof.
All of the gas distributed by the Company is transported to the Company's
distribution system by Natural Gas Pipeline Company of America (Natural). In
its provision of gas sales services (gathering, transportation and storage
services, and gas supply) Natural is regulated by the FERC under the Natural Gas
Act and the Natural Gas Policy Act of 1978. (See "Sales and Rates" and "Current
Gas Supply" in Item 1.)
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<PAGE>
ITEM 1. BUSINESS (Continued)
The Company is subject to federal and state environmental laws. The
Company is conducting environmental investigations and work at certain sites
that were the location of former manufactured gas plant operations. (See Note
3A of the Notes to Consolidated Financial Statements.) In addition, the Company
has received a demand for payment of environmental response costs at a former
mineral processing site in Denver, Colorado. (See Note 3B of the Notes to
Consolidated Financial Statements.)
In 1992, the FERC issued Order No. 636 and successor orders that required
substantial restructuring of the service obligations of interstate pipelines.
(See Notes 1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
ENVIRONMENTAL MATTERS
See Note 3 of the Notes to Consolidated Financial Statements.
CURRENT GAS SUPPLY
The Company has entered into long- and short-term firm gas supply
contracts. When used in conjunction with contract storage, Peoples Gas'
company-owned storage, and peak-shaving facilities, as shown in the following
table, such supply is deemed sufficient to meet current and foreseeable peak and
annual market requirements.
Although the Company believes North American supply to be sufficient to
meet U.S. market demands for some time, it is unable to quantify or otherwise
make specific representations regarding national supply availability.
The following tabulation shows the Company's expected peak-day availability
of gas in million cubic feet (MMcf) during the 1994-95 heating season:
<TABLE>
<CAPTION>
Peak-Day Year of
Availability Contract
Source (MMcf) Expiration
- ------------ ------------ ------------
<S> <C> <C>
Flow Gas
Firm Gas Purchases 125(a) 1995-1998(a)
Liquefied Petroleum Gas 59
---
184
---
Storage
Leased 122(b) 1995-1996(b)
Peoples Gas - Manlove Storage 87(c) (d)
---
209
---
Total expected peak-day
availability 393
---
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<FN>
(a) Consists of firm gas purchases from non-pipeline suppliers delivered via
firm pipeline transportation. Under the 636 Orders' right-of-first-refusal
process, the Company may retain the firm transportation contract capacity
if it matches the best bid made for that capacity in terms of rate (up to
the maximum rate permitted) and contract length (up to 20 years).
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<PAGE>
ITEM 1. BUSINESS (Continued)
(b) The Company has maximum storage service withdrawal capacity under contracts
with Natural of (1) 56 MMcf per day in the period November 1 through
February 15, decreasing to 45 MMcf per day until February 28 and to 34 MMcf
per day for the balance of the withdrawal season, under a service agreement
extending until 1995, (2) 30 MMcf per day under a service agreement
extending until 1995, (3) 7 MMcf per day under a service agreement
extending until 1995, (4) 3 MMcf per day under a service agreement
extending until 1995, (5) 22 MMcf per day, including transportation fuel,
under a service agreement extending until 1996 and (6) including
transportation fuel, 6.5 MMcf per day in November, decreasing to 6 MMcf per
day in December, 4.5 MMcf per day in January and 3 MMcf per day in February
and March, under a service agreement extending until 1995. All daily
withdrawals under the foregoing seasonal and interseasonal agreements are
subject to maximum withdrawal constraints. Before terminating any of the
services noted in (1) through (4) above, Natural must first seek authority
from FERC. The services noted in (5) and (6) are subject to the 636
Orders' right-of-first-refusal process. Under this process, the Company
may retain the storage capacity if it matches the best bid made for that
capacity in terms of rate (up to the maximum rate permitted under Natural's
tariff) and contract length (up to 20 years).
(c) The Company has a gas storage agreement with Peoples Gas that provides for
a maximum withdrawal of 59 MMcf of storage service per day. The agreement
also provides for additional quantities, if available, equal to the
Company's pro-rata share, up to 28 MMcf per day or a total of 87 MMcf per
day.
(d) The contract with Peoples Gas was for an initial term expiring May 1, 1990.
However, by its terms, the contract continues in effect unless canceled by
either party upon 120 days' notice prior to April 30 of any year
thereafter.
</TABLE>
The sources of gas supply (including gas transported for customers) in
million cubic feet (MMcf) for the Company for the three fiscal years ended
September 30, 1994, 1993, and 1992, were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Source:
Natural (a) 2,384 12,293 15,758
Other Suppliers (b) 23,415 12,296 8,556
Liquefied Petroleum Gas Produced 79 61 7
Customer-Owned Gas - Received 12,017 11,956 12,296
Underground Storage - Net (718) (80) (998)
Company Use, Franchise Requirements,
and Unaccounted-for Gas (339) (381) (297)
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Total (c) 36,838 36,145 35,322
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<FN>
(a) The DMQ-1 supply contract terminated on November 30, 1993.
(b) The Company purchases significant quantities of gas directly from various
suppliers. Commencing December 1, 1993, purchases were more oriented
towards long-term supply contracts than short-term spot gas. However, some
gas supply is still purchased on a short-term basis whenever such purchases
are projected to produce a savings in gas costs without jeopardizing supply
security and reliability.
(c) See "Gas Sold and Transported" in Item 6.
</TABLE>
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<PAGE>
ITEM 2. PROPERTIES
All of the principal plants and properties of the Company have been
maintained in the ordinary course of business and are believed to be in
satisfactory operating condition. The following is a brief description of the
principal plants and operating units of the Company.
The distribution system of the Company, as of September 30, 1994, consisted
of approximately 2,000 miles of distribution mains and necessary pressure
regulators, approximately 117,000 services (pipe connecting the mains with
piping on the customers' premises), and approximately 132,000 meters installed
on customers' premises. During fiscal 1993, the Company installed approximately
14.6 miles of transmission pipeline. The Company also has liquefied petroleum
gasification and storage facilities. In addition, it owns and has a substantial
investment in office and service buildings, garages, repair shops, and motor
vehicles, together with the equipment, tools, and fixtures necessary to conduct
utility business.
Most of the principal plants and properties of the Company, other than
mains, services, meters, regulators, and cushion gas in underground storage, are
located on property owned in fee. Substantially all gas mains are located in
public streets, alleys, and highways, or under property owned by others under
grants of easements. Meters and house regulators in use and a portion of
services are located on premises being served.
Substantially all of the physical properties now owned or hereafter
acquired by the Company are subject to (a) the first-mortgage lien of the
Company's mortgage to Bank of America Illinois, (formerly named Continental
Bank, National Association) Trustee, to secure the principal amount of the
Company's outstanding first mortgage bonds and (b) in certain cases, other
exceptions and defects that do not interfere with the use of the property.
ITEM 3. LEGAL PROCEEDINGS
See Notes 2 and 3 of the Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company is a wholly owned subsidiary of Peoples Energy.
-8-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (a)
<TABLE>
<CAPTION>
For fiscal years ended September 30, 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
OPERATING RESULTS (thousands)
Operating Revenues:
Residential $130,654 $121,733 $100,673 $ 95,963 $ 93,815
Commercial 21,834 20,539 17,430 18,299 20,250
Industrial 6,392 5,161 3,610 4,023 5,788
Transportation of customer-owned gas (b) 11,185 11,751 10,419 11,942 10,187
Other 1,060 1,041 708 614 761
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Total Operating Revenues $171,125 $160,225 $132,840 $130,841 $130,801
Gas costs 105,042 93,800 71,418 77,614 76,863
Revenue taxes 10,962 10,622 9,212 8,786 8,689
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Net Operating Revenues $55,121 $55,803 $52,210 $44,441 $45,249
Net income applicable to common stock $10,378 $8,973 $12,527 $6,603 $8,066
Dividends declared on common stock $7,107 $6,672 $2,538 $1,595 $4,315
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ASSETS AT YEAR-END (thousands)
Property, plant and equipment $259,375 $248,580 $227,557 $203,412 $186,618
Less - Accumulated depreciation 80,639 75,110 70,425 65,937 61,209
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Net Property, Plant and Equipment $178,736 $173,470 $157,132 $137,475 $125,409
Total assets $234,364 $235,431 $208,297 $176,110 $157,818
Capital expenditures - construction $12,595 $22,824 $26,061 $18,308 $11,673
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CAPITALIZATION AT YEAR-END (thousands)
Common equity $83,680 $80,409 $78,108 $68,119 $63,111
Long-term debt 76,925 80,925 56,053 56,688 34,251
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Total Capitalization $160,605 $161,334 $134,161 $124,807 $97,362
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CAPITALIZATION AT YEAR-END (percent)
Common equity 52 50 58 55 65
Long-term debt 48 50 42 45 35
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Total Capitalization 100 100 100 100 100
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GAS SOLD AND TRANSPORTED (million cubic feet)
Gas Sales:
Residential 20,228 20,009 19,202 18,220 18,877
Commercial 3,641 3,529 3,638 3,564 4,249
Industrial 1,005 953 825 829 1,313
Transportation of customer-owned gas (b) 11,964 11,655 11,657 11,311 10,543
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Total Sales and Transportation 36,838 36,146 35,322 33,924 34,982
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NUMBER OF CUSTOMERS (average)
Residential 119,190 116,644 114,357 111,783 109,380
Commercial 7,656 7,493 7,306 7,080 6,960
Industrial 802 809 695 635 676
Transportation (b) 1,479 1,399 1,471 1,543 1,263
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Total Customers 129,127 126,345 123,829 121,041 118,279
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DEGREE DAYS 6,701 6,679 6,320 5,927 6,168
Percent of normal (6,536) 103 102 97 91 94
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<FN>
(a) The Company is a wholly owned subsidiary of Peoples Energy; therefore,
per-share data are omitted.
(b) Includes commercial, industrial, and larger residential customers.
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET INCOME
Net income applicable to common stock increased $1.4 million, to
$10.4 million, in fiscal 1994 from 1993. Results for the current fiscal year
include the recording of one-half of an Internal Revenue Service (IRS) income
tax settlement that increased net income by $1.1 million. (See Note 6 of the
Notes to Consolidated Financial Statements.)
In fiscal 1993, net income applicable to common stock decreased $3.6
million, to $9.0 million, primarily due to increased operation and maintenance
expenses, higher long-term debt interest expense, and the effect in fiscal 1992
of the net gain on the sale of property at the Company's former Deerfield sub-
shop. These decreases were partially offset by the benefit of colder weather in
fiscal 1993 as compared to fiscal 1992 and a rate increase that became effective
on November 11, 1991.
A summary of variations affecting income between years is presented below,
with explanations of significant differences following:
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993
over 1993 over 1992
------------------- -------------------
Amount Amount
(000's) Percent (000's) Percent
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating revenues (a) $(682) (1.2) $3,593 6.9
Operation and maintenance expenses (937) (3.4) 2,636 10.6
Depreciation expense 668 10.8 386 6.6
Other income 972 97.7 (3,115) (75.8)
Income deductions (559) (7.7) 1,044 16.9
Net income applicable to common stock 1,405 15.7 (3,554) (28.4)
- ------------------------------------------------------------------------------------------------
<FN>
(a) Operating revenues, net of gas costs and revenue taxes.
</TABLE>
NET OPERATING REVENUES
Gross revenues of the Company are affected by changes in the unit cost of
the Company's gas purchases and do not include the cost of gas supplies for
customers who purchase gas directly from producers and marketers rather than
from the Company. The direct customer purchases have no effect on net income
because the Company provides transportation service for such gas volumes and
recovers margins similar to those applicable to conventional gas sales. Changes
in the unit cost of gas do not significantly affect net income because the
Company's tariffs provide for dollar-for-dollar recovery of gas costs. (See
Note 1H of the Notes to Consolidated Financial Statements.) The Company's
tariffs also provide for dollar-for-dollar recovery of the cost of revenue taxes
imposed by the State and various municipalities.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
Since income is not significantly affected by changes in revenue from
customers' gas purchases from producers or marketers rather than from the
Company, changes in gas costs, or changes in revenue taxes, the discussion below
pertains to "net operating revenues" (operating revenues, net of gas costs and
revenue taxes). The Company considers net operating revenues to be a more
pertinent measure of operating results than gross revenues.
Net operating revenues declined $682,000, to $55.1 million, in 1994,
attributable mainly to a decrease of $1.6 million in environmental costs
recovered through rates partially offset by higher gas deliveries reflecting an
increase of about 3,000 customers over the prior period. Although the weather
in January 1994 was significantly colder than January 1993, the fiscal 1994
weather impact was comparable with fiscal 1993.
In 1993, net operating revenues increased $3.6 million, to $55.8 million,
due primarily to higher gas deliveries caused in large part by weather that was
6 percent colder than in 1992 and the impact of the rate increase effective
November 11, 1991 (increasing net operating revenues by $865,000, or $530,000
after income taxes). In addition, environmental costs recovered through rates
increased $1.2 million.
OPERATION AND MAINTENANCE EXPENSES
Operation and maintenance expenses decreased $937,000, to $26.5 million,
due principally to lower environmental costs and injuries and damages expenses,
offset in part, by increased legal and group insurance expenses, largely related
to postretirement benefits.
In 1993, operation and maintenance expenses increased $2.6 million, to
$27.4 million, due mainly to increases in environmental costs recovered through
rates (see Note 2A of the Notes to Consolidated Financial Statements), injuries
and damages expenses, pension costs, and group insurance expenses.
DEPRECIATION EXPENSE
Depreciation expense increased $668,000, to $6.9 million, in 1994, and
$386,000, to $6.2 million, in 1993, due chiefly to depreciable property
additions.
OTHER INCOME
Other income increased $972,000, to $2.0 million, due mainly to recording
an IRS settlement of about $1.1 million after income taxes. (See Notes 4 and 6
of the Notes to Consolidated Financial Statements.)
In 1993, other income decreased $3.1 million, to $1.0 million, due
principally to the effect in fiscal 1992 of the net gain on the sale of property
at Deerfield. (See Note 4 of the Notes to Consolidated Financial Statements.)
-11-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
INCOME DEDUCTIONS
Income deductions declined $559,000, to $6.7 million, due largely to
reduced interest on long-term debt reflecting less principal outstanding at
lower rates.
In 1993, income deductions increased $1.0 million, to $7.2 million, due
primarily to increased interest on long-term debt, reflecting the issuance of
additional bonds in October 1992 and May 1993.
OTHER MATTERS
EFFECT OF WEATHER. Weather variations affect the volumes of gas delivered for
heating purposes and, therefore, can have a significant positive or negative
impact on net income and coverage ratios.
EFFECT OF INFLATION. The Company is affected by inflation through increases in
operating expenses and replacement of utility plant assets at costs higher than
historical costs. Gas costs, the Company's largest operating cost, and revenue
taxes are recovered dollar-for-dollar in rates. Increases in other operating
costs are recovered through rate cases. Although there is a time lag in the
recovery through rate cases of increased cost levels, the effect of this lag is
mitigated by the use of a future test year in rate decisions. The Company
recovers the cost of depreciable utility property through depreciation charges
based on historical costs. Such charges do not reflect current costs or
inflation-adjusted costs of utility plant. However, the Company believes that
the manner of setting utility rates generally affords an opportunity to earn a
fair return on shareholder investment.
ACCOUNTING STANDARDS. In March 1993, the Company adopted, effective October 1,
1992, the liability method of accounting for deferred income taxes required by
Statement of Financial Accounting Standards (SFAS) No. 109. (See Note 1G of the
Notes to Consolidated Financial Statements.)
Effective October 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This statement
requires the accrual of the expected costs of such benefits during the
employees' years of service. (See Note 5B of the Notes to Consolidated
Financial Statements.)
In November 1992, the Financial Accounting Standards Board (FASB) issued
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
statement requires the accrual of certain benefits provided to former or
inactive employees after employment but before retirement. SFAS No. 112
requires adoption by the Company no later than fiscal 1995. (See Note 5C of the
Notes to Consolidated Financial Statements.)
FERC ORDER 636 COSTS. In 1992, the FERC issued Order No. 636 and successor
orders that required substantial restructuring of the service obligations of
interstate pipelines. (See Notes 1H, 2A, and 2B of the Notes to Consolidated
Financial Statements.)
On September 15, 1993, the Commission entered an order initiating an
investigation into the appropriate means of recovery by Illinois gas utilities
of pipeline charges for FERC Order No. 636 transition costs. The Commission
issued its orders on rehearing in this proceeding in September 1994. (See Notes
1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
REENGINEERING STUDY. The Company is undertaking a major project to reengineer
its business processes with the goal of increasing efficiency, responsiveness to
customer needs, and cost effectiveness. The project commenced in September 1994
and is expected to continue for at least two years.
LIQUIDITY
SOURCE OF FUNDS. The Company has access to outside capital markets and to
internal sources of funds that together provide sufficient resources to meet
capital requirements. It does not anticipate any changes that would materially
alter its current liquidity position.
Due to the seasonal nature of gas usage, a major portion of cash
collections occurs between November and April. Because of timing differences in
the receipt and disbursement of cash and the level of construction requirements,
the Company may borrow on a short-term basis. Short-term borrowings are repaid
with cash from operations, other short-term borrowings, or refinanced on a
permanent basis with debt or equity, depending on capital market conditions and
capital structure considerations.
CREDIT LINES. Peoples Gas has lines of credit of approximately $131 million of
which the Company may borrow up to $30 million. At September 30, 1994, Peoples
Gas and the Company had unused credit available from banks of approximately
$130 million. (See Note 8 of the Notes to Consolidated Financial Statements.)
CASH FLOW ACTIVITIES. Net cash provided by operating activities rose by
$10.1 million in 1994, principally resulting from increases relating to rate
adjustments recoverable or refundable and accounts receivable. These increases
were partially offset by decreases associated with accounts payable, deferred
charges, and deferred taxes. In 1993, net cash provided by operating activities
increased by $2.0 million reflecting increases relating to operating earnings,
rate adjustments recoverable or refundable, gas in storage, and accounts
payable. These increases were partially offset by a decrease in accounts
receivable.
Net cash used in investing activities for 1994, 1993, and 1992 mainly
represents the level of capital expenditures in the respective years.
Net cash used in financing activities in 1994 reflects the retirement of
long-term debt and interim loans. In 1993, net cash provided by financing
activities includes the issuance of additional long-term debt, partially offset
by debt retirements and a decrease in interim loans.
INDENTURE RESTRICTIONS. The Company's indenture relating to its first mortgage
bonds contains provisions and covenants restricting the payment of cash
dividends and the purchase or redemption of capital stock. At September 30,
1994, such restrictions amounted to $11.6 million out of total retained earnings
of $58.9 million. (See Note 12 of the Notes to Consolidated Financial
Statements.)
-13-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
INTEREST COVERAGE. Coverage ratios for the Company's fixed charges for fiscal
1994, 1993, and 1992 were 3.33, 2.91, and 4.20, respectively. The current
fiscal year ratio reflects the recording of the fiscal 1994 portion of an IRS
settlement in income. (See Note 6 of the Notes to Consolidated Financial
Statements.) The 1993 ratio includes the effect of the rate increase granted in
November 1991 and colder weather, offset by higher operating costs and interest
expense. The fiscal 1992 ratio includes a net gain of $3.8 million from the
sale of a land parcel as well as the November 1991 rate increase.
DEBT RATINGS. The long-term debt of the Company is rated Aa3 by Moody's
Investors Service and AA- by Standard and Poor's Corporation. There has been no
change in these ratings since fiscal 1985. The commercial paper of the Company
has the top rating from the major rating agencies. On October 24, 1994,
Standard and Poor's Corporation affirmed its ratings of the Company's long-term
debt and commercial paper but changed its ratings outlook for the Company to
"negative" from "stable."
ENVIRONMENTAL MATTERS. The Company is conducting environmental investigations
and work at certain sites that were the location of former manufactured gas
plant operations. (See Note 3A of the Notes to Consolidated Financial
Statements.)
In February 1994, the Company received a demand from a responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (CERCLA) for reimbursement, indemnification and contribution
for response costs incurred at a site in Denver, Colorado. (See Note 3B of the
Notes to Consolidated Financial Statements.)
REGULATORY ACTIONS. On September 30, 1992, the Commission issued an order in
its consolidated proceedings, initiated in March 1991, regarding the appropriate
ratemaking treatment of environmental costs relating to past manufactured gas
operations incurred by Illinois utilities, including the Company and Peoples
Gas. In its order, the Commission approved rate recovery of such environmental
costs but required that the recovery occur over a five-year period without
recovery of carrying charges on unrecovered balances. The Commission's order is
on appeal before the Illinois Supreme Court. (See Note 2A of the Notes to
Consolidated Financial Statements.)
The Company filed proposed changes in rates with the Commission in December
1994. (See Item 1. Business - State Legislation and Regulation of this report.)
CAPITAL RESOURCES
CAPITAL SPENDING. Capital expenditures for additions, replacements, and
improvements to the utility plant were $12.6 million in 1994, $22.8 million in
1993, and $26.1 million in 1992.
The decline in fiscal 1994 expenditures from 1993 and 1992 was largely the
result of increased spending in the earlier years for a second pipeline supply
connection project that was undertaken to enhance gas supply. The current year
amount reflects a level consistent with the financial goals of the Company and
maintains system safety. Capital expenditures for fiscal 1993 and fiscal 1992
included $9.0 million and $14.9 million, respectively, for the pipeline project.
Capital expenditures for fiscal 1995 are estimated to be $12.7 million,
about the same level as 1994.
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
Fiscal 1995 sinking fund requirements for long-term debt are $4.0 million.
(See Note 7C of the Notes to Consolidated Financial Statements.)
The Company anticipates that future cash needs for capital expenditures and
sinking fund requirements and maturities will be met through internally
generated funds, intercompany loans from Peoples Energy, borrowing arrangements
with banks and/or the issuance of commercial paper on an interim basis, and
periodic long-term financing involving equity or first mortgage bonds.
BONDS ISSUED. On March 30, 1993, the Company filed a shelf registration with
the Securities and Exchange Commission (SEC) for the issuance of $40 million
aggregate principal amount of first mortgage bonds. On May 13, 1993, the
Company issued a portion of those first mortgage bonds in an aggregate principal
amount of $15 million at 6.37 percent, due May 1, 2003. (See Note 7A of the
Notes to Consolidated Financial Statements.)
Additional bonds are issuable by the Company, upon approval by the
Commission, subject to limitations imposed by certain restrictive provisions of
the Company's open-end mortgage and supplements thereto. These restrictions are
not expected to have an impact on the Company's ability to issue additional
debt, as needed.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Statement of Management's Responsibility 16
Report of Independent Public Accountants 17
Consolidated Statements of Income for fiscal years ended
September 30, 1994, 1993, and 1992 18
Consolidated Statements of Retained Earnings for fiscal
years ended September 30, 1994, 1993, and 1992 18
Consolidated Balance Sheets as of September 30, 1994 and 1993 19
Consolidated Capitalization Statements as of September 30, 1994
and 1993 20
Consolidated Statements of Cash Flows for fiscal years ended
September 30, 1994, 1993, and 1992 21
Notes to Consolidated Financial Statements 22
-15-
<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The financial statements and other financial information included in this
report were prepared by management, who is responsible for the integrity and
objectivity of the presented data. The consolidated financial statements of the
Company and its subsidiaries were prepared in conformity with generally accepted
accounting principles and necessarily include some amounts that are based on the
best estimates and judgments of management.
The Company maintains internal accounting systems and related
administrative controls, along with internal audit programs, that are designed
to provide reasonable assurance that the accounting records are accurate and
assets are safeguarded from loss or unauthorized use. Consequently, management
believes that the accounting records and controls are adequate to produce
reliable financial statements.
Arthur Andersen LLP, the Company's independent public accountants approved
by Peoples Energy's shareholders, as a part of their audit of the financial
statements, selectively reviews and tests certain aspects of internal accounting
controls solely to determine the nature, timing, and extent of audit tests.
Management has made available to Arthur Andersen LLP all of the Company's
financial records and related data and believes that all representations made to
the independent public accountants during their audit were valid and
appropriate.
The Audit Committee of the Board of Directors of Peoples Energy, comprised
of six outside directors, meets periodically with management, the internal
auditors, and Arthur Andersen LLP, jointly and separately, to assure that
appropriate responsibilities are discharged. These meetings include discussion
and review of accounting principles and practices, internal accounting controls,
audit results, and the presentation of financial information in the annual
report.
-16-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To North Shore Gas Company:
We have audited the accompanying consolidated balance sheets and
consolidated capitalization statements of North Shore Gas Company (an Illinois
corporation, hereinafter referred to as the Company and a wholly owned
subsidiary of Peoples Energy Corporation) and subsidiary companies as of
September 30, 1994 and 1993, and the related consolidated statements of income,
retained earnings, and cash flows for each of the three years in the period
ended September 30, 1994. These financial statements and the schedules referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules 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 the Company and subsidiary
companies as of September 30, 1994 and 1993, and the results of their operations
and cash flows for each of the three years in the period ended
September 30, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedules listed
in Item 14(a)2 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These financial statement schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 2, 1994
-17-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
North Shore Gas Company
- ---------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1994 1993 1992
- ---------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
Operating Revenues:
Gas sales $158,880 $147,433 $121,713
Transportation of customer-owned gas 11,185 11,751 10,419
Other 1,060 1,041 708
- ---------------------------------------------------------------------------------------------
Total Operating Revenues 171,125 160,225 132,840
- ---------------------------------------------------------------------------------------------
Operating Expenses:
Gas costs 105,042 93,800 71,418
Operation 23,434 24,164 21,790
Maintenance 3,064 3,271 3,009
Depreciation 6,860 6,192 5,806
Taxes - Income 4,731 4,788 4,852
- State and local revenue 10,962 10,622 9,212
- Other 1,952 2,182 2,152
- ---------------------------------------------------------------------------------------------
Total Operating Expenses 156,045 145,019 118,239
- ---------------------------------------------------------------------------------------------
Operating Income 15,080 15,206 14,601
- ---------------------------------------------------------------------------------------------
Other Income:
Interest income 397 663 208
Miscellaneous (see Note 4) 1,570 332 3,902
- ---------------------------------------------------------------------------------------------
Total Other Income 1,967 995 4,110
- ---------------------------------------------------------------------------------------------
Gross Income 17,047 16,201 18,711
- ---------------------------------------------------------------------------------------------
Income Deductions:
Interest on long-term debt 6,205 6,606 5,435
Other interest 322 480 675
Amortization of debt discount and expense 121 112 65
Miscellaneous 21 30 9
- ---------------------------------------------------------------------------------------------
Total Income Deductions 6,669 7,228 6,184
- ---------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 10,378 $ 8,973 $ 12,527
- ---------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
North Shore Gas Company
- ---------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1994 1993 1992
- ---------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
Balance at Beginning of Year $ 55,652 $ 53,351 $ 43,362
Add - Net Income 10,378 8,973 12,527
Deduct - Dividends declared on common stock 7,107 6,672 2,538
- ---------------------------------------------------------------------------------------------
Balance at End of Year $ 58,923 $ 55,652 $ 53,351
- ---------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
-18-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
North Shore Gas Company
- --------------------------------------------------------------------------------------------------
As of September 30, 1994 1993
- --------------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C>
PROPERTIES AND OTHER ASSETS
- --------------------------------------------------------------------------------------------------
Capital Investments:
Property, plant and equipment, at original cost $259,375 $248,580
Less - Accumulated depreciation 80,639 75,110
- --------------------------------------------------------------------------------------------------
Net property, plant and equipment 178,736 173,470
Gas supply advances and investments 112 117
- --------------------------------------------------------------------------------------------------
Total Capital Investments - Net 178,848 173,587
- --------------------------------------------------------------------------------------------------
Current Assets:
Cash 353 472
Cash equivalents 2,150 --
Trust fund, utility construction -- 4,243
Receivables -
Customers, net of allowance for uncollectible
accounts of $889 and $855, respectively 5,173 5,836
Other 820 3,835
Accrued unbilled revenues 2,361 3,839
Materials and supplies, at average cost 1,953 1,979
Gas in storage, at last-in, first-out cost 27,421 25,351
Gas costs recoverable through rate adjustments 2,402 8,479
Prepayments 377 397
- --------------------------------------------------------------------------------------------------
Total Current Assets 43,010 54,431
- --------------------------------------------------------------------------------------------------
Deferred Charges (see Note 9) 12,506 7,413
- --------------------------------------------------------------------------------------------------
Total Properties and Other Assets $234,364 $235,431
- --------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
- --------------------------------------------------------------------------------------------------
Capitalization (see Consolidated Capitalization Statements) $160,605 $161,334
- --------------------------------------------------------------------------------------------------
Current Liabilities:
Interim Loans -- 5,400
Accounts payable 13,938 16,296
Dividends payable on common stock 1,813 1,559
Customer gas service and credit deposits 5,877 4,583
Sinking fund payments and maturities, due within one year -
Long-term debt 4,000 4,000
Accrued taxes 2,115 3,013
Gas sales revenue refundable 9,776 958
Accrued interest 2,738 2,100
- --------------------------------------------------------------------------------------------------
Total Current Liabilities 40,257 37,909
- --------------------------------------------------------------------------------------------------
Reserves and Deferred Credits:
Deferred income taxes - primarily accelerated depreciation 13,894 14,184
Investment tax credits being amortized over
the average lives of related property 4,052 4,197
Other 15,556 17,807
- --------------------------------------------------------------------------------------------------
Total Reserves and Deferred Credits 33,502 36,188
- --------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $234,364 $235,431
- --------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
-19-
<PAGE>
CONSOLIDATED CAPITALIZATION STATEMENTS
<TABLE>
<CAPTION>
North Shore Gas Company
- --------------------------------------------------------------------------------------------------
As of September 30, 1994 1993
- --------------------------------------------------------------------------------------------------
(Thousands Of Dollars)
<S> <C> <C>
Common Stockholder's Equity:
Common stock, without par value -
Authorized 5,000,000 shares
Outstanding 3,625,887 shares $ 24,757 $ 24,757
Retained earnings (see Consolidated Statements
of Retained Earnings) 58,923 55,652
- --------------------------------------------------------------------------------------------------
Total Common Stockholder's Equity 83,680 80,409
- --------------------------------------------------------------------------------------------------
Long-Term Debt:
Exclusive of sinking fund payments and maturities
due within one year
First Mortgage Bonds -
10.20% Series I, due October 27, 1997 12,000 16,000
8% Series J (converted to a fixed rate effective
November 1, 1993; previous adjustable
rate was 8.125% through October 31, 1993),
due November 1, 2020 24,925 24,925
6.3/8% Series K, due October 1, 2022 25,000 25,000
6.37% Series L, due May 1, 2003 15,000 15,000
- --------------------------------------------------------------------------------------------------
Total Long-Term Debt 76,925 80,925
- --------------------------------------------------------------------------------------------------
Total Capitalization $160,605 $161,334
- --------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
-20-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
North Shore Gas Company
- --------------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1994 1993 1992
- --------------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 10,378 $ 8,973 $ 12,527
Adjustments to reconcile net income to net cash:
Depreciation 6,860 6,192 5,806
Deferred income taxes and investment tax
credits - net (2,705) 710 2,802
Change in other deferred credits and reserves 19 2,944 5,087
Change in deferred charges (5,093) (395) (2,563)
Other 5 8 29
- --------------------------------------------------------------------------------------------------
9,464 18,432 23,688
Change in current assets and liabilities:
Receivables - net 3,678 (4,573) (1,284)
Accrued unbilled revenues 1,478 (768) (318)
Gas in storage (2,070) 20 (3,014)
Rate adjustments recoverable or refundable 14,895 (3,473) (7,198)
Payables (2,358) 4,286 2,037
Customer gas service and credit deposits 1,294 (324) (671)
Accrued taxes (898) 2,215 1,036
Accrued interest 638 215 (107)
Other 46 70 (39)
- --------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 26,167 16,100 14,130
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures - construction (12,595) (22,824) (26,061)
Other assets 469 294 597
- --------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (12,126) (22,530) (25,464)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Retirement of long-term debt (4,000) (11,566) (2,547)
Interim loans - net (5,400) (14,600) 17,000
Issuance of long-term debt -- 40,000 --
Trust fund, utility construction 4,243 (4,243) --
Dividends paid on common stock (6,853) (5,874) (1,776)
- --------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (12,010) 3,717 12,677
- --------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,031 (2,713) 1,343
Cash and Cash Equivalents at Beginning of Year 472 3,185 1,842
- --------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 2,503 $ 472 $ 3,185
- --------------------------------------------------------------------------------------------------
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
-21-
<PAGE>
NORTH SHORE GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1A Principles of Consolidation
All subsidiaries of the Company are included in the consolidated financial
statements. All significant intercompany transactions have been eliminated in
consolidation. Certain items previously reported for years prior to 1994 have
been reclassified to conform with the current-year presentation.
1B Concentration of Credit Risk
The Company provides natural gas service to about 129,000 customers within
approximately 275 square miles in Northeastern Illinois. Credit risk for the
utility is spread over a diversified base of residential, commercial, and
industrial retail sales and transportation customers.
The Company encourages customers to participate in its long-standing budget
payment program that allows the cost of higher gas consumption levels,
associated with the heating season, to be spread over a 12-month billing cycle.
Customers' payment records are continually monitored and credit deposits are
required, where indicated, to minimize uncollectible write-offs.
1C Revenue Recognition
Gas sales revenues for retail customers are recorded on the accrual basis
for all gas delivered during the month, including an estimate for gas delivered
but unbilled at the end of each month.
1D Property, Plant and Equipment
Property, plant and equipment is stated at original cost and includes
appropriate amounts of payroll taxes, employee benefit costs, administrative
costs, and an allowance for funds used during construction.
1E Maintenance and Depreciation
The Company charges the cost of maintenance and repairs of property and
minor renewals and improvements of property to maintenance expense. When
depreciable property is retired, its original cost is charged to the accumulated
provision for depreciation.
The provision for depreciation substantially reflects the systematic
amortization of the original cost of depreciable property over estimated useful
lives on the straight-line method. Additionally, actual dismantling cost, net
of salvage, is included in the provision for depreciation in the month incurred.
The amounts provided are designed to cover not only losses due to wear and tear
that are not restored by maintenance, but also losses due to obsolescence and
inadequacy.
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision for depreciation, expressed as an annual percentage of
original cost of depreciable property, is as follows:
<TABLE>
<CAPTION>
For fiscal years ended September 30, 1994 1993 1992
------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Provision for depreciation 3.2% 3.1% 3.2%
</TABLE>
1F Statement of Cash Flows
For purposes of the balance sheet and the statement of cash flows, the
Company considers all short-term liquid investments with maturities of three
months or less to be cash equivalents.
Income taxes and interest paid (excluding capitalized interest) were as
follows:
<TABLE>
<CAPTION>
For fiscal years ended September 30, 1994 1993 1992
------------------------------------ ---- ---- ----
(Thousands)
<S> <C> <C> <C>
Income taxes paid $8,085 $3,145 $3,911
Interest paid 6,617 6,819 6,020
</TABLE>
1G Income Taxes
The recording of deferred income taxes results from the use of accelerated
depreciation methods and certain other timing differences in recognition of
income and expense for tax and financial statement purposes.
Investment tax credits have been deferred and are being amortized through
credits to income over the book lives of related property.
In March 1993, the Company adopted, effective October 1, 1992, the liability
method of accounting for deferred income taxes required by SFAS No. 109,
"Accounting for Income Taxes." Under the liability method, deferred income taxes
have been recorded using currently enacted tax rates for the differences between
the tax basis of assets and liabilities and the basis reported in the financial
statements. Due to the effects of regulation on the Company, certain adjustments
made to deferred income taxes to reflect the adoption of SFAS No. 109 are, in
turn, debited or credited to regulatory assets or liabilities. Such adjustments
had no material impact on financial position or results of operations of the
Company. (See Note 6.)
The preceding deferred-tax and tax-credit accounting conforms with
regulations of the Commission.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1H Recovery of Gas Costs, Including Charges for Transition Costs
Under the tariffs of the Company, the difference for any fiscal year between
costs recoverable through the Gas Charge and revenues billed to customers under
the Gas Charge is refunded or recovered over a 12-month billing cycle beginning
the following January 1. Consistent with these tariff provisions, such
difference for any month is recorded either as a current liability or as a
current asset (with a contra entry to Gas Costs), and the fiscal year-end
balance is amortized over the 12-month period beginning the following January 1.
The Commission conducts annual proceedings regarding, for each gas utility,
the reconciliation of revenues from the Gas Charge and related costs incurred
for gas. In such proceedings, costs recovered by a utility through the Gas
Charge are subject to challenge. Such proceedings regarding the Company for
fiscal years 1991 through 1994 are currently pending before the Commission.
Pursuant to FERC Order No. 636 and successor orders, pipelines are allowed
to recover from their customers so-called transition costs. These costs arise
from the restructuring of pipeline service obligations required by the 636
Orders. The Company is currently recovering pipeline charges for transition
costs through an existing provision of the Gas Charge. The Commission entered an
order on March 9, 1994, providing for the full recovery of all such charges from
customers. In September 1994, the Commission entered orders on rehearing that
retained the provision for full recovery from customers. (See Notes 2A and 2B.)
1I Gas in Storage
Storage injections are priced at the fiscal-year average of costs of natural
gas purchased. Withdrawals from storage are priced on the last-in, first-out
(LIFO) cost method. The estimated current replacement cost of gas in inventory,
at September 30, 1994 and 1993, exceeded the LIFO cost by approximately $35
million and $41 million, respectively.
2. RATES AND REGULATION
2A Utility Rate Proceedings
ENVIRONMENTAL COST RECOVERY. On September 30, 1992, the Commission issued an
order in its consolidated proceedings, initiated in March 1991, regarding the
appropriate ratemaking treatment of environmental costs relating to past
manufactured gas operations incurred by Illinois utilities, including the
Company and Peoples Gas, in connection with the investigation and treatment of
residues associated with past manufactured gas operations ("environmental
costs"). In its order, the Commission approved rate recovery of such
environmental costs but required that the recovery occur over a five-year period
without recovery of carrying charges on unrecovered balances. Reimbursements of
environmental costs from insurance carriers or other entities are to be netted
against costs and reflected in rates over a five-year period. In November 1992,
several parties, including the Company and Peoples Gas, appealed the
Commission's order to the Illinois Appellate Court. On December 29, 1993, the
Third District Appellate Court issued its opinion affirming the Commission's
order in the consolidated proceedings. On April 6, 1994, the Illinois Supreme
Court allowed an appeal of the Appellate Court's decision. Any change made
pursuant to the Supreme Court's order on appeal would have a prospective effect
only.
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FERC ORDER NO. 636 COST RECOVERY. On September 15, 1993, the Commission
entered an order initiating an investigation into the appropriate means of
recovery by Illinois gas utilities of pipeline charges for FERC Order No. 636
transition costs. The Commission issued a final order in this proceeding on
March 9, 1994. The order provides for the full recovery of transition costs from
the Company's gas service customers and transportation customers to the extent
they contract for firm standby service. The Citizens Utility Board and State's
Attorney of Cook County filed an application for rehearing of the March 9 order
with the Commission. On May 4, 1994, the Commission granted rehearing, limited
to the question of the allocation of transition costs. In September 1994, the
Commission entered orders on rehearing. In its orders on rehearing, the
Commission continued to provide for full recovery of transition costs, but
directed that, effective November 1, 1994, gas supply realignment (GSR) costs
(one of the four categories of transition costs) be recovered on a uniform
volumetric basis from all transportation and sales customers. (See Notes 1H and
2B.)
2B FERC Orders 636, 636-A, and 636-B
In 1992, the FERC issued Order Nos. 636, 636-A, and 636-B. There are
numerous appeals of the 636 Orders pending before the Federal Circuit Court of
Appeal for the D.C. Circuit.
The 636 Orders require substantial restructuring of the service obligations
of interstate pipelines. Among other things, the 636 Orders mandated
"unbundling" of existing pipeline gas sales services. Mandatory unbundling
requires pipelines to sell separately the various components of their gas sales
services (gathering, transportation and storage services, and gas supply). These
components were previously combined or "bundled" in gas services such as those
purchased by the Company. To address concerns raised by utilities about
reliability of service to their service territories, the 636 Orders required
pipelines to offer a "no-notice" transportation service under which firm
transporters can receive delivery of gas up to their contractual capacity level
on any day without prior scheduling. Further, the 636 Orders provided for
mechanisms for pipelines to recover prudently incurred transition costs
associated with the restructuring process.
The FERC initiated individual restructuring proceedings for each interstate
pipeline. Each pipeline submitted a proposal to bring it into compliance with
the requirements of the 636 Orders. The restructured tariffs of Natural Gas
Pipeline Company of America (Natural), the pipeline serving the Company, went
into effect December 1, 1993. Several appeals of the orders approving Natural's
restructured tariffs are pending before the Federal Circuit Court of Appeal for
the D.C. Circuit.
As part of the restructuring process, the Company elected necessary levels
of restructured services, including no-notice services, from the menu of
restructured services offered by Natural. Also during 1993, the Company took the
steps necessary to obtain reliable gas supply as a replacement for the bundled
merchant service supply which was no longer available from Natural to any
significant extent.
Under the 636 Orders, pipelines must make separate rate filings to recover
transition costs. There are four categories of such costs, the largest of which
for the Company is GSR costs. The Company is subject to charges for transition
cost recovery by Natural. Charges for transition costs commenced on January 1,
1994. Appropriate accruals for transition costs have been recorded. The Company
is currently recovering transition costs through the Gas Charge. On September
29, 1994, the FERC approved a Stipulation and Agreement (Agreement) filed by
Natural. The Agreement places a cap of approximately $25 million on the amount
of GSR costs recoverable by Natural from the Company.
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 636 Orders are not expected to have a material adverse effect on
financial position or results of operations of the Company. (See Notes 1H and
2A.)
3. ENVIRONMENTAL MATTERS
3A Former Manufactured Gas Plant Operations
The Company, its predecessors, and certain former affiliates operated
facilities in the past for manufacturing gas and storing manufactured gas. In
connection with manufacturing and storing gas, various by-products and waste
materials were produced, some of which might have been disposed of rather than
sold. Under certain laws and regulations relating to the protection of the
environment, the Company might be required to undertake remedial action with
respect to some of these materials, if found at the sites. Two sites in
Waukegan, Illinois, are the subjects of investigations (discussed below)
initiated by the United States Environmental Protection Agency (EPA).
In May 1990, the Company was notified by the EPA that the EPA had documented
the release or threatened release of hazardous substances, pollutants, and
contaminants at a site located in Waukegan, Illinois, where manufactured gas and
coking operations were formerly conducted (Waukegan I Site). Also, the Company,
General Motors Corporation (GMC), and Outboard Marine Corporation were notified
that each may be a potentially responsible party (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(CERCLA) with respect to the Waukegan I Site. A PRP is potentially liable for
the cost of any investigative and/or remedial work that the EPA determines is
necessary.
In September 1990, the Company entered into an Administrative Order on
Consent (AOC) with the EPA and the Illinois Environmental Protection Agency
(IEPA) to implement and conduct a remedial investigation/feasibility study
(RI/FS) of the Waukegan I Site. The RI/FS is comprised of an investigation to
determine the nature and extent of contamination at the site and a feasibility
study to develop and evaluate possible remedial actions. Other parties
identified as PRPs did not enter into the AOC. Under the terms of the AOC, the
Company is responsible for the cost of the RI/FS. The Company believes, however,
that it will recover a significant portion of the costs of the RI/FS from other
entities. GMC has agreed to share equally with the Company in funding of the
RI/FS cost, without prejudice to GMC's or the Company's right to seek a lesser
cost responsibility at a later date.
In September 1991, the Company, the Elgin, Joliet and Eastern Railway
(EJ&E), and the North Shore Sanitary District (NSSD) each received an
administrative order (AO) issued by the EPA. The AO directed all three entities
to remove and dispose of all visible free tar in a pit located within a separate
site in Waukegan, Illinois (Waukegan II Site) and to conduct a study to
determine the extent of contamination of the tar from the pit to the surrounding
property. All of the work under the AO has been completed. The Company has
entered into a settlement agreement with NSSD with respect to costs incurred
under the AO and intends to recover an appropriate amount of the remaining costs
from EJ&E.
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company, in cooperation with the IEPA, is conducting investigations of
other sites (a total of three) to determine whether remedial action might be
necessary. The investigations were initiated pursuant to an informal request by
the IEPA. To the best of the Company's knowledge, similar informal requests
have been made by the IEPA to other major Illinois gas and electric utilities.
The Company has engaged environmental consulting firms to assist in the
Company's investigations. At this time, it is not known what, if any, remedial
action will be necessary at the sites or, if necessary, what the cost of any
such action would be.
The Company is accruing and deferring the costs it incurs in connection with
all of the sites, including related legal expenses, pending recovery through
rates or from insurance carriers or other entities. As of September 30, 1994,
the total of the costs deferred by the Company, net of recoveries and amounts
billed to other entities, was $7.2 million. This amount includes an estimate of
the costs of completing the studies required by the EPA at the Waukegan I Site
and the Waukegan II Site and the investigations initiated at the request of the
IEPA at the other sites referred to above. The amount also includes an estimate
of the costs of remediation at the Waukegan I Site, at the minimum amount of the
current estimated range of such costs. The costs of remediation at the other
sites cannot be determined until more is known about the nature and extent of
contamination and the remedial action, if any, to be required by the EPA or the
IEPA. While the Company intends to seek contribution by other entities for the
costs incurred at the sites, the extent of such contributions cannot be
determined at this time. Finally, the Company is currently researching its
insurance coverages and has initiated the claim process with respect to certain
carriers. At this time, management cannot determine the timing and extent of
the Company's recovery of costs from its insurance carriers. Accordingly, the
foregoing amount has not been reduced to reflect recoveries from insurance
carriers.
Costs incurred by the Company for environmental activities at the sites will
be recovered from insurance carriers or other entities or through rates for
utility service. Accordingly, management believes that the costs incurred by
the Company in connection with the sites will not have a material adverse effect
on its financial position or results of operations. The Company is authorized
to recover the costs of environmental activities relating to its former
manufactured gas operations under a rate mechanism approved by the Commission.
As of September 30, 1994, it had recovered $3.6 million of such costs through
rates. (See Note 2A for a discussion of proceedings regarding the recovery of
such costs through utility rates.)
3B Former Mineral Processing Site in Denver, Colorado
In February 1994, the Company received a demand from the S.W. Shattuck
Chemical Company, Inc. (Shattuck), a responsible party under CERCLA, for
reimbursement, indemnification and contribution for response costs incurred at a
former mineral processing site in Denver, Colorado. The demand alleges that the
Company is a successor-in-interest to certain companies that were allegedly
responsible during the period 1934-1941 for the disposal of mineral processing
wastes containing radium and other hazardous substances at the site. The Company
is examining this claim. The cost of the remedy at the site has been estimated
by Shattuck to be approximately $31 million.
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
No legal proceedings have been commenced against the Company. In the event
of litigation, the Company would vigorously defend itself. The Company has
strong defenses against any claim that it was responsible for the disposal of
hazardous substances at the site or that it had control over, or succeeded to
the liability of, any entity that disposed of hazardous substances at the site.
Accordingly, the Company does not believe that it has liability for the response
costs, but cannot determine the matter with certainty. At this time, the Company
cannot reasonably estimate what range of loss, if any, may occur. In the event
that the Company incurred liability, it would pursue reimbursement from
insurance carriers, other responsible parties, if any, and through its rates for
utility service.
4. OTHER INCOME - MISCELLANEOUS
<TABLE>
<CAPTION>
For fiscal years ended September 30, 1994 1993 1992
- ---------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
Interest on amounts recoverable from customers $ 412 $272 $ 40
Income tax settlement (see Note 6) 1,454 -- --
Income taxes on income tax settlement (see Note 6) (356) -- --
Gain on sale of property -- -- 6,207
Income taxes on sale of property -- -- (2,404)
Other 60 60 59
- ---------------------------------------------------------------------------------------
Total Other Income - Miscellaneous $1,570 $332 $3,902
- ---------------------------------------------------------------------------------------
</TABLE>
5. EMPLOYEE BENEFITS
5A Pensions
The Company participates in two defined benefit pension plans covering
substantially all employees. These plans provide pension benefits that generally
are based on an employee's length of service, compensation during the five years
preceding retirement, and social security benefits. Annual contributions are
made to the plans based upon actuarial determinations and in consideration of
tax regulations and funding requirements under federal law.
The Company also has a non-qualified pension plan that provides certain
employees with pension benefits in excess of qualified plan limits imposed by
federal tax law.
Net pension cost for all plans for fiscal 1994, 1993, and 1992 included the
following components:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------------------
(Millions)
<S> <C> <C> <C>
Service cost--benefits earned during year $1.1 $1.2 $1.0
Interest cost on projected benefit obligations 2.0 2.2 2.1
Actual return on plan assets (gain) loss (0.4) (3.2) (3.2)
Net amortization and deferral (1.8) 0.8 0.8
- ---------------------------------------------------------------------------------------
Net pension cost $0.9 $1.0 $0.7
- ---------------------------------------------------------------------------------------
</TABLE>
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The calculation of pension cost assumed a long-term rate of return on assets
of 7.5 percent for 1992 through 1994.
The following table shows the estimated funded status of the Company's
pension plans at September 30, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------
(Millions)
<S> <C> <C>
Plan Assets at Market Value $30.8 $33.4
- -------------------------------------------------------------------------------------------------
Actuarial present value of plan benefits:
Vested 23.0 23.9
Non-vested 3.2 3.2
- -------------------------------------------------------------------------------------------------
Accumulated benefit obligation 26.2 27.1
Effect of projected future compensation increases 6.8 8.5
- -------------------------------------------------------------------------------------------------
Projected Benefit Obligation 33.0 35.6
- -------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation (2.2) (2.2)
Less:
Unrecognized transition asset 0.3 0.4
Unrecognized prior service cost (0.2) (0.2)
Unrecognized net gain (loss) (1.0) (0.4)
- -------------------------------------------------------------------------------------------------
Accrued Pension (Liability) Asset $ (1.3) $ (2.0)
- -------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation was determined using a discount rate of 6.5
percent for 1994 and 5.75 percent for 1993, and assumed future compensation
increases of 5.0 percent for each year. Plan assets consist primarily of
marketable equity and fixed-income securities.
5B Postretirement Benefits Other Than Pensions
The Company also provides certain health care and life insurance benefits
for retired employees. Substantially all employees may become eligible for such
benefit coverage if they reach retirement age while working for the Company. The
plans are funded based upon actuarial determinations and in consideration of tax
regulations and funding requirements under federal law.
The Company adopted SFAS No. 106 effective October 1, 1993. SFAS No. 106
requires the accrual of the expected costs of such benefits during the
employees' years of service.
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net postretirement benefit cost for all plans for fiscal 1994 included the
following components:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
(Millions)
<S> <C>
Service cost--benefits earned during year $ 0.3
Interest cost on projected benefit obligations 0.6
Actual return on plan assets (gain) loss --
Amortization of transition obligation 0.4
Net amortization and deferral --
- --------------------------------------------------------------------------------
Net postretirement benefit cost $ 1.3
- --------------------------------------------------------------------------------
</TABLE>
The calculation of postretirement benefit cost assumed a long-term rate of
return on assets of 7.5 percent.
The Company recognized total postretirement costs of $1.3 million during
fiscal 1994. Of this amount, $777,000 was funded through trust funds for future
benefit payments. Such costs during fiscal year 1993 were approximately
$400,000; no funding was made.
Due to expected regulatory treatment, the adoption of SFAS No. 106 will not
have a material effect on financial position or results of operations.
The following table sets forth the estimated funded status for the
postretirement health care and life insurance plans at September 30, 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1994
- --------------------------------------------------------------------------------
(Millions)
<S> <C>
Plan Assets at Market Value $ 0.6
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation (APBO):
Retirees 4.7
Fully Eligible Active Plan Participants 1.6
Other Active Plan Participants 2.2
- --------------------------------------------------------------------------------
Total APBO 8.5
- --------------------------------------------------------------------------------
APBO in excess of plan assets (7.9)
Less:
Unrecognized transition obligation (8.1)
Unrecognized net gain 0.2
- --------------------------------------------------------------------------------
Accrued Postretirement Benefit (Liability) Asset $ --
- --------------------------------------------------------------------------------
</TABLE>
The total APBO was determined using a discount rate of 7.75 percent and
assumed future compensation increases of 5.0 percent. The unfunded obligation
will be amortized over 20 years. Plan assets consist primarily of marketable
equity and fixed-income securities.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For measurement purposes, a health care cost trend rate of 10.25 percent was
assumed for fiscal 1995, and that rate thereafter will decline to 5.0 percent in
2003 and subsequent years. The health care cost trend rate assumption has a
significant effect on the amounts reported. Increasing the assumed health care
cost trend rate by one percentage point for each future year would have
increased the APBO at September 30, 1994, by $633,000 and the aggregate of
service and interest cost components of the net periodic postretirement benefit
cost by $94,000 annually.
5C Postemployment Benefits
In November 1992, the FASB issued SFAS No. 112. This statement requires the
accrual of certain benefits provided to former or inactive employees after
employment but before retirement. The Company adopted SFAS No. 112 effective
October 1, 1994. Implementation of this statement will not have a material
effect on financial position or results of operations.
6. TAX MATTERS
<TABLE>
<CAPTION>
Provision for Income Taxes
- -------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1994 1993 1992
- -------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
Current:
Federal $6,152 $3,464 $3,747
State 1,290 623 707
- -------------------------------------------------------------------------------------------
Total current income taxes 7,442 4,087 4,454
- -------------------------------------------------------------------------------------------
Deferred:
Federal (1,863) 577 2,308
State (333) 197 588
- -------------------------------------------------------------------------------------------
Total deferred income taxes (2,196) 774 2,896
- -------------------------------------------------------------------------------------------
Investment tax credits - net:
Federal (195) (196) (206)
State 36 123 112
- -------------------------------------------------------------------------------------------
Total investment tax credits - net (159) (73) (94)
- -------------------------------------------------------------------------------------------
Total provision included in income taxes 5,087 4,788 7,256
Less - Included in other income or operation expense 356 -- 2,404
- -------------------------------------------------------------------------------------------
Total provision for income taxes $4,731 $4,788 $4,852
- -------------------------------------------------------------------------------------------
</TABLE>
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
See Note 1G for discussion of the adoption of SFAS No. 109 effective
October 1, 1992. Set forth in the table below are the temporary differences
which gave rise to the net deferred income tax liabilities:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
As of September 30, 1994 October 1, 1993
- --------------------------------------------------------------------------------
(Thousands)
<S> <C> <C>
Deferred tax liabilities:
Property--accelerated depreciation
and other property related items $19,316 $17,284
Gas costs reconciliation 551 2,951
Other 98 323
- --------------------------------------------------------------------------------
Total deferred income tax liabilities 19,965 20,558
- --------------------------------------------------------------------------------
Deferred tax assets:
Net regulatory liabilities--income
tax amounts (2,460) (3,102)
Unamortized investment credits (1,607) (1,665)
Tax settlement (356) (648)
Other (1,648) (959)
- --------------------------------------------------------------------------------
Total deferred income tax assets (6,071) (6,374)
- --------------------------------------------------------------------------------
Net deferred income tax liabilities $13,894 $14,184
- --------------------------------------------------------------------------------
</TABLE>
The sources of significant timing differences which gave rise to federal
deferred income taxes for the year prior to adoption of SFAS No. 109 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For fiscal year ended September 30, 1992
- --------------------------------------------------------------------------------
(Thousands)
<S> <C>
Accelerated depreciation $ 852
Gas costs reconciliation 1,583
Other (127)
- --------------------------------------------------------------------------------
Total federal deferred income tax expense $2,308
- --------------------------------------------------------------------------------
</TABLE>
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a reconciliation between the computed federal income tax
expense (tax rate of 35 percent for 1994, 34.75 percent for 1993, and 34 percent
for 1992, times pre-tax book income) and the total provision for federal income
tax expenses:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1994 1993 1992
- --------------------------------------------------------------------------------------------------
Percent Percent Percent
of of of
Amount Pre-tax Amount Pre-tax Amount Pre-tax
(000's) Income (000's) Income (000's) Income
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed federal income
tax expense $5,065 35.00 $4,454 34.75 $6,248 34.0
Amortization of investment
tax credits (195) (1.34) (196) (1.53) (206) (1.1)
Amortization of deferred taxes (594) (4.10) (201) (1.57) (211) (1.1)
Other, net (182) (1.27) (212) (1.66) 18 --
- --------------------------------------------------------------------------------------------------
Total provision for federal
income taxes $4,094 28.29 $3,845 29.99 $5,849 31.8
- --------------------------------------------------------------------------------------------------
</TABLE>
On September 30, 1993, the Company received notification from the IRS that
settlement of past income tax returns had been reached for fiscal years 1978
through 1990. The IRS settlement resulted in 1994 payments of principal and
interest to the Company in total amount of approximately $3 million, or $2.2
million after income taxes. The Company has received regulatory authorization to
defer the recording of the settlement amount in income for fiscal year 1993, and
to record its portion of the settlement amount in income for fiscal years 1994
and 1995. The Company has represented to the Commission that, having received
this accounting authorization, it will not file a request for an increase in
base rates before December 1994. The regulatory treatment of the IRS settlement
having been resolved in November 1993, the Company included $1.4 million, or
$1.1 million after income taxes, in income in 1994. The amount after income
taxes is included in Other Income - Miscellaneous. At September 30, 1994,
approximately $1.4 million is included in Reserves and Deferred Credits - Other.
The Company will amortize its remaining portion of the settlement amount in
income in fiscal year 1995, the effect of which will be to offset increases in
costs that the utility will incur during that year.
7. LONG-TERM DEBT
7A Issuance of Bonds
On March 30, 1993, the Company filed a shelf registration with the SEC for
the issuance of $40 million aggregate principal amount of first mortgage bonds.
On May 13, 1993, the Company issued a portion of those first mortgage bonds in
an aggregate principal amount of $15 million at 6.37 percent due May 1, 2003.
Proceeds of the offering were used to refund approximately $11 million aggregate
principal amount of the Company's previously issued first mortgage bonds and for
general corporate purposes. The Company may issue all or a portion of the
remaining bonds during fiscal 1995 and/or fiscal 1996. Proceeds of the future
offering will be used for general corporate purposes.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In accordance with provisions of the Internal Revenue Code and regulations
thereunder, any arbitrage income must be paid to the federal government.
Additionally, all assets financed through this arrangement must be depreciated
on a straight-line basis for tax purposes.
7B Interest-Rate Adjustments
Effective November 1, 1993, the rate of interest on the Company's
Adjustable-Rate Bonds, Series J, was fixed at 8 percent until maturity,
November 1, 2020.
7C Sinking Fund Requirements of Subsidiaries
As of September 30, 1994, long-term debt sinking fund requirements of the
Company for fiscal years 1995 through 1998 equal $4 million each year.
7D Fair Value of Financial Instruments
The estimated fair value of the Company's $76.9 million carrying amount of
long-term debt approximated $77.0 million as of September 30, 1994. As of
September 30, 1993, the estimated fair value of the Company's $80.9 million
carrying amount of long-term debt approximated $81.7 million. The estimated fair
value of the Company's long-term debt is based on quoted market prices or yields
for issues with similar terms and remaining maturities. The carrying amount of
all other financial instruments approximates fair value.
8. SHORT-TERM BORROWINGS AND CREDIT LINES
<TABLE>
<CAPTION>
As of September 30, 1994 1993
- --------------------------------------------------------------------------------
(Thousands)
<S> <C> <C>
Bank Loans
Peoples Gas
7.75% due December 22, 1994 $ 900 $ --
- --------------------------------------------------------------------------------
Commercial Paper
Peoples Gas
due October 1, 1993,
through October 21, 1993 -- 63,200
North Shore Gas
due October 1, 1993,
through October 21, 1993 -- 5,400
- --------------------------------------------------------------------------------
Available Lines of Credit at End of Year
Unused bank lines $130,150 $46,400
- --------------------------------------------------------------------------------
</TABLE>
Short-term cash needs of the Company and Peoples Gas are met through
intercompany loans from Peoples Energy, bank loans, and/or the issuance of
commercial paper. The outstanding total amount of bank loans and commercial
paper issuances cannot at any time exceed total bank credit then in effect.
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On February 1, 1994, Peoples Gas reduced its lines of credit to
approximately $154 million from $184 million in effect since November 1, 1993.
The Company was authorized to borrow up to $20 million of the aggregate $154
million. On July 1, 1994, Peoples Gas reduced its lines of credit to
approximately $131 million of which the Company may borrow up to $30 million.
Agreements covering $93.7 million of the total will expire on June 29, 1995. The
agreement covering the remaining $37.4 million will expire on January 31, 1997.
Such lines of credit cover projected short-term credit needs of Peoples Gas and
the Company and support the long-term debt treatment of Peoples Gas'
adjustable-rate mortgage bonds. Payment for the lines of credit is by fee.
9. DEFERRED CHARGES
<TABLE>
<CAPTION>
As of September 30, 1994 1993
- -------------------------------------------------------------------------------------------------
(Thousands)
<S> <C> <C>
Debt expense being amortized over the lives of outstanding issues $2,827 $2,962
Environmental costs, net of recoveries 7,211 4,107
Transition gas costs from pipeline supplier 2,200 --
Other 268 344
- -------------------------------------------------------------------------------------------------
Total Deferred Charges $12,506 $7,413
- -------------------------------------------------------------------------------------------------
</TABLE>
10. CAPITAL COMMITMENTS
Total contract and purchase order commitments of the Company at
September 30, 1994, amounted to approximately $995,000.
11. ASSETS SUBJECT TO LIEN
The Indenture of Mortgage, dated April 1, 1955, as supplemented, securing
the first mortgage bonds issued by the Company, constitutes a direct,
first-mortgage lien on substantially all property owned by the Company.
12. COVENANTS REGARDING RETAINED EARNINGS
The Company's indenture relating to the first mortgage bonds contains
provisions and covenants restricting the payment of cash dividends and the
purchase or redemption of capital stock. At September 30, 1994, such
restrictions amounted to $11.6 million out of the Company's total retained
earnings of $58.9 million.
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. QUARTERLY FINANCIAL DATA (Unaudited)
The fluctuation in quarterly results is primarily due to the seasonal nature
of the gas distribution business. Results for the first quarter of fiscal 1994
include the recording of one-half of an IRS settlement, in income, increasing
net income by $1.1 million.
<TABLE>
<CAPTION>
Net Income
Operating Operating Applicable to
Fiscal Quarters Revenues Income Common Stock
- --------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
1994
Fourth $14,920 $ (145) $(1,488)
Third 26,379 1,801 508
Second 80,033 7,882 6,375
First 49,793 5,542 4,983
- --------------------------------------------------------------------------------
1993
Fourth $16,780 $ 105 $(1,456)
Third 28,086 2,007 517
Second 67,489 7,805 6,261
First 47,870 5,289 3,651
- --------------------------------------------------------------------------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-36-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF DIRECTORS
Company
Name, Principal Occupation, Age at Directorship
and Other Directorships 11-30-94 Since
- -------------------------------------------------- -------- ------------
Kenneth S. Balaskovits 52 1993
Vice President and Controller
of the Company, Peoples Energy,
and Peoples Gas; Director of Peoples Gas.
J. Bruce Hasch 56 1986
President and Chief Operating Officer of
the Company, Peoples Energy, and Peoples Gas;
Director of Peoples Energy and Peoples Gas.
James Hinchliff 54 1985
Senior Vice President and General Counsel
of the Company, Peoples Energy,
and Peoples Gas; Director of Peoples Gas.
Michael S. Reeves 59 1988
Executive Vice President of the Company,
Peoples Energy, and Peoples Gas;
Director of Peoples Energy and Peoples Gas.
Richard E. Terry 57 1982
Chairman of the Board and Chief Executive
Officer of the Company, Peoples Energy, and
Peoples Gas; Director of Peoples Energy
and Peoples Gas. Mr. Terry is also a
director of Harris Bankcorp, Inc., Harris Trust
and Savings Bank, and Amsted Industries.
-37-
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued)
IDENTIFICATION OF EXECUTIVE OFFICERS
Position at Age at Position
Name November 30, 1994 11-30-94 Held Since
- ---------------------- ----------------------------- -------- ----------
Kenneth S. Balaskovits Vice President and Controller 52 1993
Frank H. Blackmore Vice President 59 1989
Emmet P. Cassidy Secretary and Treasurer 61 1989
Patrick J. Doyle Vice President 57 1985
Joan T. Gagen Vice President 43 1994
J. Bruce Hasch President and Chief Operating 56 1990
Officer
James Hinchliff Senior Vice President and 54 1989
General Counsel
John C. Ibach Vice President 47 1992
Donald H. Keller Vice President 61 1986
Thomas J. O'Sullivan Division Vice President 52 1992
Thomas M. Patrick Vice President 48 1989
James D. Pitts, Jr. Vice President 56 1989
Michael S. Reeves Executive Vice President 59 1987
Richard E. Terry Chairman of the Board and 57 1990
Chief Executive Officer
Directors and executive officers of the Company were elected to serve
for a term of one year or until their successors are duly elected and qualified,
except for Messrs. Keller and O'Sullivan, who were appointed.
There are no family relationships among directors and executive officers of
the Company.
All of the directors and executive officers of the Company have been
continuously employed by the Company and/or its affiliates in various capacities
for at least 10 years.
-38-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth information concerning annual and long-term
compensation and grants of stock options, stock appreciation rights and
restricted stock awards under Peoples Energy's Long-Term Incentive Compensation
Plan. Cash compensation for executive officers, except for Mr. Keller, is paid
by Peoples Gas with appropriate amounts billed to the Company for the time such
officers serve the Company. All compensation was paid by the Company and its
affiliates (Peoples Energy and Peoples Gas) for services in all capacities
during the three fiscal years set forth below, to (1) the Chief Executive
Officer and (2) the most highly compensated executive officer of the Company
other than the Chief Executive Officer. No executive officer's cash
compensation paid by the Company for service to the Company exceeded $100,000,
except for Mr. Keller's.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------- ----------------------
Restricted All Other
Stock Options/ Compen-
Name and Awards(1)(2) SARs sation(3)
Principal Position Year Salary($) Bonus($) ($) (#) ($)
- ------------------------- ---- --------- -------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Terry 1994 $421,250 $117,100 $113,281 14,400 $12,638
Chairman and 1993 415,000 30,400 110,413 14,600 12,277
Chief Executive Officer 1992 375,000 0 113,944 17,800 11,272
Donald H. Keller 1994 137,250 23,200 0 4,800 4,118
Vice President 1993 135,200 4,700 0 4,800 3,978
1992 129,500 0 0 5,800 3,885
<FN>
(1) The total number of restricted shares held by Mr. Terry and the aggregate
market value of such shares at September 30, 1994, was 11,080 shares valued
at $290,850. Dividends are paid on the restricted shares at the same time
and at the same rate as dividends paid to all shareholders of common stock.
Aggregate market value is based on a per share price of $26.25, the closing
price of Peoples Energy's stock on the New York Stock Exchange on September
30, 1994.
(2) Restricted stock awards granted to date vest in equal annual increments
over a five year period. If a recipient's employment with the Company
terminates, other than by reason of death, disability or retirement after
attaining age 65, the recipient forfeits all rights to the unvested portion
of the restricted stock award. In addition, the Compensation-Nominating
Committee (and with respect to the CEO, the Outside Directors Committee)
may, in its sole discretion, accelerate the vesting of any restricted stock
awards granted under the Long-Term Incentive Compensation Plan. Total
restricted stock awarded to Mr. Terry for 1992 constitutes 4,425 shares of
which 885 shares vested in 1993, 885 shares vested in 1994, 885 shares will
vest in 1995, 885 shares will vest in 1996, and the remaining 885 shares
will vest in 1997. Total restricted stock awarded to Mr. Terry for 1993
constitutes 3,650 shares of which 730 shares vested in 1994, 730 shares
will vest in 1995, 730 shares will vest in 1996, 730 shares will vest in
1997, and the remaining 730 shares will vest in 1998. Total restricted
stock awarded to Mr. Terry for 1994 constitutes 3,625 shares of which 725
shares will vest in 1995, 725 shares will vest in 1996, 725 shares will
vest in 1997, 725 shares will vest in 1998, and the remaining 725 shares
will vest in 1999.
-39-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued)
(3) Company contributions to the Capital Accumulation Plan accounts of the
named executive officers during the above fiscal years. Employee
contributions under the plan are subject to a maximum limitation under the
Internal Revenue Code of 1986. The Company pays an employee who is subject
to this limitation an additional 50 cents for each dollar that the employee
is prevented from contributing solely by reason of such limitation. The
amounts shown in the table above reflect, if applicable, this additional
Company payment.
</TABLE>
OPTIONS/SAR GRANTS IN FISCAL 1994
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
% of Total
Options/SARs
Options/ Granted to Exercise Grant
SARs Employees or Base Date
Granted in Fiscal Price Expiration Present
Name (#)(1) Year (2) ($/Share) Date Value($)(3)
- ----------------- -------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Richard E. Terry 14,400 14% $30.88 06-Oct-03 $57,168
Chairman and
Chief Executive
Officer
Donald H. Keller 4,800 5 30.88 06-Oct-03 19,056
Vice President
<FN>
(1) The grant of an Option enables the recipient to purchase Peoples Energy
common stock at a purchase price equal to the fair market value of the
shares on the date the Option is granted. The grant of an SAR enables the
recipient to receive, for each SAR granted, cash in an amount equal to the
excess of the fair market value of one share of Peoples Energy common stock
on the date the SAR is exercised over the fair market value of such common
stock on the date the SAR was granted. Options or SARs that expire
unexercised become available for future grants. Before an Option or SAR
may be exercised, the recipient must complete 12 months of continuous
employment subsequent to the grant of the Option or SAR. Options and SARs
may be exercised within 10 years from the date of grant, subject to earlier
termination in case of death, retirement, or termination of employment.
(2) Based on 52,700 Options and 52,700 SARs granted to all employees during
fiscal 1994.
(3) Present value is determined using a variation of the Black-Scholes Model.
The model assumes: a) that Options and SARs are exercised two years after
the date of grant -- the average time Options and SARs were held by
recipients under Peoples Energy's Long-Term Incentive Compensation Plan
over the past ten years; b) use of an interest rate equal to the interest
rate on a U.S. Treasury security with a maturity date corresponding to the
assumed exercise date; c) a level of volatility calculated using weekly
stock prices for the two years prior to the date of grant; d) that no
adjustments were made for an expected dividend yield; and e) that no
adjustments were made for non-transferability or risk of forfeiture. This
is a theoretical value for the Options and SARs. The amount realized from
an Option or an SAR ultimately depends on the market value of Peoples
Energy's stock at a future date.
</TABLE>
-40-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued)
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised In-
Unexercised Options/SARs the-Money Options/SARs at
Shares at Fiscal Year-End(#) Fiscal Year-End ($)(1)
Acquired On Value --------------------------- ---------------------------
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Terry 0 $0.00 14,600 14,400 $0.00 $0.00
Chairman and
Chief Executive
Officer
Donald H. Keller 0 0.00 4,800 4,800 0.00 0.00
Vice President
<FN>
(1) At the close of the fiscal year, none of the Options and SARs reported
above were in-the-money.
</TABLE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Average Annual -------------------------------------------------------
Compensation 20 25 30 35 40
-------------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
$150,000 $55,351 $69,189 $83,027 $92,402 $101,777
200,000 75,351 94,189 113,027 125,527 138,027
250,000 95,351 119,189 143,027 158,652 174,277
300,000 115,351 144,189 173,027 191,777 210,527
350,000 135,351 169,189 203,027 224,902 246,777
400,000 155,351 194,189 233,027 258,027 283,027
450,000 175,351 219,189 263,027 291,152 319,277
500,000 195,351 244,189 293,027 324,277 355,527
550,000 215,351 269,189 323,027 357,402 391,777
600,000 235,351 294,189 353,027 390,527 428,027
650,000 255,351 319,189 383,027 423,652 464,277
</TABLE>
The above table illustrates various annual straight-life benefits at normal
retirement (age 65) for the indicated levels of average annual compensation and
various periods of service, assuming no future changes in Peoples Energy's
pension benefits. The compensation used in the computation of annual retirement
benefits is substantially equivalent to the salary and bonus reported in the
Summary Compensation Table. The benefit amounts shown reflect reduction for
applicable Social Security benefits.
Average annual compensation is the average 12-month compensation for the
highest 60 consecutive months of the last 120 months of service prior to
retirement. Compensation is total salary paid to an employee by the Company
and/or its affiliates, including bonuses under Peoples Energy's Short-Term
Incentive Compensation Plan, pre-tax contributions under Peoples Energy's
Capital Accumulation Plan, pre-tax contributions under Peoples Energy's Health
and Dependent Care Spending Accounts Plan, and pre-tax contributions for life
and health care insurance, but excluding moving allowances, exercise of stock
options and SARs, and other compensation that has been deferred.
-41-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued)
As of September 30, 1994, the credited years of retirement benefit service
for the individuals listed in the Summary Compensation Table were as follows:
Mr. Terry, 30 years; and Mr. Keller, 39 years. The benefits shown in the
foregoing table are subject to maximum limitations under the Employee Retirement
Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986,
as amended. Should these benefits at the time of retirement exceed the
then-permissible limits of the applicable Act, the excess would be paid by the
Company as supplemental unfunded pensions. The benefits shown give effect to
these supplemental pension benefits.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of November 30, 1994, voting securities of the Company were beneficially
owned as follows:
<TABLE>
<CAPTION>
Title of Number of Percent of
Class Name and Address Shares Owned Class
- ------------ -------------------------- ------------ ----------
<S> <C> <C> <C>
Common Stock Peoples Energy Corporation
without 122 South Michigan Avenue
par value Chicago, Illinois 60603 3,625,887 100
--------- ---
--------- ---
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
No equity securities of the Company are beneficially owned directly or
indirectly by any director or officer of the Company.
Shares of common stock, without par value, of Peoples Energy beneficially
owned directly or indirectly by all directors and certain executive officers of
the Company and all directors and executive officers of the Company as a group
at November 30, 1994, are as follows:
<TABLE>
<CAPTION>
Shares of Peoples Energy
Common Stock Beneficially
Name Owned as of November 30, 1994 (1)
----------------------- ---------------------------------
<S> <C>
Kenneth S. Balaskovits* 7,893 (2)(3)
J. Bruce Hasch* 39,353 (2)(3)
James Hinchliff* 26,826 (2)(3)
Donald H. Keller 8,266 (2)(3)
Michael S. Reeves* 31,195 (2)(3)
Richard E. Terry* 55,298 (2)(3)
All directors and officers of the Company
as a group, including those named above
(14 in number) 262,776 (1)(2)(3)
<FN>
* Director of the Company.
-42-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Continued)
(1) The total of 262,776 shares held by all directors and executive officers as
a group is less than one percent of Peoples Energy's outstanding common
stock. Unless otherwise indicated, each individual has sole voting and
investment power with respect to the shares of common stock attributed to
him in the table.
(2) Includes shares that the following have a right to acquire within 60 days
following November 30, 1994, through the exercise of stock options granted
under the Long-Term Incentive Compensation Plan of Peoples Energy: Messrs.
Balaskovits, 3,100; Hasch, 9,500; Hinchliff, 6,200; Keller, 4,800; Reeves,
6,200; Terry, 14,500; and all executive officers of the Company, as a
group, 85,700.
(3) Includes shares of restricted stock awarded under the Long-Term Incentive
Compensation Plan of Peoples Energy, the restrictions on which had not
lapsed as of November 30, 1994, as follows: Messrs. Balaskovits, 2,320;
Hasch, 8,230; Hinchliff, 5,575; Reeves, 5,575; Terry, 13,425; and all
executive officers as a group, 43,170. Owners of shares of restricted
stock have the right to vote such shares and to receive dividends thereon
but have no investment power with respect to such shares until the
restrictions thereon lapse.
</TABLE>
CHANGES IN CONTROL
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-43-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Page
(a) 1. Financial Statements: ----
See Part II, Item 8. 15
2. Financial Statement Schedules:
Schedule
Number
--------
V Property, Plant and Equipment, at Original Cost 45
VI Accumulated Provision for Depreciation of Property,
Plant and Equipment 46
VIII Valuation and Qualifying Accounts 47
IX Short-Term Borrowings 48
X Supplementary Income Statement Information 49
3. Exhibits:
See Exhibit Index on page 51.
(b) Reports on Form 8-K filed during the final quarter of fiscal year 1993:
None.
-44-
<PAGE>
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES Schedule V
PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST
(Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------- ------------ --------- ----------- --------- ---------
Balance Transfers Balance
at beginning Additions between at end of
Classification of period at cost Retirements accounts period
- ----------------------------------------------------- ------------ --------- ----------- --------- ---------
Fiscal Year Ended September 30, 1994
------------------------------------
<S> <C> <C> <C> <C> <C>
Public utility facilities:
Gas plant in service -
Production plant $ 4,305 $ 252 $ -- $ -- $ 4,557
Storage plant 8,486 257 -- -- 8,743
Transmission plant 25,676 868 -- -- 26,544
Distribution plant 197,128 9,851 1,269 (27) 205,683
General plant 11,325 763 531 27 11,584
Construction work in progress 824 575 -- -- 1,399
Gas stored underground - non-current 836 29 -- -- 865
-------- -------- ------- --------- --------
Total property, plant and equipment, at original cost $248,580 $ 12,595 $ 1,800 (a) $ 0 $259,375
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
<CAPTION>
Fiscal Year Ended September 30, 1993
------------------------------------
<S> <C> <C> <C> <C> <C>
Public utility facilities:
Gas plant in service -
Production plant $ 4,305 $ -- $ -- $ -- $ 4,305
Storage plant 8,205 281 -- -- 8,486
Transmission plant 9,479 16,197 -- -- 25,676
Distribution plant 185,350 12,721 1,106 163 197,128
General plant 10,613 1,570 860 2 11,325
Construction work in progress 8,801 (7,977) -- -- 824
Gas stored underground - non-current 804 32 -- -- 836
-------- -------- ------- --------- --------
Total property, plant and equipment, at original cost $227,557 $ 22,824 $ 1,966 (a) $ 165 (b) $248,580
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
<CAPTION>
Fiscal Year Ended September 30, 1992
------------------------------------
<S> <C> <C> <C> <C> <C>
Public utility facilities:
Gas plant in service -
Production plant $ 4,274 $ 31 $ -- $ -- $ 4,305
Storage plant 8,205 -- -- -- 8,205
Transmission plant -- 7,679 -- 1,800 9,479
Distribution plant 169,299 18,698 847 (1,800) 185,350
General plant 10,020 1,187 594 -- 10,613
Construction work in progress 10,335 (1,534) -- -- 8,801
Gas stored underground - non-current 804 -- -- -- 804
-------- -------- ------- --------- --------
Total public utility facilities 202,937 26,061 1,441 -- 227,557
Non-utility property 475 -- 475 -- --
-------- -------- ------- --------- --------
Total property, plant and equipment, at original cost $203,412 $ 26,061 $ 1,916 (a) $ -- $227,557
-------- -------- ------- --------- --------
-------- -------- ------- --------- --------
<FN>
( ) Denotes red figure.
Notes: (a) Represents:
1994 1993 1992
------- ------- -------
Retirements charged to accumulated provision for depreciation (Schedule VI) $ 1,800 $ 1,966 $ 1,898
Cost of land retired at Deerfield -- -- 18
$ 1,800 $ 1,966 $ 1,916
------- ------- -------
-------- ------- -------
(b) Represents the following:
1993
-------
Implementation of Statement of Financial Accounting Standards Number 109 $ 165
-------
-------
</TABLE>
-45-
<PAGE>
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES Schedule VI
ACCUMULATED PROVISION FOR DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ------------------------------- ------------ ---------------------- -------------------------------------- -------- ---------
Additions charged to
costs and expenses (a) Deduct Retirements
---------------------- --------------------------------------
Balance Depre- Retirement Cost of Stores and Balance
at beginning ciation Clearing of property dismant- miscellaneous Other at end of
Description of period expense accounts at cost ling (salvage) Charges period
- ------------------------------- ------------ ------- -------- ----------- -------- ------------- ------- ---------
Fiscal Year Ended September 30, 1994
------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Public utility facilities:
Gas plant in service -
Production plant $ 2,875 $ 124 $ -- $ -- $ -- $ -- $ -- $ 2,999
Storage plant 3,513 248 -- -- -- -- -- 3,761
Transmission plant 305 534 -- -- -- -- -- 839
Distribution plant 64,699 5,535 -- 1,269 295 (2) 33 68,705
General plant 3,718 419 728 531 -- (1) -- 4,335
------- ------ ---- ------ ---- ----- ---- -------
Total accumulated provision
for depreciation $75,110 $6,860 $728 $1,800 $295 $ (3) $ 33 (b) $80,639
------- ------ ---- ------ ---- ----- ---- -------
------- ------ ---- ------ ---- ----- ---- -------
<CAPTION>
Fiscal Year Ended September 30, 1993
------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Public utility facilities:
Gas plant in service -
Production plant $ 2,748 $ 127 $ -- $ -- $ -- $ -- $ -- $ 2,875
Storage plant 3,268 245 -- -- -- -- -- 3,513
Transmission plant 124 181 -- -- -- -- -- 305
Distribution plant 60,804 5,228 -- 1,106 298 (1) 70 64,699
General plant 3,481 411 511 860 29 (199) 5 3,718
------- ------ ---- ------ ---- ----- ---- -------
Total accumulated provision
for depreciation $70,425 $6,192 $511 $1,966 $327 $(200) $ 75 (b) $75,110
------- ------ ---- ------ ---- ----- ---- -------
------- ------ ---- ------ ---- ----- ---- -------
<CAPTION>
Fiscal Year Ended September 30, 1992
------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Public utility facilities:
Gas plant in service -
Production plant $ 2,618 $ 130 $ -- $ -- $ -- $ -- $ -- $ 2,748
Storage plant 3,029 239 -- -- -- -- -- 3,268
Transmission plant -- 39 -- -- -- -- 85 124
Distribution plant 56,887 5,059 -- 847 260 (2) (37) 60,804
General plant 3,116 339 552 594 -- (104) (36) 3,481
------- ------ ---- ------ ---- ----- ---- -------
Total public utility facilities 65,650 5,806 552 1,441 260 (106) 12 70,425
Non-utility property 287 -- -- 457 -- -- 170 --
------- ------ ---- ------ ---- ----- ---- -------
Total accumulated provision
for depreciation $65,937 $5,806 $552 $1,898 $260 $(106) $182 (b) $70,425
------- ------ ---- ------ ---- ----- ---- -------
------- ------ ---- ------ ---- ----- ---- -------
<FN>
( ) Denotes red figure.
Notes: (a) See Note 1E of the Notes to Consolidated Financial Statements with respect to the basis for the provision for
depreciation.
(b) Represents the following: 1994 1993 1992
----- ----- -----
Accumulated provision for depreciation applicable to property acquired $ -- $ 11 $ 13
Proceeds from sale of property -- 2 3
Capitalized depreciation transferred 32 30 32
Adjustment for sale of non-utility property -- -- 134
Implementation of Statement of Financial Accounting Standards Number 109 -- 36 --
Sundry Items - Net 1 (4) --
----- ----- -----
$ 33 $ 75 $ 182
----- ----- -----
----- ----- -----
</TABLE>
-46-
<PAGE>
SCHEDULE VIII
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------------- ------------ --------- --------------------- ---------
Additions Deductions
--------- ---------------------
Charged Charges for the
Balance to costs purpose for which the Balance
at beginning and reserves or deferred at end of
Description of period expenses credits were created period
- ----------------------------------------- ------------ --------- --------------------- ---------
Fiscal Year Ended September 30, 1994
------------------------------------
<S> <C> <C> <C> <C>
RESERVES (deducted from assets in balance sheet):
Uncollectible items $855 $854 $820 $889
<CAPTION>
Fiscal Year Ended September 30, 1993
------------------------------------
<S> <C> <C> <C> <C>
RESERVES (deducted from assets in balance sheet):
Uncollectible items $586 $797 $528 $855
<CAPTION>
Fiscal Year Ended September 30, 1992
------------------------------------
<S> <C> <C> <C> <C>
RESERVES (deducted from assets in balance sheet):
Uncollectible items $498 $659 $571 $586
</TABLE>
-47-
<PAGE>
SCHEDULE IX
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E (a) Column F (b)
- --------------------- ------------- ---------------- ----------------- ----------------- -----------------
Weighted Average Maximum Amount Average Amount Weighted Average
Category of Aggregate Balance at Interest Rate Outstanding Outstanding Interest Rate
Short-Term Borrowings End of period End of Period During the Period During the Period During the Period
- --------------------- ------------- ---------------- ----------------- ----------------- -----------------
(Thousands) (Thousands)
Fiscal Year Ended September 30, 1994
------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Paper $ -- --% $16,900 $4,378 3.12%
<CAPTION>
Fiscal Year Ended September 30, 1993
------------------------------------
<S> <C> <C> <C> <C> <C>
Intercompany Loans $ -- --% $ 4,000 $ 365 6.00%
Commercial Paper 5,400 3.27 20,000 8,144 3.31
<CAPTION>
Fiscal Year Ended September 30, 1992
------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial Paper $20,000 3.20% $20,000 $4,571 4.31%
<FN>
(a) Computed by multiplying the amounts outstanding by the days outstanding and
dividing the results by the number of days used.
(b) Computed by dividing the applicable interest expense by the average amount
outstanding during the period.
</TABLE>
-48-
<PAGE>
SCHEDULE X
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance, depreciation, royalties, and advertising costs, other than
those specifically disclosed in the Consolidated Statements of Income, are not
significant.
Significant taxes charged to costs and expenses, other than payroll and
income taxes, are summarized as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended September 30, 1994 1993 1992
- -------------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C>
Illinois public utility $ 6,482 $ 6,434 $ 5,741
Municipal public utility 4,321 4,040 3,335
Other 1,432 1,660 1,695
------- ------- -------
Total $12,235 $12,134 $10,771
------- ------- -------
------- ------- -------
</TABLE>
-49-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NORTH SHORE GAS COMPANY
Date: December 22, 1994 By: /s/ RICHARD E. TERRY
----------------- -------------------------------
Richard E. Terry
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on December 22, 1994.
/s/ RICHARD E. TERRY Chairman of the Board and Chief
- ---------------------------------- Executive Officer and Director
Richard E. Terry (Principal Executive Officer)
/s/ KENNETH S. BALASKOVITS Vice President and Controller and
- ---------------------------------- Director (Principal Financial and
Kenneth S. Balaskovits Accounting Officer)
/s/ J. BRUCE HASCH Director
- ----------------------------------
J. Bruce Hasch
/s/ JAMES HINCHLIFF Director
- ----------------------------------
James Hinchliff
/s/ MICHAEL S. REEVES Director
- ----------------------------------
Michael S. Reeves
-50-
<PAGE>
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
(a) The exhibits listed below are filed herewith and made a part thereof:
Exhibit
Number Description of Document
------- ---------------------------------------------
3(a) Amendment to the By-Laws of the Registrant,
dated December 7, 1994.
3(b) By-Laws of the Registrant, as amended on
December 7, 1994.
10 Firm Transportation Service Agreement Under Rate
Schedule FTS between the Company and Natural
Gas Pipeline Company of America, dated as of
February 1, 1994.
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges.
23 Arthur Andersen LLP consent to incorporation
by reference in Registration Statement
No. 33-60256
27 Financial Data Schedule
(b) Exhibits listed below have been filed heretofore with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended,
and/or the Securities Exchange Act of 1934, as amended, and are
incorporated herein by reference. The file number and exhibit number of
each such exhibit are stated in the description of such exhibits.
Exhibit
Number Description of Document
------- --------------------------------------------------------------
3(c) Articles of Incorporation of the Registrant, as amended on
April 13, 1987 (Registrant Form 10-K for fiscal year ended
September 30, 1987, Exhibit 3(b)).
-51-
<PAGE>
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX (Continued)
Exhibit
Number Description of Document
------- --------------------------------------------------------------
4(a) Indenture, dated as of April 1, 1955, from the Company to
Continental Bank, National Association, as Trustee; Third
Supplemental Indenture, dated as of December 20, 1963 (North
Shore - File No. 2-35965, Exhibit 4-1); Fifth Supplemental
Indenture, dated as of February 1, 1970 (File No. 2-35965,
Exhibit 4-2); Sixth Supplemental Indenture, dated as of
October 1, 1973 (Form 10-K for the fiscal year ended September
30, 1980, Exhibit 4-3; Seventh Supplemental Indenture, dated as
of February 15, 1977 (Form 10-K for the fiscal year ended
September 30, 1980, Exhibit 4-4); Eighth Supplemental
Indenture, dated as of September 15, 1980 (Form 10-K for the
fiscal year ended September 30, 1980, Exhibit 4-5); Ninth
Supplemental Indenture, dated as of December 1, 1987 (Form 10-K
for the fiscal year ended September 30, 1987, Exhibit 4); and
Tenth Supplemental Indenture, dated as of November 1, 1990
(Form S-3 Registration Statement No. 33-37332, Exhibit 4b);
Eleventh Supplemental Indenture, dated as of October 1, 1992
(Form 10-K for the fiscal year ended September 30, 1992,
Exhibit 4); and Twelfth Supplemental Indenture dated as of
April 1, 1993 (Form 8-K dated April 23, 1993, Exhibit 4).
10(a) Storage Service Agreement Under Rate Schedule S-1 between the
Company and Natural Gas Pipeline Company of America, dated as
of November 30, 1990 (Registrant Form 10-K for the fiscal year
ended September 30, 1993, Exhibit 10(a)); Firm Transportation
Service Agreement Under Rate Schedule S-2 between the Company
and Natural Gas Pipeline Company of America, dated as of
December 1, 1993 (Registrant Form 10-Q for the quarterly period
ended December 31, 1993, Exhibit 10(a)); Firm Transportation
Service Agreement Under Rate Schedule FTS between the Company
and Natural Gas Pipeline Company of America, dated as of
December 1, 1993 (Registrant Form 10-Q for the quarterly period
ended December 31, 1993, Exhibit 10(b)).
-52-
<PAGE>
EXHIBIT 3(a)
CERTIFIED COPY OF RESOLUTIONS
I, F. J. RUDOW, Assistant Secretary of NORTH SHORE GAS COMPANY (herein
called the "Company"), DO HEREBY CERTIFY that the following is a true and
correct copy of certain resolutions unanimously adopted by written consent of
the Board of Directors of said Company on December 7, 1994, and said resolutions
have not been amended, rescinded or revoked and the same remain in full force
and effect:
RESOLVED, That, effective as of the close of
business on December 7, 1994, the By-Laws of the
Company be, and they hereby are, amended by replacing
Article V of the By-Laws in its entirety with the following:
ARTICLE V
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
SECTION 5.1. INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES. The Company shall indemnify,
to the fullest extent permitted under the laws of the State
of Illinois and any other applicable laws, as they now exist
or as they may be amended in the future, any person who
was or is a party, or is threatened to be made a party, to
any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, an action by or
in the right of the Company), by reason of the fact that
he or she is or was a director, officer or employee of the
Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably
incurred by such person in connection with such action,
suit or proceeding.
SECTION 5.2. ADVANCEMENT OF EXPENSES TO
DIRECTORS, OFFICERS AND EMPLOYEES. Expenses incurred by
such a director, officer or employee in defending a civil or
criminal action, suit or proceeding shall be paid by the
<PAGE>
Company in advance of the final disposition of such
action, suit or proceeding to the fullest extent permitted
under the laws of the State of Illinois and any other
applicable laws, as they now exist or as they may be
amended in the future.
SECTION 5.3. INDEMNIFICATION AND
ADVANCEMENT OF EXPENSES TO AGENTS. The board of
directors may, by resolution, extend the provisions of this
Article V regarding indemnification and the advancement
of expenses to any person who was or is a party or is
threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the
fact he or she is or was an agent of the Company or is or
was serving at the request of the Company as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or
other enterprise.
SECTION 5.4. RIGHTS NOT EXCLUSIVE. The
rights provided by or granted under this Article V are not
exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled.
SECTION 5.5. CONTINUING RIGHTS. The
indemnification and advancement of expenses provided
by or granted under this Article V shall continue as to a
person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs,
executors and administrators of that person.
RESOLVED FURTHER, That the Secretary
of the Company be, and he hereby is, directed to initial a
copy of the amended By-Laws presented at this meeting
and place it with the important papers of this meeting.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of the Company this 9th day of December, 1994.
/s/ FRED J. RUDOW
-------------------------
Assistant Secretary
<PAGE>
EXHIBIT 3(b)
BY-LAWS
OF
NORTH SHORE GAS COMPANY
AMENDED DECEMBER 7, 1994
<PAGE>
NORTH SHORE GAS COMPANY
BY-LAWS
ARTICLE I - OFFICES
ARTICLE II - MEETINGS OF SHAREHOLDERS
ARTICLE III - DIRECTORS AND COMMITTEES
ARTICLE IV - OFFICERS
ARTICLE V - INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
ARTICLE VI - CERTIFICATES OF STOCK AND THEIR
TRANSFER
ARTICLE VII - MISCELLANEOUS (CONTRACTS)
ARTICLE VIII - AMENDMENT OR REPEAL OF BY-LAWS
<PAGE>
NORTH SHORE GAS COMPANY
INDEX
PAGE
A
Amendment of By-Laws................................................. 15
Appointment of Officers.............................................. 7
Assistant Controller, Duties of...................................... 10
Assistant General Counsel, Duties of................................. 10
Assistant Secretary, Duties of....................................... 10
Assistant Treasurer, Duties of....................................... 10
Assistant Vice President, Duties of.................................. 8
B
Board of Directors................................................... 4
C
Certificates of Stock and Their Transfer............................. 12
Chairman of the Board, Duties of..................................... 8
Committees........................................................... 5
Controller, Duties of................................................ 9
Contracts, Execution of.............................................. 14
D
Directors and Committees............................................. 4
E
Election of Directors................................................ 4
Election of Officers................................................. 6
F
Fees and Compensation of Directors................................... 6
G
General Counsel, Duties of........................................... 10
<PAGE>
NORTH SHORE GAS COMPANY
PAGE
I
Indemnification of Directors, Officers, Employees
and Agents......................................................... 10
M
Meetings
Directors.......................................................... 4
Action Without Meeting........................................... 6
Shareholders....................................................... 1
N
Notice of Meetings
Directors.......................................................... 4
Shareholders....................................................... 2
O
Officers
Appointed.......................................................... 7
Elected............................................................ 6
Offices, Two or More Held By One Person.............................. 7
P
President, Duties of................................................. 8
Presiding Officer
Board Meetings..................................................... 5
Shareholders Meetings.............................................. 3
Proxies.............................................................. 3
Q
Quorum
Board.............................................................. 5
Shareholders....................................................... 2
<PAGE>
NORTH SHORE GAS COMPANY
PAGE
S
Secretary, Duties of................................................. 9
Signatures to Checks, Drafts, etc.................................... 14
Stock, Certificates of and their Transfer............................ 12
T
Treasurer, Duties of................................................. 9
V
Vice President, Duties of............................................ 8
Voting
Shareholders....................................................... 3
Stock Owned by Company............................................. 15
<PAGE>
BY-LAWS
OF
NORTH SHORE GAS COMPANY
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. The principal office of the Company
shall be in the City of Chicago, County of Cook and State of Illinois.
SECTION 1.2. OTHER OFFICES. The Company may also have offices at
such other places both within and without the State of Illinois as the Board of
Directors may from time to time determine or the business of the Company may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on the last Thursday of the month of March in each year, if not a
legal holiday, or, if a legal holiday, then on the next preceding business day,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the election of directors shall not
be held on the day herein designated for the annual meeting, or at any
adjournment thereof, the Board of Directors shall cause such election to be held
at a special meeting of the shareholders as soon thereafter as convenient.
SECTION 2.2. SPECIAL MEETINGS. Except as otherwise prescribed by
statute, special meetings of the shareholders for any purpose or purposes, may
be
<PAGE>
- 2 -
called by the Chairman of the Board, the President, a majority of the Board of
Directors or shareholders owning capital stock of the Company having not less
than 20% of the total voting power. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 2.3. PLACE OF MEETINGS. Each meeting of the shareholders for
the election of directors shall be held at the principal office of the Company
in the City of Chicago, Illinois, unless the Board of Directors shall by
resolution designate another place as the place of such meeting. Meetings of
shareholders for any other purpose may be held at such place, and at such time
as shall be determined by the Chairman of the Board, or the President, or in
their absence, by the Secretary, and stated in the notice of the meeting or in a
duly executed waiver of notice thereof.
SECTION 2.4. NOTICE OF MEETINGS. Written or printed notice stating
the place, date and hour of each annual or special meeting of the shareholders,
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be given not less than 10 or more than 60 days before
the date of the meeting, except as otherwise provided by statute. Notice of any
meeting of the shareholders may be waived by any shareholder.
SECTION 2.5. QUORUM. The holders of a majority of the shares issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall be requisite for, and shall constitute, a quorum at all meetings
of the shareholders of the Company for the transaction of business, except as
otherwise provided by statute or these by-laws. If a quorum shall not be
present or represented at any meeting of the shareholders, the shareholders
entitled to vote thereat, present
<PAGE>
- 3 -
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting if the
adjournment is for thirty days or less or unless after the adjournment a new
record date is fixed, until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed.
SECTION 2.6. PROXIES. At every meeting of the shareholders, each
shareholder having the right to vote thereat shall be entitled to vote in person
or by proxy. Such proxy shall be appointed by an instrument in writing
subscribed by such shareholder and bearing a date not more than eleven months
prior to such meeting, unless such proxy provides for a longer period, and shall
be filed with the Secretary of the Company before, or at the time of, the
meeting.
SECTION 2.7. VOTING. At each meeting of the shareholders, each
shareholder shall be entitled to one vote for each share of stock entitled to
vote thereat which is registered in the name of such shareholder on the books of
the Company. At all elections of directors of the Company, the holders of
shares of stock of the Company shall be entitled to cumulative voting. When a
quorum is present at any meeting of the shareholders, the vote of the holders of
a majority of the shares present in person or represented by proxy and entitled
to vote at the meeting shall be sufficient for the transaction of any business,
unless otherwise provided by statute or these by-laws.
SECTION 2.8. PRESIDING OFFICER. The presiding officer of any meeting
of the shareholders shall be the Chairman of the Board or, in the case of the
absence of the Chairman of the Board, the President.
<PAGE>
- 4 -
ARTICLE III
DIRECTORS AND COMMITTEES
SECTION 3.1. NUMBER AND ELECTION. The business and affairs of the
Company shall be managed and controlled by a board of directors, five (5) in
number, none of whom needs to be a shareholder. The directors shall be elected
by the shareholders entitled to vote at the annual meeting of such shareholders
and each director shall be elected to serve for a term of one (1) year and
thereafter until his successor shall be elected and shall qualify. The Board of
Directors may fill one or more vacancies arising between meetings of
shareholders by reason of an increase in the number of directors or otherwise.
SECTION 3.2. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held immediately, or as soon as practicable, after the annual
meeting of the shareholders in each year for the purpose of electing officers
and for the transaction of such other business as may be deemed necessary, and
regular meetings of the Board shall be held at such date and time and at such
place as the Board of Directors may from time to time determine. Not less than
two days' notice of all regular meetings of the Board, except the meeting to be
held after the annual meeting of shareholders which shall be held without other
notice than this by-law, shall be given to each director personally or by mail
or telegram.
SECTION 3.3. SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board, the President, or by any two
directors, by causing the Secretary to mail to each director, not less than
three days before the
<PAGE>
- 5 -
time of such meeting, a written notice stating the time and place of such
meeting. Notice of any meeting of the Board may be waived by any director.
SECTION 3.4. QUORUM. At each meeting of the Board of Directors, the
presence of not less than a majority of the total number of directors specified
in Section 3.l hereof shall be necessary and sufficient to constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by statute. If a
quorum shall not be present at any meeting of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present. In determining
the presence of a quorum at a meeting of the directors or a committee thereof
for the purpose of authorizing a contract or transaction between the Company and
one or more of its directors, or between the Company and any other corporation,
partnership, association, or other organization in which one or more of the
directors of this Company are directors or officers, or have a financial
interest in such other organization, such interested directors may be counted in
determining a quorum.
SECTION 3.5. PRESIDING OFFICER. The presiding officer of any meeting
of the Board of Directors shall be the Chairman of the Board or, in his absence,
the President or, in his absence, any other director elected chairman of the
meeting by vote of a majority of the directors present at the meeting.
SECTION 3.6. COMMITTEES. The Board may appoint committees, standing
or special, from time to time from among its own members or otherwise, and
<PAGE>
- 6 -
may confer such powers on such committees as the Board may determine and may
revoke such powers and terminate the existence of such committees at its
pleasure.
SECTION 3.7. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors, or any committee
thereof, may be taken without a meeting if all members of the Board or of such
committee, as the case may be, consent thereto in writing and such writing or
writings are filed with the minutes of the proceedings of the Board or such
committee.
SECTION 3.8. FEES AND COMPENSATION OF DIRECTORS. Directors shall not
receive any stated salary for their services as such; but, by resolution of the
Board of Directors, reasonable fees, with or without expenses of attendance, may
be allowed. Members of the Board shall be allowed their reasonable traveling
expenses when actually engaged in the business of the Company, to be audited and
allowed as in other cases of demands against the Company. Members of standing
or special committees may be allowed fees and expenses for attending committee
meetings. Nothing herein contained shall be construed to preclude any director
from serving the Company in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTION OF OFFICERS. There shall be elected by the
Board of Directors in each year the following officers: a Chairman of the
Board; a President; such number of Senior Vice Presidents, such number of
Executive Vice Presidents, such number of Vice Presidents and such number of
Assistant Vice Presidents as the Board at the time may decide upon; a Secretary;
such number of Assistant Secretaries
<PAGE>
- 7 -
as the Board at the time may decide upon; a Treasurer; such number of Assistant
Treasurers as the Board at the time may decide upon; a Controller; and such
number of Assistant Controllers as the Board at the time may decide upon; and,
if the Board may decide, a General Counsel; and such number of Deputy General
Counsel and such number of Assistant General Counsel as the Board at the time
may decide upon. Any two or more offices may be held by one person, except that
the offices of President and Secretary may not be held by the same person. All
officers shall hold their respective offices during the pleasure of the Board.
SECTION 4.2. APPOINTMENT OF OFFICERS. The Board of Directors, the
Chairman of the Board, or the President may from time to time appoint such other
officers as may be deemed necessary, including one or more Vice Presidents, one
or more Assistant Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers, one or more Assistant Controllers, one or more
Assistant General Counsel, and such other agents, employees and attorneys-in-
fact of the Company as may be deemed proper. Such officers, agents, employees
and attorneys-in-fact shall have such authority, (which may include the
authority to execute and deliver on behalf of the Company contracts and other
instruments in writing of any nature), perform such duties and receive such
compensation as the Board of Directors or, in the case of appointments made by
the Chairman of the Board or the President, as the Chairman of the Board or the
President, may from time to time prescribe and determine. The Board of
Directors may from time to time authorize any officer to appoint and remove
agents and employees, to prescribe their powers and duties and to fix their
compensation therefor.
<PAGE>
- 8 -
SECTION 4.3. DUTIES OF CHAIRMAN OF THE BOARD. The Chairman of the
Board shall be the chief executive officer of the Company and shall have control
and direction of the management and affairs of the Company and may execute all
contracts, deeds, assignments, certificates, bonds or other obligations for and
on behalf of the Company, and sign certificates of stock and records of
certificates required by law to be signed by the Chairman of the Board. When
present, the Chairman of the Board shall preside at all meetings of the Board
and of the shareholders.
SECTION 4.4. DUTIES OF PRESIDENT. Subject to the control and
direction of the Chairman of the Board, and to the control of the Board, the
President shall have general management of all the business of the Company, and
he shall have such other powers and perform such other duties as may be
prescribed for him by the Board or be delegated to him by the Chairman of the
Board. He shall possess the same power as the Chairman of the Board to sign all
certificates, contracts and other instruments of the Company. In case of the
absence or disability of the President, or in case of his death, resignation or
removal from office, the powers and duties of the President shall devolve upon
the Chairman of the Board during absence or disability, or until the vacancy in
the office of President shall be filled.
SECTION 4.5. DUTIES OF VICE PRESIDENT. Each of the Senior Vice
Presidents, Executive Vice Presidents, Vice Presidents and Assistant Vice
Presidents shall have such powers and duties as may be prescribed for him by the
Board, or be delegated to him by the Chairman of the Board or by the President.
Each of such officers shall possess the same power as the President to sign all
certificates, contracts and other instruments of the Company.
<PAGE>
- 9 -
SECTION 4.6. DUTIES OF SECRETARY. The Secretary shall have the
custody and care of the corporate seal, records and minute books of the Company.
He shall attend the meetings of the Board, and of the shareholders, and duly
record and keep the minutes of the proceedings, and file and take charge of all
papers and documents belonging to the general files of the Company, and shall
have such other powers and duties as are commonly incident to the office of
Secretary or as may be prescribed for him by the Board, or be delegated to him
by the Chairman of the Board or by the President.
SECTION 4.7. DUTIES OF TREASURER. The Treasurer shall have charge
of, and be responsible for, the collection, receipt, custody and disbursement of
the funds of the Company, and shall deposit its funds in the name of the Company
in such banks, trust companies or safety deposit vaults as the Board may direct.
He shall have the custody of the stock record books and such other books and
papers as in the practical business operations of the Company shall naturally
belong in the office or custody of the Treasurer, or as shall be placed in his
custody by the Board, the Chairman of the Board, the President, or any Vice
President, and shall have such other powers and duties as are commonly incident
to the office of Treasurer, or as may be prescribed for him by the Board, or be
delegated to him by the Chairman of the Board or by the President.
SECTION 4.8. DUTIES OF CONTROLLER. The Controller shall have control
over all accounting records pertaining to moneys, properties, materials and
supplies of the Company. He shall have charge of the bookkeeping and accounting
records and functions, the related accounting information systems and reports
and executive
<PAGE>
- 10 -
supervision of the system of internal accounting controls, and such other powers
and duties as are commonly incident to the office of Controller or as may be
prescribed by the Board, or be delegated to him by the Chairman of the Board or
by the President.
SECTION 4.9. DUTIES OF GENERAL COUNSEL. The General Counsel shall
have full responsibility for all legal advice, counsel and services for the
Company and its subsidiaries including employment and retaining of attorneys and
law firms as shall in his discretion be necessary or desirable and shall have
such other powers and shall perform such other duties as from time to time may
be assigned to him by the Board, the Chairman of the Board or the President.
SECTION 4.10. DUTIES OF ASSISTANT SECRETARY, ASSISTANT TREASURER,
ASSISTANT CONTROLLER AND ASSISTANT GENERAL COUNSEL. The Assistant Secretary,
Assistant Treasurer, Assistant Controller and Assistant General Counsel shall
assist the Secretary, Treasurer, Controller and General Counsel, respectively,
in the performance of the duties assigned to each and shall for such purpose
have the same powers as his principal. He shall also have such other powers and
duties as may be prescribed for him by the Board, or be delegated to him by the
Chairman of the Board or by the President.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
SECTION 5.1. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.
The Company shall indemnify, to the fullest extent permitted under the laws of
the State of Illinois and any other applicable laws, as they now exist or as
they may be amended in the future, any person who was or is a party, or is
threatened to be made a party, to
<PAGE>
- 11 -
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, an
action by or in the right of the Company), by reason of the fact that he or she
is or was a director, officer or employee of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding.
SECTION 5.2. ADVANCEMENT OF EXPENSES TO DIRECTORS, OFFICERS AND
EMPLOYEES. Expenses incurred by such a director, officer or employee in
defending a civil or criminal action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
to the fullest extent permitted under the laws of the State of Illinois and any
other applicable laws, as they now exist or as they may be amended in the
future.
SECTION 5.3. INDEMNIFICATION AND ADVANCEMENT OF EXPENSES TO AGENTS.
The board of directors may, by resolution, extend the provisions of this Article
V regarding indemnification and the advancement of expenses to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact he or she is or
was an agent of the Company or is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
<PAGE>
- 12 -
SECTION 5.4. RIGHTS NOT EXCLUSIVE. The rights provided by or granted
under this Article V are not exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled.
SECTION 5.5. CONTINUING RIGHTS. The indemnification and advancement
of expenses provided by or granted under this Article V shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of that person.
ARTICLE VI
CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 6.1. CERTIFICATES OF STOCK. The certificates of stock of the
Company shall be in such form as may be determined by the Board of Directors,
shall be numbered and shall be entered in the books of the Company as they are
issued. They shall exhibit the holder's name and number of shares and shall be
signed by the Chairman of the Board, the President or a Vice President and also
by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary and shall bear the corporate seal or a facsimile thereof. If a
certificate is countersigned by a transfer agent or registrar, other than the
Company itself or its employee, any other signature or countersignature on the
certificate may be facsimiles. In case any officer of the Company, or any
officer or employee of the transfer agent or registrar, who has signed or whose
facsimile signature has been placed upon such certificate ceases to be an
officer of the Company, or an officer or employee of the transfer agent or
registrar, before such certificate is issued, said certificate may be issued
with the same effect as
<PAGE>
-13-
if the officer of the Company, or the officer or employee of the transfer agent
or registrar, had not ceased to be such at the date of issue.
SECTION 6.2. TRANSFER OF STOCK. Upon surrender to the Company of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, and upon payment of applicable
taxes with respect to such transfer, it shall be the duty of the Company,
subject to such rules and regulations as the Board of Directors may from time to
time deem advisable concerning the transfer and registration of certificates for
shares of stock of the Company, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
SECTION 6.3. SHAREHOLDERS OF RECORD. The Company shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by statute.
SECTION 6.4. LOST, DESTROYED OR STOLEN CERTIFICATES. The Board of
Directors, in individual cases or by general resolution, may direct a new
certificate or certificates to be issued by the Company as a replacement for a
certificate or certificates for a like number of shares alleged to have been
lost, destroyed or stolen, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates of stock to be lost, destroyed
or stolen. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, destroyed
<PAGE>
- 14 -
or stolen certificate or certificates, or his legal representative, to give the
Company a bond in such form and amount as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate or
certificates alleged to have been lost, destroyed or stolen.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. CONTRACTS AND OTHER INSTRUMENTS. All contracts or
obligations of the Company shall be in writing and shall be signed either by the
Chairman of the Board, the President, any Executive Vice President, any Vice
President, the Treasurer, or any other officer of the Company, agent, employee
or attorney-in-fact as may be designated by the Board, the Chairman of the Board
or the President pursuant to specific authorizations and, the seal of the
Company may be attached thereto, duly attested by the Secretary or an Assistant
Secretary, except contracts entered into in the ordinary course of business
where the amount involved is less than One Hundred Thousand Dollars ($100,000),
and except contracts for the employment of servants or agents, which contracts
so excepted may be entered into by the Chairman of the Board, the President, any
Executive Vice President, any Vice President, the Treasurer, or by such
officers, agents, employees or attorneys-in-fact as the Chairman of the Board or
the President may designate and authorize. Unless the Board shall otherwise
determine and direct, all checks or drafts and all promissory notes shall be
signed by two officers of the Company. When prescribed by the Board, bonds,
promissory notes, and other obligations of the Company may bear the facsimile
<PAGE>
- 15 -
signature of the officer who is authorized to sign such instruments and,
likewise, may bear the facsimile signature of the Secretary or an Assistant
Secretary.
SECTION 7.2. VOTING STOCK OWNED BY COMPANY. Any or all shares of
stock owned by the Company in any other corporation, and any or all voting trust
certificates owned by the Company calling for or representing shares of stock of
any other corporation, may be voted by the Chairman of the Board, the President,
any Vice President, the Secretary or the Treasurer, either in person or by
written proxy given to any person in the name of the Company at any meeting of
the shareholders of such corporation, or at any meeting of voting trust
certificate holders, upon any question that may be presented at any such
meeting. Any such officer, or anyone so representing him by written proxy, may
on behalf of the Company waive any notice of any such meeting required by any
statute or by-law and consent to the holding of such meeting without notice.
ARTICLE VIII
AMENDMENT OR REPEAL OF BY-LAWS
These by-laws may be added to, amended or repealed at any regular or
special meeting of the Board by a vote of a majority of the membership of the
Board.
<PAGE>
Contract No. 105580
NATURAL GAS PIPELINE COMPANY OF AMERICA (Natural)
TRANSPORTATION RATE SCHEDULE FTS AGREEMENT DATED February 01, 1994
UNDER SUBPART G of Part 284 OF THE FERC'S REGULATIONS
1. SHIPPER is: NORTH SHORE GAS COMPANY, a local distribution company.
2. MDQ totals: 104,180 MMBtu per day.
3. TERM: February 01, 1994 through November 30, 1995
4. Service will be ON BEHALF OF: [X] Shipper or [ ] Other: , a
5. The ULTIMATE END USERS are (check one):
[ ] customers of the following LDC/pipeline company(ies): ________________;
[ ] customers in these states:__________________________________________;
[X] customers within any state in the continental U.S.
6. [X] This Agreement supersedes and cancels North Shore's Firm Transportation
Agreement NOS. 103175 dated October 18, 1991; 104748 dated September 11,
1992; 104766 dated September 11, 1992; and 105580 dated December 01, 1993.
[ ] Capacity rights for this Agreement were released from ____________'s
Transportation Rate Schedule Agreement (KT #_____) dated _________ and are
subject to any recall/return provisions in ___________'s Capacity Release
Package ID # _____.
[X] (for firm service only) Service and reservation charges commence the
latter of:
(a) February 01, 1994, and
(b) the date capacity to provide the service hereunder is available on
Natural's System.
[ ] Other: _______________________________________________________________
7. SHIPPER'S ADDRESS Natural's ADDRESSES
GENERAL CORRESPONDENCE:
NORTH SHORE GAS CO. NATURAL GAS PIPELINE COMPANY OF AMERICA
ATTN: Eckhard Blaumueller Attention: Gas Transportation Services
122 S. Michigan Avenue 3200 Southwest Freeway 77027-7523
Room 915 P. O. Box 283 77001-0283
Chicago, Illinois 60603 Houston, Texas
STATEMENTS/INVOICES/ACCOUNTING RELATED MATERIALS:
NORTH SHORE GAS CO. NATURAL GAS PIPELINE COMPANY OF AMERICA
ATTN: Eckhard Blaumueller Attention: Gas Accounting Department
122 S. Michigan Avenue 701 East 22nd Street
Chicago, Illinois 60603 Lombard, Illinois 60148
PAYMENTS:
NATURAL GAS PIPELINE COMPANY OF AMERICA
Attention: Controller
701 East 22nd Street
Lombard, Illinois 60148
8. The above stated Rate Schedule, as revised from time to time, controls this
Agreement and is incorporated herein. The attached Exhibits A, B, and C
(for firm service only) are a part of this Agreement. NATURAL AND SHIPPER
ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE PROVISIONS OF Natural's
FERC GAS TARIFF AND APPLICABLE FEDERAL LAW. TO THE EXTENT THAT STATE LAW
IS APPLICABLE, Natural AND SHIPPER EXPRESSLY AGREE THAT THE LAWS OF THE
STATE OF ILLINOIS SHALL GOVERN THE VALIDITY, CONSTRUCTION, INTERPRETATION
AND EFFECT OF THIS CONTRACT, EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS RULE
WHICH WOULD APPLY THE LAW OF ANOTHER STATE. This Agreement states the
entire agreement between the parties and no waiver, representation, or
agreement shall affect this Agreement unless it is in writing. Shipper
shall provide the actual end user purchaser name(s) to Natural if Natural
must provide them to FERC.
AGREED TO BY:
NORTH SHORE GAS COMPANY NATURAL GAS PIPELINE COMPANY OF AMERICA
BY: /s/ Thomas M. Patrick BY:
------------------------------ -----------------------------------
NAME: Thomas M. Patrick NAME:
---------------------------- ---------------------------------
TITLE: Vice President TITLE:
---------------------------- --------------------------------
<PAGE>
Exhibit A
Dated FEBRUARY 01, 1994
Company: NORTH SHORE GAS COMPANY
CONTRACT: 105580
RECEIPT POINT/S
<TABLE>
<CAPTION>
County/Parish PIN
Name / Location Area State No. Zone MDQ(MMBtu)
--------------- ---- ----- --- ---- ----------
PRIMARY RECEIPT POINT/S
<S> <C> <C> <C> <C> <C>
1. ARKLA/NGPL HOT SPRING HOT SPRING AR 3853 01 5,180
INTERCONNECT WITH ARKLA ENERGY RESOURCES
ON TRANSPORTER'S GULF COAST MAINLINE IN
SEC. 22-T5S-R17W, HOT SPRING COUNTY,
ARKANSAS.
2. BRIDGEPORT PLT OUTLET MEC/NGPL WISE WISE TX 1850 02 5,000
AT THE TAILGATE OF THE MITCHELL ENERGY
BRIDGEPORT PLANT IN THE P. NICHOLAS,
A-654, WISE COUNTY, TEXAS.
3. ENRON/NGPL REFUGIO REFUGIO TX 6490 04 3,987
INTERCONNECT WITH ENRON CORP. LOCATED IN
THE JAMES POWER & JAMES HEWITSON SURVEY,
A-53, REFUGIO COUNTY, TEXAS.
4. LA GLORIA MOBIL/NGPL JIM WELLS JIM WELLS TX 439 04 8,164
AT OR NEAR THE TAILGATE OF MOBIL'S LA
GLORIA GAS PLANT ON TRANSPORTER'S LA
GLORIA-MOBIL LATERAL IN LOT #1, SUBD. OF
LANDS ADJ. TO TOWN OF LA GLORIA, JIM
WELLS COUNTY, TEXAS.
5. N BORDER/NGPL KEOKUK KEOKUK IA 8090 01 5,108
INTERCONNECT WITH NORTHERN BORDER
PIPELINE COMPANY ON TRANSPORTER'S
AMARILLO MAINLINE IN SEC. 30-T76N-R10W,
KEOKUK COUNTY, IOWA.
6. NGPL/NGPL C.S. 103 INLET FORD FORD KS 4987 O2 5,000
TRANSFER POINT FOR FIRM TRANSPORTATION
SERVICE FEEDER AGREEMENTS ON
TRANSPORTER'S AMARILLO MAINLINE IN SEC.
17-T29S-R24W, FORD COUNTY, KANSAS.
7. NGPL/NGPL C.S. 302 INLET MONTGOMERY MONTGOMERY TX 4988 04 24,000
TRANSFER POINT FOR FIRM TRANSPORTATION
SERVICE FEEDER AGREEMENTS ON
TRANSPORTER'S GULF COAST MAINLINE IN
BLOCK 21 OF THE B. PRUETT SURVEY, A-420,
MONTGOMERY COUNTY, TEXAS.
8. NNG/NGPL MILLS MILLS IA 203 01 5,000
INTERCONNECT WITH NORTHERN NATURAL GAS
COMPANY IN SEC. 26-T72N-R43W, MILLS
COUNTY, IOWA.
9. SABINEPL/NGPL HENRY PLT VERMILION VERMILION LA 3592 03 20,000
INTERCONNECT WITH SABINE PIPELINE
COMPANY'S GAS PLANT ON TRANSPORTER'S
LOUISIANA MAINLINE IN SEC. 21-T13S-R4E,
VERMILION PARISH, LOUISIANA.
</TABLE>
A-1
<PAGE>
Exhibit A (CONT'D)
Dated FEBRUARY 01, 1994
Company: NORTH SHORE GAS COMPANY
CONTRACT: 105580
RECEIPT POINT/S
<TABLE>
<CAPTION>
County/Parish PIN
Name / Location Area State No. Zone MDQ(MMBtu)
--------------- ---- ----- --- ---- ----------
PRIMARY RECEIPT POINT/S
<S> <C> <C> <C> <C> <C>
10. TRANSOK/NGPL INTER #2 BECKHAM BECKHAM OK 5556 02 9,892
INTERCONNECT WITH TRANSOK ON
TRANSPORTER'S OKLAHOMA EXTENSION
MAINLINE AT OR NEAR SEC. 26-T10N-R23W,
BECKHAM COUNTY, OKLAHOMA.
11. VALTRANS/NGPL JIM HOGG JIM HOGG TX 24001 04 2,849
INTERCONNECT WITH VALERO TRANSMISSION
CO. ON TRANSPORTER'S NORTHEAST
THOMPSONVILLE LATERAL IN THE NW QUADRANT
OF "LAS AMINAS" HRS. OF SAN FELIPE DE LA
PENA SURVEY, A-244, JIM HOGG COUNTY,
TEXAS
12. VALTRANS/NGPL INTER #2 TAP PANOLA PANOLA TX 3352 01 10,000
INTERCONNECT WITH VALERO TRANSMISSION
COMPANY ON TRANSPORTER'S GULF COAST
MAINLINE IN THE J.A. WILLIAMS SURVEY,
A-717, PANOLA COUNTY, TEXAS.
</TABLE>
SECONDARY RECEIPT POINT/S
All secondary receipt points, and the related priorities and volumes, as
provided under the Tariff provisions governing this Agreement.
RECEIPT PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered to Natural at the Receipt Point/s shall be at a
delivery pressure sufficient to enter Natural's pipeline facilities at the
pressure maintained from time to time, but Shipper shall not deliver gas at
a pressure in excess of the Maximum Allowable Operating Pressure (MAOP)
stated for each Receipt Point. The measuring party shall use or cause to
be used an assumed atmospheric pressure corresponding to the elevation at
such Receipt Point/s.
RATES
Except as provided to the contrary in any written agreement(s) between the
parties in effect during the term hereof, Shipper shall pay Natural the
maximum rate and all other lawful charges as specified in Natural's rate
schedule applicable to this Agreement.
FUEL GAS AND GAS LOST AND UNACCOUNTED FOR PERCENTAGE (%)
Shipper will be assessed the applicable percentage for Fuel Gas and Gas
Lost and Unaccounted for.
TRANSPORTATION OF LIQUIDS
Transportation of liquids may occur at permitted points identified in
Natural's current Catalog of Receipt and Delivery Points, but only if the
parties execute a separate liquids agreement.
A-2
<PAGE>
Exhibit B
Dated FEBRUARY 01, 1994
Company: NORTH SHORE GAS COMPANY
CONTRACT: 105580
RECEIPT POINT/S
<TABLE>
<CAPTION>
County/Parish PIN
Name / Location Area State No. Zone MDQ(MMBtu)
--------------- ---- ----- --- ---- ----------
PRIMARY DELIVERY POINT/S
<S> <C> <C> <C> <C> <C>
1. NO SHORE/NGPL GRAYSLAKE LAKE LAKE IL 1 01 104,180
INTERCONNECT WITH NORTH SHORE GAS
COMPANY LOCATED IN SEC. 12-T44N-R10E,
LAKE COUNTY, ILLINOIS.
LAKE, IL
</TABLE>
SECONDARY DELIVERY POINT/S
All secondary delivery points, and the related priorities and volumes, as
provided under the Tariff provisions governing this Agreement.
DELIVERY PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered by Natural to Shipper, or for Shipper's
account, at the Delivery Point/s shall be at the pressures available in
Natural's pipeline facilities from time to time. The measuring party shall
use or cause to be used an assumed atmospheric pressure corresponding to
the elevation at such Delivery Point/s.
B-1
<PAGE>
Exhibit C
PRIMARY TRANSPORTATION PATH SEGMENT MDQs
Dated FEBRUARY 01, 1994
Company: NORTH SHORE GAS COMPANY
CONTRACT: 105580
Pursuant to Natural's tariff, an MDQ exists for each primary transportation
path segment and direction under the Agreement. Such MDQ is the maximum daily
quantity of gas which Natural is obligated to transport on a firm basis along a
primary transportation path segment.
A primary transportation path segment is the path between a primary
receipt, delivery or node point and the next primary receipt, delivery or node
point. A node point is the point of interconnection between two or more of
Natural's pipeline facilities.
A map of Natural's pipeline system showing these primary transportation
path segment MDQs, and the direction to which each applies, is attached.
Exhibit C depicts the relevant portion, including compressor stations, of
Natural Gas Pipeline Company of America's transmission system, the primary
receipt and delivery points under the transportation agreement, the volumes
associated with each point, and the transportation path defined by the primary
receipt and delivery points. Exhibit C also specifies the Maximum Daily
Quantity under the transportation agreement.
C-1
<PAGE>
EXHIBIT 12
NORTH SHORE GAS COMPANY AND SUBSIDIARY COMPANIES
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fiscal years ended September 30, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Income Before Preferred
Stock Dividends $10,378 $ 8,973 $12,527 $ 6,603 $ 8,336
Add - Income Taxes 5,087 4,788 7,257 3,604 4,936
Fixed Charges (see below) 6,648 7,198 6,175 6,283 5,085
- -----------------------------------------------------------------------------------------------------------------
Earnings $22,113 $20,959 $25,959 $16,490 $18,357
Fixed Charges:
Interest on Long-Term Debt $ 6,205 $ 6,606 $ 5,435 $ 5,482 $ 3,807
Interest on Interim Loans 136 291 197 232 460
Other Interest 186 189 478 506 789
Amortization of Debt Discount
and Expense 121 112 65 63 29
- -----------------------------------------------------------------------------------------------------------------
Total Fixed Charges $ 6,648 $ 7,198 $ 6,175 $ 6,283 $ 5,085
- -----------------------------------------------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges 3.33 2.91 4.20 2.62 3.61
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated November 2, 1994, included in this Form 10-K,
into North Shore Gas Company's previously filed Registration Statement
File No. 33-60256.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
December 22, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF RETAINED EARNINGS, CONSOLIDATED
BALANCE SHEETS, CONSOLIDATED CAPITALIZATION STATEMENTS, CONSOLIDATED STATEMENTS
OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1993
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $178,736
<OTHER-PROPERTY-AND-INVEST> 112
<TOTAL-CURRENT-ASSETS> $43,010
<TOTAL-DEFERRED-CHARGES> 12,506
<OTHER-ASSETS> 0
<TOTAL-ASSETS> $234,364
<COMMON> $24,757
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> $58,923
<TOTAL-COMMON-STOCKHOLDERS-EQ> $83,680
0
0
<LONG-TERM-DEBT-NET> $76,925
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> $4,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $69,759
<TOT-CAPITALIZATION-AND-LIAB> $234,364
<GROSS-OPERATING-REVENUE> $171,125
<INCOME-TAX-EXPENSE> $4,731
<OTHER-OPERATING-EXPENSES> $151,314
<TOTAL-OPERATING-EXPENSES> $156,045
<OPERATING-INCOME-LOSS> $15,080
<OTHER-INCOME-NET> $1,825
<INCOME-BEFORE-INTEREST-EXPEN> $16,905
<TOTAL-INTEREST-EXPENSE> $6,527
<NET-INCOME> $10,378
0
<EARNINGS-AVAILABLE-FOR-COMM> $10,378
<COMMON-STOCK-DIVIDENDS> $7,107
<TOTAL-INTEREST-ON-BONDS> $6,205
<CASH-FLOW-OPERATIONS> $26,167
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
