UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-8369
CONNECTICUT ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-0869582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
855 Main Street
Bridgeport, Connecticut 06604
(Address of principal executive offices) (Zip Code)
(203) 579-1732
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 3, 1995
Common Stock, $1 par value 8,755,306
<TABLE>
PART I. FINANCIAL INFORMATION
CONNECTICUT ENERGY CORPORATION
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues..................... $ 65,523 $ 66,714 $ 239,682 $ 215,313
Purchased gas.......................... 33,277 36,607 123,540 114,849
--------- --------- --------- ---------
Gross margin........................... 32,246 30,107 116,142 100,464
Operating Expenses:
Operations........................... 13,137 11,360 51,986 42,349
Maintenance.......................... 976 863 4,148 3,681
Depreciation and depletion........... 3,476 3,208 13,299 12,250
Federal and state income taxes....... 2,930 2,681 5,651 3,858
Municipal, gross earnings and
other taxes........................ 3,655 3,923 16,046 15,678
--------- --------- --------- ---------
Total operating expenses............... 24,174 22,035 91,130 77,816
--------- --------- --------- ---------
Operating income....................... 8,072 8,072 25,012 22,648
Other deductions, net.................. 155 232 509 673
Interest Expense and Preferred Stock
Dividends:
Interest on long-term debt and
amortization of debt issue costs... 2,716 2,731 10,905 10,363
Other interest and preferred stock
dividends, net..................... 260 111 812 1,398
--------- --------- --------- ---------
Total interest expense and preferred
stock dividends...................... 2,976 2,842 11,717 11,761
--------- --------- --------- ---------
Net Income............................. $ 4,941 $ 4,998 $ 12,786 $ 10,214
========= ========= ========= =========
Net income per share................... $ 0.57 $ 0.67 $ 1.52 $ 1.37
========= ========= ========= =========
Dividends paid per share............... $ 0.325 $ 0.32 $ 1.295 $ 1.28
--------- --------- --------- ---------
Weighted average number of common
shares outstanding during period..... 8,709,092 7,498,194 8,439,233 7,431,351
--------- --------- --------- ---------
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
Dec. 31, Sept. 30, Dec. 31,
Assets 1994 1994 1993
- ------ ----------- --------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Utility Plant:
Gross utility plant............................... $338,636 $331,953 $318,475
Less--accumulated depreciation.................... 100,440 97,458 95,125
-------- -------- --------
Net utility plant............................... 238,196 234,495 223,350
Nonutility property, net.......................... 2,492 2,492 9
-------- -------- --------
Net utility plant and other property................ 240,688 236,987 223,359
-------- -------- --------
Current Assets:
Cash and cash equivalents......................... 3,216 1,637 3,148
------- -------- --------
Accounts receivable............................... 39,337 27,445 36,624
Less--allowance for doubtful accounts............. 2,486 3,747 3,680
-------- -------- --------
Net accounts receivable............................. 36,851 23,698 32,944
-------- -------- --------
Accrued utility revenues, net..................... 7,777 2,630 7,586
Unrecovered purchased gas costs................... 6,142 4,523 10,650
Inventories....................................... 13,101 14,678 15,723
Prepaid expenses.................................. 1,872 1,847 1,530
-------- -------- --------
Total current assets................................ 68,959 49,013 71,581
-------- -------- --------
Deferred Charges:
Unamortized debt expenses......................... 6,259 6,317 6,440
Unrecovered deferred taxes........................ 36,515 35,398 33,943
Recoverable transition costs...................... 2,664 --- ---
Other............................................. 25,206 25,205 26,147
-------- -------- --------
Total deferred charges.............................. 70,644 66,920 66,530
-------- -------- --------
Total assets........................................ $380,291 $352,920 $361,470
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
Dec. 31, Sept. 30, Dec. 31,
Capitalization and Liabilities 1994 1994 1993
- ------------------------------ ----------- --------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Common Shareholders' Equity:
Common Stock--par value $1 per share: authorized--20,000,000 shares, issued and
outstanding--8,748,504 shares; 8,700,266 shares; 7,530,924 shares.............. $ 8,749 $ 8,700 $ 7,531
Capital in excess of par value................................................... 86,160 85,265 63,771
Retained earnings................................................................ 33,862 31,754 32,261
Adjustment for minimum pension liability......................................... --- --- (108)
-------- -------- --------
Total common shareholders' equity.................................................. 128,771 125,719 103,455
-------- -------- --------
Preferred Stock:
The Southern Connecticut Gas Company Redeemable Preferred Stock: authorized--
200,000 shares, par value $100 per share 4.75% cumulative series, none issued
authorized--600,000 shares, par value $1 per share, none issued................ --- --- ---
Preference Stock:
The Southern Connecticut Gas Company: authorized--1,000,000 shares, par value
$1 per share, none issued
Connecticut Energy Corporation: authorized--1,000,000 shares, par value $1 per
share, none issued
Preferred stock expense............................................................ --- --- ---
-------- -------- --------
Total preferred stock.............................................................. --- --- ---
-------- -------- --------
Long-term debt..................................................................... 119,917 119,917 120,511
-------- -------- --------
Total capitalization............................................................... 248,688 245,636 223,966
-------- -------- --------
Current Liabilities:
Short-term borrowings........................................................... 29,000 18,800 38,900
Current maturities of long-term debt............................................ 594 594 595
Accounts payable................................................................ 13,514 10,886 16,117
Refunds due customers........................................................... --- --- 993
Federal, state and deferred income taxes........................................ 5,188 3,565 6,009
Property and other accrued taxes................................................ 7,500 5,289 7,659
Interest payable................................................................ 2,274 3,315 2,321
Customer deposits............................................................... 2,129 1,901 2,314
Other accrued liabilities....................................................... 5,697 4,137 2,537
-------- -------- --------
Total current liabilities.......................................................... 65,896 48,487 77,445
-------- -------- --------
Deferred Credits:
Deferred income taxes and investment tax credits................................ 56,728 54,974 52,068
Accrued transition costs........................................................ 4,506 --- ---
Other........................................................................... 4,473 3,823 7,991
-------- -------- --------
Total capitalization and liabilities............................................... $380,291 $352,920 $361,470
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended Twelve Months Ended
Dec. 31, Dec. 31,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Cash provided by (used by) Operating Activities: $ 658 $ (7,520) $27,997 $ 5,236
------- -------- ------- --------
Cash Flows from Investing Activities:
Capital expenditures................................ (7,261) (4,845) (29,076) (23,977)
Proceeds from sale of headquarter's property........ --- --- --- 2,005
Proceeds from sale of subsidiaries.................. 6 --- 21 180
Contributions in aid of construction................ 14 23 41 91
Payments for retirement of utility plant............ (99) (89) (793) (421)
Other............................................... (50) --- (50) ---
------- -------- ------- --------
Net cash used in investing activities................. (7,390) (4,911) (29,857) (22,122)
------- -------- -------
Cash Flows from Financing Activities:
Dividends paid on common stock...................... (2,833) (2,403) (11,185) (9,525)
Issuance of common stock............................ 944 1,006 23,607 4,459
Issuance of long-term debt.......................... --- --- --- 12,000
Repayments of long-term debt........................ --- --- (594) (594)
Repurchase of long-term debt and subordinated notes. --- --- --- ---
Redemption of preferred stock....................... --- --- --- (50)
Early redemption of preferred stock................. --- (638) --- (638)
Increase (decrease) in short-term borrowings........ 10,200 15,400 (9,900) 10,600
------- -------- ------- --------
Net cash provided by financing activities............. 8,311 13,365 1,928 16,252
------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents.. 1,579 934 68 (634)
Cash and cash equivalents at beginning of period...... 1,637 2,214 3,148 3,782
------- -------- ------- --------
Cash and cash equivalents at end of period............ $ 3,216 $ 3,148 $ 3,216 $ 3,148
======= ======== ======= ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest............................................ $ 3,992 $ 3,669 $11,654 $ 11,608
Income taxes........................................ $ 1,456 --- $ 5,707 $ 1,816
See Notes to Consolidated Financial Statements.
</TABLE>
CONNECTICUT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited consolidated financial statements presented
herein should be read in conjunction with the consolidated
financial statements of Connecticut Energy Corporation ("Company")
for the fiscal year ended September 30, 1994 as presented in the
Annual Report on Form 10-K . In the opinion of management, the
accompanying financial information reflects all adjustments which
are necessary to provide a fair presentation of the interim periods
shown. All such adjustments are of a normal recurring nature.
2. Because sales of gas for space heating purposes by the
registrant's principal subsidiary, The Southern Connecticut Gas
Company ("Southern"), are dependent upon weather conditions and
typically are greater during the winter months, the results of
operations for the three months ended December 31, 1994 are not
indicative of the results to be expected for the full fiscal year.
3. Included in other deferred charges are amounts related to
the deferral of certain hardship heating customer accounts
receivable arrearages totalling $9,505,000, $10,211,000 and
$7,145,000 at December 31, 1994, September 30, 1994 and December
31, 1993, respectively; the deferral of certain shortfalls in
energy assistance funding related to the 1991/92 and 1992/93
heating seasons amounting to $2,601,000, $2,742,000 and $3,100,000
at December 31, 1994, September 30, 1994 and December 31, 1993,
respectively; prepaid pension contributions of $7,153,000,
$6,355,000 and $5,662,000 at December 31, 1994, September 30, 1994,
and December 31, 1993, respectively, and an intangible pension
asset of $101,000, $101,000 and $3,652,000 at December 31, 1994,
September 30, 1994 and December 31, 1993, respectively.
4. Included in other deferred credits are amounts related to
a minimum pension liability totalling $101,000, $101,000 and
$3,816,000 at December 31, 1994 and September 30, 1994 and December
31, 1993, respectively.
5. Southern has identified coal tar residue at three sites
in Connecticut. This residue results from historic coal
gasification operations conducted at those sites by Southern's
predecessors from the late 1800s through the first part of this
century. Many gas distribution companies throughout the country
carried on such gas manufacturing operations during the same
period. See section entitled "Environmental Matters" on page 18
for further detail.
6. Effective October 1, 1994, the Company adopted Statement
of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits". This statement establishes accrual
accounting for benefits such as unemployment compensation,
severance benefits and disability benefits to former or inactive
employees after employment terminates but before retirement. The
impact of this new standard had no material effect on the Company's
financial condition or results of operations.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Income
- --- ------
Connecticut Energy Corporation's ("Company") consolidated net
income for the three and twelve months ended December 31, 1994 and
1993 is detailed below:
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
(in thousands, except 1994 1993 1994 1993
per share) ---- ---- ---- ----
[S] [C] [C] [C] [C]
Net Income $4,941 $4,998 $12,786 $10,214
====== ====== ======= =======
Net Income Per Share $ 0.57 $ 0.67 $ 1.52 $ 1.37
====== ====== ======= =======
Weighted Average
Shares Outstanding 8,709 7,498 8,439 7,431
------ ------ ------- -------
Higher margins for the three months ended December 31, 1994,
which were principally due to the full effect of the implementation
of a 6.6% rate increase on December 9, 1993 by the Company's wholly-
owned subsidiary, The Southern Connecticut Gas Company ("Southern"),
were offset by higher operations expense to reflect the recovery of
expenses due to the adoption of Statement of Financial Accounting
Standards No. 106 ("SFAS 106"), as well as other previously deferred
costs. Also contributing to the slight decrease in net income for
the three months ended December 31, 1994 as compared with the same
1993 period were higher levels of depreciation expense, a higher
effective tax rate for the 1994 quarter and higher short-term
interest expense related to higher average short-term rates and
lower interest income primarily related to the recovery of
previously deferred transition costs.
For the twelve months ended December 31, 1994, higher margins
were principally due to the rate increase implemented by Southern,
Southern's ability to retain additional interruptible margins earned
due to the changes in the annual margin sharing period and target
made by the State of Connecticut Department of Public Utility
Control ("DPUC") in Southern's last rate decision and the continued
conversion of existing non-heating customers to heating customers.
Partially offsetting these increases were higher operating expenses
in the areas of uncollectibles, wages (including some overtime due
to colder weather during the 1993/94 winter), employee benefits
costs principally due to the adoption of SFAS No. 106, depreciation,
rent and increased taxes due to higher pre-tax income and higher
revenues.
Results for the twelve months ended December 31, 1994 were also
affected by higher interest costs due to Southern's issuance of
$12,000,000 in additional long-term debt in September 1993. The
increases in costs on long-term debt for the twelve months ended
December 31, 1994 were offset by lower other interest costs.
Operating Revenues
- --------- --------
The Company's operating revenues for the three months ended
December 31, 1994 were approximately 2% lower than the corresponding
period ended December 31, 1993. Although there was an increase in
operating revenues due to the implementation a 6.6% increase in
Southern's base rates in December 1993 and the collection of
approximately $2,190,000 from firm customers through the Weather
Normalization Adjustment ("WNA"), this was more than offset by lower
collections through the operation of Southern's Purchased Gas
Adjustment Clause ("PGA") and weather that was approximately 14%
warmer than normal during the three months ended December 31, 1994.
For three months ended December 31, 1993 the weather was
approximately 2% colder than normal which positively affected
operating revenues for that period since the WNA was not in effect.
For the twelve months ended December 31, 1994, operating
revenues were approximately 11% higher when compared with the
corresponding 1993 period. The increase can be principally
attributed to the implementation of new base rates, collections
through the operation of the PGA and the addition of more heating
customers through conversions of existing non-heating customers.
For the twelve months ended December 31, 1994, Southern refunded
approximately $577,000 through the operation of the WNA.
Total Sales and Transportation Volumes
- ----- ----- --- -------------- ------
Southern's total volume of gas sold and transported for the
three months ended December 31, 1994 was 12,662 MMcf, which
represents a 48% increase over the comparable 1993 period. This
increase was primarily attributable to volumes of gas transported in
accordance with a special contract for The Connecticut Light and
Power Company's ("CL&P") Devon generating station ("Devon Station")
which began in July 1994 as well as Southern's ability to sell gas
off-system in accordance with the DPUC's decision regarding the
implementation of Federal Energy Regulatory Commission ("FERC")
Order No. 636 by the Connecticut local gas distribution companies.
For the twelve months ended December 31, 1994, Southern's total
volumes of gas sold and transported of 37,366 MMcf were
approximately 30% higher than the comparable 1993 period principally
due to higher transportation volumes to CL&P's Devon Station and
off-system sales volumes.
Firm Sales Volumes
- ---- ----- -------
Firm sales volumes sold by Southern for the three and twelve
months ended December 31, 1994 decreased 17% and 3%, respectively,
as compared to the corresponding 1993 periods. This decrease was
principally due to weather that was 15% warmer during the three
months ended December 31, 1994 when compared to the corresponding
1993 period.
Interruptible Sales and Transportation Volumes
- ------------- ----- --- -------------- -------
The chart below depicts volumes of gas both sold to and
transported for interruptible customers, off-system sales and
transportation volumes under special contract by Southern, as well
as gross margins earned and retained due to the margin sharing
mechanism on these sales and services:
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
(in thousands) 1994 1993 1994 1993
---- ---- ---- ----
Gross margin earned $2,951 $1,462 $8,911 $5,873
====== ====== ====== ======
Gross margin retained $ 716 $ 419 $5,642 $3,234
====== ====== ====== ======
Volumes sold and
transported (MMcf) 6,993 1,693 15,809 6,487
------ ------ ------ ------
Margins earned on volumes delivered to interruptible customers
vary depending upon the relationship of the market price for
alternate fuels to the cost of natural gas and related
transportation. Additionally, margins earned, net of gross earnings
tax, from interruptible service in excess of an annual target are
allocated through a margin sharing mechanism between firm customers
and Southern. Margins earned and retained by Southern were higher
for the three months ended December 31, 1994 as compared with the
corresponding 1993 period principally due to higher levels of
interruptible sales and higher margins earned on those sales. Also
contributing to increased margins was Southern's ability to sell and
transport gas off-system pursuant to the DPUC'S decision regarding
the implementation of FERC Order No. 636. The increase in margins
retained for the twelve months ended December 31, 1994 when compared
to the corresponding 1993 period is principally attributable to the
change in the margin sharing year and an increase in the target
margin level from $2,000,000 to $4,000,000 in accordance with the
DPUC's decision in Southern's latest rate case as well as Southern's
ability to sell and transport off-system gas.
Purchased Gas Expense
- --------- --- -------
Purchased gas expense for the three months ended December 31,
1994 decreased approximately 9% when compared with the corresponding
1993 period primarily due to lower firm sales volumes for the 1994
period. This decrease would have been greater but for the
suspension of the flow-through of approximately $4,974,000 in
interstate pipeline refunds to Southern's customers relating to the
recovery of previously deferred transition costs.
Purchased gas expense for the twelve months ended December 31,
1994 increased approximately 8% when compared to the corresponding
1993 period. This increase was primarily due to a higher base cost
of gas and the suspension of the flow-through of approximately
$2,468,000 in gas cost credits and $9,022,000 in interstate pipeline
refunds to Southern's customers relating to the recovery of
previously deferred transition costs which amounts would have
reduced purchased gas expense.
Operations Expense
- ---------- -------
Operations expense for the three and twelve months ended
December 31, 1994 increased approximately 16% and 23%, respectively,
when compared to the corresponding 1993 periods.
For the three and twelve months ended December 31, 1994,
approximately 54% and 51% of these increases, respectively, were a
result of a higher expense for uncollectible accounts. In December
1992, the DPUC allowed Southern to defer certain shortfalls in
energy assistance funding from various state and federal agencies
related to the 1991/92 and 1992/93 heating seasons. The DPUC
decision positively impacted Southern's provision for uncollectible
accounts for the fiscal year ended September 30, 1993. Southern has
been allowed to recover these costs as well as deferred costs
associated with Southern's certified hardship forgiveness program
beginning January 1, 1994 in accordance with the DPUC's latest rate
decision. Accordingly, included in operations expense for the three
and twelve months ended December 31, 1994, is approximately $676,000
and $2,403,000, respectively, relating to these amortizations. The
remainder of the increase in operations expense is due to higher
employee benefit costs relating to the adoption and the current
recovery of postretirement health care expenses as well as increases
in other operations expenses such as wages, rent, pension costs and
other general and administrative expenses.
Maintenance Expense
- ----------- -------
Maintenance expense for the three and twelve months ended
December 31, 1994 increased approximately 13% as compared to the
same 1993 periods. These increases were primarily attributable to
higher labor and material costs associated with Southern's mains.
The twelve months ended December 31, 1994 includes a higher level of
maintenance activity due to the colder weather experienced during
the 1993/94 winter.
Depreciation and Depletion
- ------------ --- ---------
Depreciation expense for the three and twelve months ended
December 31, 1994 increased approximately 8% as compared to the
corresponding 1993 periods primarily due to additions to plant in
service by Southern.
Federal and State Income Taxes
- ------- --- ----- ------ -----
The total provision for federal and state income taxes for the
three and twelve months ended December 31, 1994 increased
approximately 9% and 46%, respectively, as compared to the
corresponding 1993 periods. These increases were primarily due to
higher pre-tax income for both 1994 periods, coupled with a higher
effective tax rate for the three and twelve months ended December 31,
1994 due to the flow-through tax effect of the amortization of
previously deferred costs.
Interest Expense and Preferred Stock Dividends
- -------- ------- --- --------- ----- ---------
Total interest expense and preferred stock dividends increased
approximately 5% for the three months ended December 31, 1994 as
compared to the corresponding 1993 period. This increase was
primarily due to lower amounts of interest income relating to the
deferred and current recovery of transition costs arising from the
implementation of FERC Order No. 636 by interstate pipelines in
addition to higher short-term interest costs due to higher average
interest rates during the 1994 quarter. Partially offsetting the
increase were lower interest costs related to interstate pipeline
refunds.
Total interest expense and preferred stock dividends remained
relatively unchanged for the twelve months ended December 31, 1994
when compared with the corresponding 1993 period. Higher long-term
interest costs associated with higher average borrowings from the
issuance of $12,000,000 of Series Y First Mortgage Bonds in
September 1993 were offset by the recovery of higher interest income
primarily related to deferred transition costs arising from
implementation of FERC Order No. 636 by interstate pipelines and
lower interest costs related to interstate pipeline refunds.
Additionally, short-term interest costs were lower during the twelve
months ended December 31, 1994 due to lower average short-term
borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
- --------- ----------
The seasonal nature of Southern's business creates large short-
term cash demands primarily to finance gas purchases, customer
accounts receivable and certain tax payments. To provide these
funds, as well as funds for its capital expenditure program and
other corporate purposes, Southern has committed lines of credit
with a number of banks totalling $30,000,000 and uncommitted lines
of credit with two of its banks totalling $14,000,000, in addition
to a revolving credit line agreement for up to $20,000,000 with one
of its banks. This latter agreement has a revolving credit feature
through December 21, 1996, followed by a term loan period through
December 21, 2000. At December 31, 1994, Southern had unused lines
of credit of $35,000,000. Because of the availability of short-term
credit and the ability to issue long-term debt and additional
equity, management believes it has adequate financial flexibility to
meet its anticipated cash needs.
Operating cash flows for the three months ended December 31,
1994 were positively affected by the receipt of approximately
$4,974,000 in interstate pipeline refunds utilized to offset
previously deferred transition costs and lower inventory balances.
Operating cash flows for the twelve months ended were
positively affected by higher net income, the receipt of interstate
pipeline refunds utilized to offset previously deferred transition
costs and lower gas storage inventory balances.
Investing Activities
- --------- ----------
Capital expenditures approximated $7,247,000 and $4,822,000 for
the three months ended December 31, 1994 and 1993, respectively, and
$29,035,000 and $23,886,000 for the twelve months ended December 31,
1994 and 1993, respectively. Southern, on an annual basis, relies
upon cash flow provided by operating activities to fund a portion of
these expenditures, with the remainder funded by short-term
borrowings and, at some later date, long-term debt and capital stock
financings.
In December 1994, the Company formed a new non-utility
subsidiary called Connecticut Energy Development Corporation
("CEDC"). CEDC initially is expected to participate as an equity
holder in entities to be formed to purchase and market natural gas
and potentially participate in other non-regulated activities.
Financing Activities
- --------- ----------
Financing plans for 1995 include a proposed private placement
of approximately $10,000,000 of long-term debt by Southern
tentatively scheduled for the latter part of fiscal 1995 with the
proceeds being used for the repayment of short-term debt and for
other general corporate purposes. The method, timing and amounts of
any future financings by the Company or Southern will depend on a
variety of factors, including capitalization ratios, coverage
ratios, interest costs, the state of the capital markets and general
economic conditions.
FERC Order No. 636 Transition Costs
- ---- ----- --- --- ---------- -----
As a result of FERC Order No. 636, costs are being incurred by
Southern's interstate pipeline suppliers to convert existing
"bundled" sales services to "unbundled" transportation and storage
services. These transition costs include: (1) unrecovered gas
costs, (2) gas supply realignment costs, (3) stranded investment
costs and (4) new facilities costs.
Southern has paid approximately $9,428,000 of an estimated
$16,335,000 in transition costs as of December 31, 1994. Of this
total amount paid, $4,468,000 represent unrecovered gas costs and
$4,960,000 represent gas supply realignment costs and stranded
investment costs. On July 8, 1994, the DPUC issued a Decision
regarding implementation of FERC Order No. 636 by the Connecticut
local gas distribution companies. The DPUC prescribed, among other
things, the mechanism for the recovery of deferred transition costs.
Under this mechanism, the DPUC has allowed the recovery of the
unrecovered gas costs balances from the suspension of the flow-
through of purchased gas cost credits attributable to the twelve
month period ended August 31, 1993 and all future years ending
August 31 as well as refunds received after October 1, 1993 from
interstate pipelines. Additionally, any subsequent refunds from
interstate pipelines as well as any credits received by Southern for
release of its capacity on interstate pipelines shall be used to
offset Southern's payments of unrecovered gas costs until fully
recovered. As of December 31, 1994, Southern has recovered
approximately $4,468,000 in unrecovered gas costs through a
combination of these recovery mechanisms.
Gas supply realignment costs as well as stranded investment
costs are to be recovered by Southern as follows: (1) retention of
50% of margins derived through off-system sales; (2) retention of
50% of all interruptible margins earned above Southern's target
level; (3) retention of pipeline refunds or deferred gas costs
credits for the 1992/93 period and all subsequent annual deferred
gas costs periods that are in excess of the estimated unrecovered
gas cost portion of transition costs; (4) retention of any capacity
release credits received from pipelines in excess of those needed
for unrecovered purchased gas costs and (5) if needed, a per unit
surcharge applied to firm customers' bills, which will be evaluated
in subsequent annual deferred gas costs proceedings. There is no
hierarchy in the use of the first four recovery measures, and any
and all could be utilized as available. All subsequent annual
deferred gas cost credits will be applied on an annual basis. All
other transition cost credits will be immediately applied on a
monthly basis to offset transition costs which have been or will be
subsequently billed. As of December 31, 1994, Southern has
recovered approximately $9,202,000 in gas supply realignment costs
as well as stranded investment costs through a combination of these
recovery mechanisms.
Environmental Matters
- ------------- -------
Southern has identified coal tar residue at three sites in
Connecticut. This residue results from historic coal gasification
operations conducted at those sites by Southern's predecessors from
the late 1800s through the first part of this century. Many gas
distribution companies throughout the country carried on such gas
manufacturing operations during the same period. The coal tar
discovered at Southern's three sites is not designated a hazardous
material by any federal or Connecticut agency, but some of its
constituents are classified as hazardous.
On April 27, 1992, Southern notified the Connecticut Department
of Environmental Protection ("DEP") and the United States
Environmental Protection Agency of the presence of coal tar residue
on the three sites. On November 9, 1994, the DEP informed Southern
that it had performed a preliminary review of the information
provided to it by Southern and had determined that, based on current
priorities and limited staff resources, a comprehensive review of
site conditions and subsequent participation by the DEP "are not
possible at this time". Until the DEP conducts a comprehensive
review, no discussions with it addressing the extent and type of
remedial action, if any, as well as the time period over which such
action would take place, can occur.
Given the DEP's response, management cannot at this time
predict the costs of any future site analysis and remediation, if
any, nor can it estimate when any such costs, if any, would be
incurred. Such future analytical and cleanup costs could possibly
be significant.
Based upon the provisions of the Partial Settlement in
Southern's last rate order, management believes that Southern will
properly be able to recover the costs of investigation and
remediation, if any, through its customer rates. The method, timing
and extent of any recovery remain uncertain, but management
currently does not expect that the incurrence of such costs will
have a material adverse effect on the Company's financial condition
or results of operations.
PART II- OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are inapplicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedule
Submitted only in electronic format to the
Securities and Exchange Commission.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during
the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CONNECTICUT ENERGY CORPORATION
(Registrant)
DATE: February 8, 1995 /s/ Vincent L. Ammann, Jr.
--------------------------
Vincent L. Ammann, Jr.
Vice President and
Chief Accounting Officer
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