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, 1995
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 5, 1996
----- -------------------------------
Common Stock, $1 par value 8,902,378
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PART I. FINANCIAL INFORMATION
CONNECTICUT ENERGY CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Twelve Months Ended
December 31, December 31,
---------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
Operating Revenues..................... $ 69,775 $ 65,523 $ 236,345 $ 239,682
Purchased gas.......................... 37,493 33,277 119,799 123,540
--------- --------- --------- ---------
Gross margin........................... 32,282 32,246 116,546 116,142
Operating Expenses:
Operations........................... 12,299 13,137 48,275 51,986
Maintenance.......................... 1,048 976 3,815 4,148
Depreciation and depletion........... 3,737 3,476 14,311 13,299
Federal and state income taxes....... 3,171 2,930 7,677 5,651
Municipal, gross earnings and
other taxes........................ 3,779 3,655 15,406 16,046
--------- --------- --------- ---------
Total operating expenses............... 24,034 24,174 89,484 91,130
--------- --------- --------- ---------
Operating income....................... 8,248 8,072 27,062 25,012
Other deductions, net.................. 130 155 494 509
Interest Expense:
Interest on long-term debt and
amortization of debt issue costs... 2,702 2,716 10,845 10,905
Other interest, net.................. 387 260 1,575 812
--------- --------- --------- ---------
Total interest expense................. 3,089 2,976 12,420 11,717
--------- --------- --------- ---------
Net Income............................. $ 5,029 $ 4,941 $ 14,148 $ 12,786
========= ========= ========= =========
Net income per share................... $ 0.57 $ 0.57 $ 1.61 $ 1.52
========= ========= ========= =========
Dividends paid per share............... $ 0.325 $ 0.325 $ 1.30 $ 1.295
--------- --------- --------- ---------
Weighted average number of common
shares outstanding during period..... 8,871,106 8,709,092 8,814,715 8,439,233
--------- --------- --------- ---------
See Notes to Consolidated Financial Statements.
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<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
<S> <C> <C> <C>
Dec. 31, Sept. 30, Dec. 31,
Assets 1995 1995 1994
- ------ ---------- ---------- ----------
(Unaudited) (Unaudited)
Utility Plant:
Gross utility plant............................................................. $358,727 $354,847 $338,636
Less--accumulated depreciation.................................................. 110,710 107,244 100,440
-------- -------- --------
Net utility plant............................................................... 248,017 247,603 238,196
Nonutility property, net.......................................................... 2,731 2,541 2,492
-------- -------- --------
Net utility plant and other property.............................................. 250,748 250,144 240,688
-------- -------- --------
Current Assets:
Cash and cash equivalents....................................................... 3,248 4,635 3,216
-------- -------- --------
Accounts receivable............................................................. 43,246 27,009 39,337
Less--allowance for doubtful accounts........................................... 3,538 3,553 2,486
-------- -------- --------
Net accounts receivable....................................................... 39,708 23,456 36,851
-------- -------- --------
Accrued utility revenues, net................................................... 7,842 2,675 7,777
Unrecovered purchased gas costs................................................. 6,660 2,972 6,142
Inventories..................................................................... 10,552 13,115 13,101
Prepaid expenses................................................................ 1,991 2,247 1,872
-------- -------- --------
Total current assets.............................................................. 70,001 49,100 68,959
-------- -------- --------
Deferred Charges and other assets:
Unamortized debt expenses....................................................... 6,043 6,090 6,259
Unrecovered deferred taxes...................................................... 38,841 37,717 36,515
Recoverable transition costs.................................................... --- --- 2,664
Other........................................................................... 30,677 27,037 25,206
-------- -------- --------
Total deferred charges and other assets........................................... 75,561 70,844 70,644
-------- -------- --------
Total assets...................................................................... $396,310 $370,088 $380,291
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
<S> <C> <C> <C>
Dec. 31, Sept. 30, Dec. 31,
Capitalization and Liabilities 1995 1995 1994
- ------------------------------ ---------- --------- ----------
(Unaudited) (Unaudited)
Common Shareholders' Equity:
Common Stock: authorized--20,000,000 shares, par value $1 per share, issued and
outstanding--8,898,663 shares; 8,865,210 shares; 8,748,504 shares............. $ 8,899 $ 8,865 $ 8,749
Capital in excess of par value.................................................. 88,982 88,295 86,160
Retained earnings............................................................... 36,545 34,401 33,862
-------- -------- --------
Total common shareholders' equity................................................. 134,426 131,561 128,771
-------- -------- --------
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.................................................................... 119,322 119,322 119,917
-------- -------- --------
Total capitalization.............................................................. 253,748 250,883 248,688
-------- -------- --------
Current Liabilities:
Short-term borrowings........................................................... 34,900 24,200 29,000
Current maturities of long-term debt............................................ 594 594 594
Accounts payable................................................................ 16,206 9,586 13,514
Refunds due customers........................................................... 633 862 ---
Federal, state and deferred income taxes........................................ 5,279 2,525 5,188
Property and other accrued taxes................................................ 7,322 4,877 7,500
Interest payable................................................................ 2,252 3,311 2,274
Customers' deposits............................................................. 2,055 1,843 2,129
Other accrued liabilities....................................................... 3,007 3,419 5,697
-------- -------- --------
Total current liabilities......................................................... 72,248 51,217 65,896
-------- -------- --------
Deferred Credits:
Deferred income taxes and investment tax credits................................ 61,459 59,920 56,728
Accrued transition costs........................................................ --- --- 4,506
Other........................................................................... 8,855 8,068 4,473
-------- -------- --------
Total capitalization and liabilities.............................................. $396,310 $370,088 $380,291
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Twelve Months Ended
Dec. 31, Dec. 31,
------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
Net cash (used by) provided by operating activities... $(3,417) $ 658 $30,294 $27,997
------- ------- ------- -------
Cash Flows from Investing Activities:
Capital expenditures................................ (4,484) (7,261) (24,814) (29,076)
Proceeds from sale of subsidiaries.................. 2 6 36 21
Contributions in aid of construction................ 13 14 31 41
Payments for retirement of utility plant............ 3 (99) (288) (793)
Investments in energy ventures...................... (2,040) (50) (2,040) (50)
------- ------- ------- -------
Net cash used by investing activities................. (6,506) (7,390) (27,075) (29,857)
------- ------- ------- -------
Cash Flows from Financing Activities:
Dividends paid on common stock...................... (2,884) (2,833) (11,464) (11,185)
Issuance of common stock............................ 720 944 2,971 23,607
Repayments of long-term debt........................ --- --- (594) (594)
Increase (decrease) in short-term borrowings........ 10,700 10,200 5,900 (9,900)
------- ------- ------- -------
Net cash provided by (used by) financing activities... 8,536 8,311 (3,187) 1,928
------- ------- ------- -------
Net (decrease) increase in cash and cash equivalents.. (1,387) 1,579 32 68
Cash and cash equivalents at beginning of period...... 4,635 1,637 3,216 3,148
------- ------- ------- -------
Cash and cash equivalents at end of period............ $ 3,248 $ 3,216 $ 3,248 $ 3,216
======= ======= ======= =======
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest............................................ $ 4,236 $ 3,992 $11,945 $11,654
Income taxes........................................ --- $ 1,456 $ 5,180 $ 5,707
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
("Connecticut Energy" or "the Company") for the fiscal year ended
September 30, 1995 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.
The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
2. The Company's principal subsidiary, The Southern
Connecticut Gas Company ("Southern"), prepares its financial
statements in accordance with the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" ("SFAS 71"), which requires a cost-
based, rate-regulated enterprise such as Southern to reflect the
impact of regulatory decisions in its financial statements. The
Connecticut Department of Public Utility Control's ("DPUC") actions
through the ratemaking process can create regulatory assets in
which costs are allowed for ratemaking purposes in a period other
than the period in which the costs would be charged to expense if
the reporting entity was unregulated.
In the application of SFAS 71, Southern follows
accounting policies that reflect the impact of the rate treatment
of certain events or transactions that are permitted to differ from
generally accepted accounting principles. The most significant of
these policies include the recording of deferred gas costs,
pipeline transition costs, environmental evaluation costs, hardship
heating customer accounts receivables, and an unfunded deferred
income tax liability, with a corresponding unrecovered asset, for
temporary differences previously flowed through to ratepayers.
Based on current regulation and recent DPUC decisions,
the Company believes that its use of regulatory accounting for
Southern is appropriate and in accordance with the provisions of
SFAS 71.
3. Due to the seasonal nature of gas sales for space heating
purposes by Southern, the results of operations for the three
months ended December 31, 1995 are not indicative of the results to
be expected for the fiscal year ending September 30, 1996.
4. Included in other deferred charges are amounts related to
the deferral of certain hardship heating customer accounts
receivable arrearages totalling $9,981,000, $10,223,000 and
$9,505,000 at December 31, 1995, September 30, 1995 and December
31, 1994, respectively; the deferral of certain shortfalls in
energy assistance funding related to the 1991/92 and 1992/93
heating seasons amounting to $1,978,000, $2,122,000 and $2,601,000
at December 31, 1995, September 30, 1995 and December 31, 1994,
respectively; prepaid pension and postretirement medical
contributions of $9,398,000, $7,969,000 and $7,153,000 at December
31, 1995, September 30, 1995 and December 31, 1994, respectively;
and an intangible pension asset of $23,000, $23,000 and $101,000 at
December 31, 1995, September 30, 1995 and December 31, 1994,
respectively. These deferred charges are among other miscellaneous
deferred charges which Southern has been allowed to recover in
rates over periods ranging from three to five years in accordance
with the DPUC's Decision in Southern's last rate case.
5. Included in other deferred credits are amounts related to
a minimum pension liability totalling $23,000, $23,000 and $101,000
at December 31, 1995, September 30, 1995 and December 31, 1994,
respectively. Also included are amounts related to Southern's
interruptible margin sharing mechanisms totalling $5,167,000,
$4,851,000 and $1,277,000 at December 31, 1995, September 30, 1995
and December 31, 1994, respectively.
6. Southern has identified coal tar residue at three sites
in Connecticut resulting from 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 MD&A section
entitled "Environmental Matters" for further detail.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Income
- ----------
Connecticut Energy Corporation's ("Connecticut Energy" or
"the Company") consolidated net income for the three and twelve months
ended December 31, 1995 and 1994 is detailed below:
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
(in thousands, except 1995 1994 1995 1994
per share) ---- ---- ---- ----
Net Income $5,029 $4,941 $14,148 $12,786
====== ====== ======= =======
Net Income Per Share $ 0.57 $ 0.57 $ 1.61 $ 1.52
====== ====== ======= =======
Weighted Average
Shares Outstanding 8,871 8,709 8,815 8,439
------ ------ ------- -------
Slightly higher margins retained by the Company's principal
subsidiary, The Southern Connecticut Gas Company ("Southern"), from
interruptible sales and services for the three months ended December
31, 1995 were offset by lower firm margins primarily due to
customers switching from firm to interruptible rate classes and
slightly lower usage per customer. Contributing to the slight
increase in net income for the 1995 quarter was a lower operations
expense related to decreased costs for labor, pensions,
postretirement health care and employee health insurance. Factors
partially offsetting the decrease in operations expense were higher
expenses for maintenance and depreciation, higher short-term debt
interest related to higher average borrowings and a higher effective
tax rate.
For the twelve months ended December 31, 1995, net income
increased approximately 11% compared to the twelve months ended
December 31, 1994. This increase was principally due to higher
interruptible and off-system margins earned and retained by
Southern; lower operations expense related to decreased costs for
labor, pensions, postretirement health care, employee health
insurance and uncollectibles; lower maintenance expense; lower gross
earnings taxes; and the addition of residential and commercial
heating customers. Offsetting factors were lower firm margins due
to the reasons previously mentioned, higher depreciation expense,
higher short-term debt interest related to higher average borrowings
and a higher average interest rate and a higher income tax provision
primarily related to a higher effective tax rate.
Total Sales and Transportation Volumes
- --------------------------------------
Southern's total volumes of gas sold and transported for the
three months ended December 31, 1995 were 10,920 MMcf, which
represented approximately a 14% decrease compared to the
corresponding 1994 period. This decrease was primarily attributable
to decreases in off-system transportation and off-system sales
volumes due to the competitive price of oil during the 1995 quarter.
Partially offsetting the decreases in off-system volumes was an
increase in firm sales volumes principally due to colder weather.
For the twelve months ended December 31, 1995, Southern's total
volumes of gas sold and transported of 47,956 MMcf were
approximately 28% higher than the comparable 1994 period principally
due to increases in on-system interruptible and off-system
transportation and sales volumes. A decrease in firm sales volumes
partially offset these increases.
Firm Sales Volumes
- ------------------
Firm sales volumes for the three months ended December 31, 1995
increased approximately 17% compared to the corresponding 1994
period principally due to weather which was approximately 25% colder
than the 1994 quarter and the addition of residential and commercial
heating customers. Partially offsetting these increases were
slightly lower usage per customer and customer switching from firm
to interruptible rate classes, which resulted in lowering firm
margins.
Firm sales volumes for the twelve months ended December 31,
1995 decreased approximately 3% compared to the twelve months ended
December 31, 1994. This decrease was principally due to weather
which was approximately 2% warmer than the 1994 period, slightly
lower usage per customer and customer switching from firm to
interruptible rate classes.
Interruptible Sales and Transportation Volumes
- ----------------------------------------------
The chart below depicts volumes of gas both sold to and
transported for interruptible customers, off-system sales volumes
and transportation volumes under a special contract with The
Connecticut Light and Power Company for its Devon generating station
as well as gross margins earned and retained due to the margin
sharing mechanism on these services:
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
(in thousands) 1995 1994 1995 1994
---- ---- ---- ----
Gross margin earned $2,838 $2,951 $13,589 $8,911
====== ====== ======= ======
Gross margin retained $ 981 $ 716 $ 7,656 $5,642
====== ====== ======= ======
Volumes sold and
transported (MMcf) 4,306 6,993 26,994 15,809
------ ------ ------- ------
Margins earned on volumes delivered to interruptible customers
vary depending upon the relationship of the market price for
alternate fuels to the price of natural gas and related
transportation. Additionally, margins earned, net of gross earnings
tax, from on-system interruptible service in excess of an annual
target are allocated through a margin sharing mechanism between firm
customers and Southern.
Margins retained by Southern were higher for the three months
ended December 31, 1995 compared to the corresponding 1994 period
principally due to the elimination of assigning margins earned to
recover previously deferred transition costs. These transition costs
resulted from the implementation of the Federal Energy Regulatory
Commission's Order No. 636 ("Order No. 636") by interstate pipelines.
This increase was partially offset by higher amounts of margin sharing
with firm customers for the three months ended December 31, 1995 due
to the higher level of margins earned over the preceding twelve month
period.
The increase in margins earned and retained for the twelve
months ended December 31, 1995 compared to the corresponding 1994
period was principally attributable to higher levels of
interruptible services both on- and off-system during the 1995
period.
Gross Margin
- ------------
The Company's gross margin remained relatively unchanged for
the three months and twelve months ended December 31, 1995 compared
to the corresponding 1994 periods.
Gross margin for the twelve months ended December 31, 1995 was
positively affected by the collection of approximately $3,830,000
from firm customers through the operation of the Weather
Normalization Adjustment clause ("WNA") implemented in December of
1993. The WNA collections helped offset the effects of lower firm
sales volumes primarily resulting from weather that was
approximately 3% warmer than normal for the twelve months ended
December 31, 1995.
Southern's firm rates include a Purchased Gas Adjustment clause
("PGA") which allows Southern to pass through to its customers,
through periodic adjustments to amounts billed, increased or
decreased costs incurred for purchased gas as compared to gas costs
embedded in base rate levels without affecting gross margin. For
the three months ended December 31, 1995, adjustments related to
Southern's PGA increased revenues and gas costs by approximately
$289,000 compared to PGA adjustments for the corresponding 1994
period which decreased revenues and gas costs by approximately
$249,000. For the twelve months ended December 31, 1995, PGA
adjustments decreased revenues and gas costs by approximately
$3,218,000 compared to PGA adjustments for the corresponding 1994
period which increased revenues and gas costs by $2,617,000.
Operations Expense
- ------------------
Operations expense for the three and twelve months ended
December 31, 1995 decreased approximately 6% and 7%, respectively,
compared to the corresponding 1994 periods.
Operations expenses for the three and twelve months ended
December 31, 1995 were positively affected by decreased labor costs
due to a reduction in overtime payments and workforce, decreased
pension expenses, decreased postretirement health care costs and
decreased employee health care costs. Partially offsetting these
decreases were increases related to regulatory commission expenses.
Maintenance Expense
- -------------------
Maintenance expense for the three months ended December 31,
1995 increased approximately 7% compared to the corresponding 1994
period. This increase was primarily attributable to an increase in
labor and material costs related to maintenance activities
associated with Southern's mains and other maintenance activity
related to the colder weather in the 1995 period.
Maintenance expense for the twelve months ended December 31,
1995 decreased approximately 8% compared to the corresponding 1994
period. This decrease was primarily attributable to a decrease in
labor costs and, to a lesser extent, decreased material costs
associated with Southern's mains due to weather that was warmer than
the 1994 period.
Depreciation and Depletion
- --------------------------
Depreciation expense for the three and twelve months ended
December 31, 1995 increased approximately 8%, respectively, compared
to the corresponding 1994 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, 1995 increased
approximately 8% and 36%, respectively, compared to the
corresponding 1994 periods primarily due to a higher effective tax
rate and higher pre-tax income for both of the 1995 periods.
Factors resulting in the higher effective tax rate for the quarter
and twelve months ended December 31, 1995 were lower projected
amounts of forgiveness to be granted to Southern's hardship
customers under a DPUC approved 3-Way-Payment Plan and the flow-
through tax effect of the amortization of previously deferred costs.
Interest Expense
- ----------------
Total interest expense increased approximately 4% for the three
months ended December 31, 1995 compared to the corresponding 1994
period primarily because of higher average short-term borrowings and
a higher average short-term interest rate during the 1995 period.
Total interest expense increased 6% for the twelve months ended
December 31, 1995 compared to the corresponding 1994 period
primarily due to higher average short-term borrowings and a higher
average short-term interest rate during the 1995 period.
Additionally, total interest expense for the twelve months ended
December 31, 1995 was impacted by an increase in interest expense on
deferred gas costs and amounts associated with the margin sharing
mechanism.
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, Connecticut Energy has committed lines of
credit with a number of banks totalling $37,000,000. Of this total,
Southern has committed lines of credit of $32,000,000 in addition to
uncommitted lines of credit with two of its banks totalling
$14,000,000 and 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, 1995,
the Company had unused lines of credit of $36,100,000. 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,
1995 were negatively impacted by higher accounts receivable and
unrecovered purchased gas cost balances. Partially offsetting these
items were lower gas inventories, higher accounts payable and higher
deferred tax balances.
Operating cash flows for the twelve months ended December 31,
1995 were negatively impacted by higher accounts receivable and
deferred transition costs balances. Partially offsetting these
items were higher net income and a higher accounts payable balance.
Operating cash flows for the twelve months ended December 31, 1995
compared to the twelve months ended December 31, 1994 were
positively affected by higher net income, a lower accounts
receivable balance and a higher accounts payable balance. Also
contributing to higher operating cash flows for the 1995 period was
the timing of the recognition and recovery of transition costs
resulting from implementation of Order No. 636. A higher
unrecovered purchased gas costs balance for the 1995 period
partially offset these items.
Investing Activities
- --------------------
Capital expenditures approximated $4,471,000 and $7,247,000 for
the three months ended December 31, 1995 and 1994, respectively, and
$24,783,000 and $29,035,000 for the twelve months ended December 31,
1995 and 1994, respectively. On an annual basis, Southern relies
upon cash flows from 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 1995, the Company, through a nonutility subsidiary,
funded a joint venture with Louis Dreyfus Energy Corp. The new
venture will provide, among other things, natural gas, fuel oil
and other energy products to customers located in New England and
will provide a full range of energy-related financial, operational
and maintenance services to commercial, industrial and municipal
customers located in the region.
Financing Activities
- --------------------
Financing plans for 1996 include the potential establishment by
Southern of a Medium Term Note ("MTN") program, subject to the approval
of the DPUC. This program would permit the issuance from time to time
of up to $75,000,000 of secured MTNs over a four-year period in varying
amounts and with varying terms. The current timetable would allow for
the commencement of this program sometime in the spring of 1996. 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 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 unrecovered gas costs, gas
supply realignment costs, stranded investment costs and new
facilities costs.
Southern has paid approximately $16,345,000 in transition costs
as of December 31, 1995. On July 8, 1994, the DPUC issued a
Decision regarding implementation of Order No. 636 by the
Connecticut local gas distribution companies ("LDC"). The DPUC
prescribed, among other things, the various mechanisms for the
recovery of deferred transition costs. As of December 31, 1995,
Southern has recovered substantially all of its deferred transition
costs through the use of the recovery mechanisms allowed by the
DPUC.
Rate Matters
- ------------
On August 2, 1995, the DPUC issued a final Decision in Docket
No. 94-11-12, DPUC Review of Connecticut Local Distribution
Companies' Cost of Service Study Methodologies. In this docket, the
DPUC investigated the issues surrounding the development of firm
transportation rates at the state level in response to Order No. 636
and provided guidelines for the development of firm transportation
rates to be offered by Connecticut's three LDCs. Thereafter, the
LDCs filed specific firm transportation rate proposals in separate
company rate dockets.
The DPUC has recently announced that effective April 1, 1996,
commercial and industrial gas customers in Connecticut will be able
to contract for their gas supplies from sources other than the LDCs.
The DPUC also approved, for each of Connecticut's LDCs, firm
transportation rates for these customers. Customers will now have
the option of purchasing gas from independent brokers and marketers
and paying the LDC only for the transportation of that gas through
its distribution system.
The new firm transportation rates will be margin neutral to
Southern because margins provided by the unbundled service will be
the same as margins provided by the bundled service. Unbundling
also allows Southern to offer a broader array of service options
to its customers.
Environmental Matters
- ---------------------
Southern has identified coal tar residue at three sites in
Connecticut resulting from 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 residue 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
at the 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, timing and type of
remedial action, if any, 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. While such future analytical and cleanup costs could
possibly be significant, management believes, based upon the
provisions of the Partial Settlement in Southern's last rate order,
that Southern will be able to recover these costs through its
customer rates. Although the method, timing and extent of any
recovery remain uncertain, management currently does not expect that
the incurrence of such costs will materially adversely impact the
Company's financial condition or results of operations.<PAGE>
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In Connecticut Heating & Cooling Contractors Association, Inc. v.
-----------------------------------------------------------
Connecticut Natural Gas Corp., Connecticut Superior Court - Middlesex,
---------------------------------------------------------------------
a class action filed in November 1995, two trade associations and two
plumbing and heating contractors are suing Southern and the other
Connecticut LDCs for violations of the Connecticut Unfair Trade
Practices Act and tortious interference with business relations
in connection with providing service and maintenance to heating,
cooling and ventilating systems. The plaintiffs seek declaratory and
injunctive relief as well as treble damages in excess of $15,000,
punitive damages and attorneys' fees. Southern intends to defend
itself vigorously in this suit which management believes is without
merit. In the opinion of management, resolution of this lawsuit is
not expected to have a material adverse impact on the Company's
financial condition or results of operations.
Items 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 9, 1996 /s/ Vincent L. Ammann, Jr.
---------------------------
Vincent L. Ammann, Jr.
Vice President and
Chief Accounting Officer
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