SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
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 number 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)
(800) 760-7776
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
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, 1999
-------------------------- -------------------------------
Common Stock, $1 par value 10,350,638
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PART 1. FINANCIAL INFORMATION
CONNECTICUT ENERGY CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
(Unaudited)
<S> <C> <C>
Three Months Ended
Dec. 31,
-------------------
1998 1997
---- ----
Operating Revenues $ 61,594 $ 76,507
Purchased gas 27,784 42,476
---------- ---------
Gross margin 33,810 34,031
Operating Expenses:
Operations 12,443 12,789
Maintenance 875 938
Depreciation 4,551 4,240
Federal and state income taxes 3,515 4,496
Municipal, gross earnings and
other taxes 3,130 2,202
---------- ---------
Total operating expenses 24,514 24,665
---------- ---------
Operating income 9,296 9,366
Other (income) deductions, net (168) (57)
Interest Expense:
Interest on long-term debt and
amortization of debt issue costs 3,213 3,068
Other interest, net 156 189
---------- ---------
Total interest expense 3,369 3,257
---------- ---------
Net Income $ 6,095 $ 6,166
========== =========
Net income per share -
basic $ 0.60 $ 0.64
========== =========
Net income per share -
diluted $ 0.59 $ 0.64
========== =========
Dividends paid per share $ 0.335 $ 0.33
---------- ---------
Weighted average common shares
outstanding during period -
basic 10,239,517 9,617,544
---------- ---------
Weighted average common shares
outstanding during period -
diluted 10,331,531 9,669,791
---------- ---------
See Notes to Consolidated Financial Statements.
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<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Three Months Ended
December 31,
-------------------
1998 1997
---- ----
Net Income $6,095 $6,166
------ ------
Other comprehensive income, net of taxes:
Minimum pension liability adjustment (473) (427)
------ ------
Total other comprehensive income (473) (427)
------ ------
Comprehensive Income $5,622 $5,739
====== ======
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>
Dec. 31, Sept. 30,
1998 1998
-------- --------
(Unaudited)
Assets
- ------
Utility Plant:
Gross utility plant $413,152 $412,715
Less: accumulated depreciation 139,673 137,493
-------- --------
Net utility plant 273,479 275,222
Nonutility property, net 7,379 4,526
-------- --------
Net utility plant and other property 280,858 279,748
-------- --------
Current Assets:
Cash and cash equivalents 8,100 10,091
-------- --------
Accounts receivable 42,056 28,986
Less: allowance for doubtful accounts 2,396 2,065
-------- --------
Net accounts receivable 39,660 26,921
-------- --------
Accrued utility revenues, net 6,221 2,511
Unrecovered purchased gas costs 7,953 2,529
Inventories 6,641 10,491
Prepaid expenses 4,478 5,863
-------- --------
Total current assets 73,053 58,406
-------- --------
Deferred Charges and Other Assets:
Unamortized debt expenses 10,773 10,841
Unrecovered deferred income taxes 49,775 49,800
Other 61,738 60,606
-------- --------
Total deferred charges and other assets 122,286 121,247
-------- --------
Total assets $476,197 $459,401
======== ========
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>
Dec.31, Sept. 30,
1998 1998
-------- --------
(Unaudited)
Capitalization and Liabilities
- ------------------------------
Common Shareholders' Equity:
Common stock: authorized-20,000,000
shares, par value $1 per share, issued and
outstanding--10,347,988 shares; 10,289,692
shares $ 10,348 $ 10,290
Capital in excess of par value 121,855 119,961
Unearned compensation (1,487) (310)
Retained earnings 50,306 47,685
Adjustment for minimum pension liability
(net of income taxes) (473) (473)
-------- --------
Total common shareholders' equity 180,549 177,153
-------- --------
Long-term debt 150,007 150,007
-------- --------
Total capitalization 330,556 327,160
-------- --------
Current Liabilities:
Short-term borrowings 29,800 22,400
Current maturities of long-term debt 1,321 1,321
Accounts payable 12,198 10,499
Federal, state and deferred income taxes 4,291 1,537
Other accrued taxes 2,919 2,024
Interest payable 2,557 3,386
Customers' deposits 1,756 1,627
Refunds due customers 360 454
Other 5,351 4,886
-------- --------
Total current liabilities 60,553 48,134
-------- --------
Deferred Credits:
Deferred income taxes and investment
tax credits 75,779 75,568
Other 9,159 8,389
-------- --------
Total deferred credits 84,938 83,957
-------- --------
Commitments and contingencies 150 150
-------- --------
Total capitalization and liabilities $476,197 $459,401
======== ========
See Notes to Consolidated Financial Statements.
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<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Three Months Ended
December 31,
------------------
1998 1997
---- ----
Net cash provided (used) by operating activities $ 716 $(9,463)
------- -------
Cash Flows from Investing Activities:
Capital expenditures (5,741) (6,360)
Contributions in aid of construction 26 16
Payments for retirement of utility plant (10) (47)
Investment in special contract distribution main (367) ---
Energy ventures (1,316) 327
------- -------
Net cash used by investing activities (7,408) (6,064)
------- -------
Cash Flows from Financing Activities:
Dividends paid on common stock (3,474) (3,370)
Issuance of common stock 775 24,886
Increase (decrease) in short-term borrowings 7,400 (5,500)
------- -------
Net cash provided by financing activities 4,701 16,016
------- -------
Net (decrease) increase in cash and cash
equivalents (1,991) 489
Cash and cash equivalents at beginning of period 10,091 6,644
------- -------
Cash and cash equivalents at end of period $ 8,100 $ 7,133
======= =======
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 4,316 $ 4,130
Income taxes $ 500 $ 1,500
Supplemental Schedule of Noncash
Investing and Financing Activities:
On October 1, 1998, 39,767 shares of unregistered common stock were
issued pursuant to the Company's Restricted Stock Award Plan.
See Notes to Consolidated Financial Statements.
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CONNECTICUT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
General
The unaudited consolidated financial statements presented herein should be read
in conjunction with the consolidated financial statements of Connecticut Energy
Corporation ("Connecticut Energy" or "Company") for the fiscal year ended
September 30, 1998 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.
In preparing the financial statements in conformity with generally accepted
accounting principles, the Company uses estimates. Estimates are disclosed
when there is a reasonable possibility for change in the near term. For this
purpose, near term is defined as a period of time not to exceed one year from
the date of the financial statements. The Company's financial statements
have been prepared based on management's estimates of the impact of regulatory,
legislative and judicial developments on the Company or significant groups of
its customers. The recorded amounts of certain accruals, reserves, deferred
charges and assets could be materially impacted if circumstances change which
affect these estimates.
Accounting for the Effects of Regulation
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 were unregulated.
In the application of SFAS 71, Southern follows accounting policies that
reflect the impact of the rate treatment of certain events or transactions.
The most significant of these policies include the recording of deferred gas
costs, deferred conservation costs, deferred hardship heating customer
accounts receivable arrearages, deferred environmental evaluation costs and
an unfunded deferred income tax liability, with a corresponding unrecovered
asset, to account for temporary differences previously flowed through to
ratepayers.
Southern had net regulatory assets as of December 31, 1998 and September 30,
1998 of $77,390 and $74,955, respectively. These amounts are included in
deferred charges and other assets and deferred credits in the consolidated
balance sheets and are solely due to the application of the provisions of
SFAS 71.
Effective April 1, 1996, the DPUC deregulated the sale of natural gas to firm
commercial and industrial customers by giving these customers an option to
purchase natural gas from independent brokers or marketers. Commercial and
industrial customers electing to purchase natural gas in this manner pay a
DPUC-approved firm transportation rate to local gas distribution companies
("LDCs") for the use of their distribution systems.
Southern is one of three Connecticut LDCs whose firm transportation rates are
designed to provide the same margins earned from bundled services. Because the
rates are margin neutral, there has not been any impact upon Southern's ability
to recover deferred costs through cost-based rate regulation. Firm
transportation rates have eliminated only the gas cost component of the rates
previously charged to these customers. The Company has not experienced any
adverse impact on its earnings or results of operations from this change in
rate structure. Additionally, the DPUC's initiatives for competition have
not been directed toward services for certain groups of customers, including
service to residential classes, which represent the majority of Southern's
total throughput and gross margin.
Management believes that Southern continues to meet the requirements of SFAS 71
because Southern's rates for regulated services provided to its customers are
subject to DPUC approval; are designed to recover Southern's costs of providing
regulated services; and continue to be subject to cost-of-service based rate
regulation by the DPUC.
Deferred Charges and Other Assets
Deferred charges and other assets include amounts related to the following:
Dec. 31, Sept. 30,
As of 1998 1998
- -----------------------------------------------------------------------------
Conservation costs $ 4,846 $ 5,004
Energy assistance funding shortfall --- 262
Environmental evaluation costs 501 684
Gas holder costs --- 62
Hardship heating customer accounts receivable arrearages 16,561 16,399
Hardship heating customer assistance grant program 1,299 1,748
Investment in energy ventures 5,511 4,195
Investment in special contract distribution main 11,761 11,394
LNG facility 225 207
Nonqualified benefit plans 3,022 3,023
Prepaid pension and postretirement medical contributions 14,207 14,207
Other 3,805 3,421
------- -------
$61,738 $60,606
======= =======
Southern has been allowed to recover various deferred charges in rates over
periods ranging from three to five years in accordance with the DPUC's Decision
in Southern's latest rate case.
Deferred Credits
Deferred credits include amounts related to the following:
Dec. 31, Sept. 30,
As of 1998 1998
- -----------------------------------------------------------------------------
Economic development initiatives $ 747 $ 397
Insurance reserves 1,260 1,153
Interruptible margin sharing 1,320 1,210
Nonqualified benefit plans 3,721 3,522
Other 2,111 2,107
------ ------
$9,159 $8,389
====== ======
Utility Operating Results
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, 1998 are not
indicative of the results to be expected for the fiscal year ending September
30, 1999.
Common Shareholders' Equity
On October 1, 1998, 39,767 shares of unregistered common stock were issued
to six senior officers pursuant to the Company's Restricted Stock Award Plan.
The purpose of the Restricted Stock Award Plan is to motivate participants to
work toward achieving corporate objectives beneficial to the Company and its
shareholders by awarding them shares of common stock which become vested upon
achievement of the objectives. The total number of shares that may be issued
under the Restricted Stock Award Plan may not exceed 300,000. This number is
subject to adjustment to prevent the dilution or enlargement of any rights of
any participant with respect to his or her stock. Such shares are exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
Recent Accounting Developments
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
establishes standards for reporting and presentation of comprehensive income and
its components in general purpose financial statements and requires that all
items required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Note 2 - Commitments and Contingencies
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. See section in
Management's Discussion and Analysis entitled "Environmental Matters" for
further detail.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Connecticut Energy Corporation ("Connecticut Energy" or "Company") and its
subsidiaries and their representatives may, from time to time, make written
or oral statements, including statements contained in the Company's filings
with the Securities and Exchange Commission and in its annual report to
shareholders, including its Form 10-K for the fiscal year ended September 30,
1998 and this quarterly report on Form 10-Q, which constitute or contain
"forward-looking" information as that term is defined in the Private Securities
Litigation Reform Act of 1995.
All statements other than the financial statements and other statements of
historical facts included in this annual report to shareholders regarding the
Company's financial position and strategic initiatives and addressing industry
developments are forward-looking statements. Where, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief
as to future results, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no assurance that
the statement of expectation or belief will result or be achieved or
accomplished. Factors which could cause actual results to differ materially
from those stated in the forward-looking statements may include, but are not
limited to, general and specific economic, financial and business conditions;
federal and state regulatory, legislative and judicial developments which
affect the Company or significant groups of its customers; the impact of
competition on the Company's revenues; fluctuations in weather from normal
levels; changes in development and operating costs; the availability and cost
of natural gas; the availability and terms of capital; exposure to environmental
liabilities; the costs and effects of unanticipated legal proceedings; the
successful implementation and achievement of internal performance goals; the
impact of unusual items resulting from ongoing evaluations of business
strategies and asset valuations; and changes in business strategy.
RESULTS OF OPERATIONS
Net Income
- ----------
The Company's consolidated net income for the three months ended December 31,
1998 and 1997 is detailed below:
Three Months Ended
December 31,
------------------
(in thousands, except per share) 1998 1997
---- ----
Net income $6,095 $6,166
====== ======
Net income per share - diluted $ 0.59 $ 0.64
====== ======
Weighted average common shares outstanding - diluted 10,332 9,670
------ ------
Net income for the three months ended December 31, 1998 was approximately 1%
lower than the corresponding 1997 period principally due to lower firm and
interruptible margins, higher depreciation expense and higher interest expense
on long-term debt than last year. Also, earnings for the three months ended
December 31, 1997 reflected the positive impact of a change in the method of
accounting for property taxes by the Company's principal subsidiary, The
Southern Connecticut Gas Company ("Southern"), as required by a Connecticut
Department of Public Utility Control ("DPUC") Decision. The decrease in net
income for the 1998 period compared to last year was partially offset by new
revenues generated by a contract to transport natural gas to an electric
generating plant in Bridgeport, lower operations and maintenance expenses,
lower state and federal income taxes and a contribution to earnings by the
Company's nonutility subsidiaries.
Results for both periods reflect the issuance of 1,035,000 shares of common
stock in November of 1997.
Total Sales and Transportation Volumes
- --------------------------------------
Total volumes of gas sold and transported for the three months ended December
31, 1998 were approximately 9,064 MMcf, representing a decrease of approximately
18% compared to the corresponding 1997 period. Decreases in firm sales and
interruptible sales and transportation volumes, including off-system categories,
were primarily attributable to warmer weather and the competitive price of other
energy sources compared to natural gas. Higher firm transportation and new firm
contract volumes during the three months ended December 31, 1998 partially
offset the overall decrease in total sales and transportation volumes.
Firm Sales, Firm Transportation and Firm Contract Volumes
- ---------------------------------------------------------
The Company's firm volumes for the three months ended December 31, 1998
increased approximately 1% compared to the corresponding 1997 period. This
was primarily due to an increase in firm transportation volumes, new firm
contract volumes generated by a contract to transport natural gas to an
electric generating plant in Bridgeport and the continued growth in Southern's
customer base. The overall increase in this category was partially offset by
lower firm sales volumes primarily due to weather that was approximately 15%
warmer than in the quarter ended December 31, 1997 as well as by slightly
lower usage per customer.
Interruptible Sales and Transportation Volumes
- ----------------------------------------------
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. Margins earned, net of gross earnings
tax, from on-system interruptible services in excess of an annual target were
allocated through a margin sharing mechanism between Southern and its firm
customers. Beginning June 1, 1996, excess on-system margins earned that would
have been returned to Southern's firm customers have been redirected, with DPUC
approval, to fund certain economic development and hardship assistance programs.
Off-system margins earned, net of gross earnings tax, continue to be shared
between Southern and its firm customers. Gross margin retained represents
the difference between gross margin earned and margin to be allocated through
the margin sharing mechanism.
The chart below depicts volumes of gas sold to and transported for on-system
interruptible customers, off-system sales volumes and off-system transportation
volumes under a special contract with The Connecticut Light and Power Company
for its Devon electric generating station as well as gross margins earned and
retained due to the margin sharing mechanism on these services for the three
months ended December 31, 1998 and 1997:
Three Months Ended
December 31,
------------------
(dollars in thousands) 1998 1997
---- ----
Gross margin earned $1,858 $2,398
====== ======
Gross margin retained $ 471 $ 699
====== ======
Volumes sold and transported (MMcf) 1,968 3,950
------ ------
Gross margin earned and retained by Southern was lower for the three months
ended December 31, 1998 compared to the corresponding 1997 period principally
due to the competitive price of other energy sources compared to natural gas.
This was also the principal reason for lower interruptible volumes than last
year.
Gross Margin
- ------------
The Company's gross margin for the three months ended December 31, 1998 was
approximately 1% lower compared to the corresponding 1997 period. This decrease
was principally attributed to both lower firm and interruptible margins. New
revenues generated by a contract to transport natural gas to an electric
generating plant in Bridgeport, which began operations in July 1998, partially
offset the decrease in gross margin.
Southern's firm rates include a Weather Normalization Adjustment ("WNA") which
allows Southern to charge or credit the non-gas portion of its firm rates to
reflect deviations from normal weather. Because weather during the three
months ended December 31, 1998 was approximately 9% warmer than normal, the
operation of the WNA collected approximately $2,034,000 from firm customers.
This compares to a return to firm customers of approximately $1,475,000 during
the three months ended December 31, 1997.
Southern's firm sales rates include a Purchased Gas Adjustment clause ("PGA")
which allows Southern to flow back to its customers, through periodic
adjustments to amounts billed, increased or decreased costs incurred for
purchased gas compared to base rate levels, without affecting gross margin.
The operation of Southern's PGA increased revenues and gas costs for the three
months ended December 31, 1998 and 1997 by approximately $532,000 and
$4,516,000, respectively.
Operations Expense
- ------------------
Operations expense for the three months ended December 31, 1998 decreased
approximately 3% compared to the three months ended December 31, 1997. The
decrease was primarily due to lower lease payments due to the sublease of the
liquefied natural gas facility to Total Peaking Services, LLC, the joint
venture of one of the Company's nonutility subsidiaries, CNE Energy Services
Group, Inc. Also contributing to the decrease in operations expense was a
lower provision for uncollectibles, lower premiums for general insurance and
lower regulatory commission expense. Higher expenses for certain employee
benefit plans and outside collection agencies partially offset the overall
decrease in operations expense compared to last year.
Depreciation Expense
- --------------------
Depreciation expense for the three months ended December 31, 1998 increased
approximately 7% compared to the corresponding 1997 period. The increase was
primarily due to additions to plant in service by Southern.
Federal and State Income Taxes
- ------------------------------
The total provision for federal and state income taxes decreased approximately
22% for the three months ended December 31, 1998 compared to the three months
ended December 31, 1997 primarily due to lower pre-tax income and a lower
statutory state income tax rate.
Municipal, Gross Earnings and Other Taxes
- -----------------------------------------
Municipal, gross earnings and other taxes were approximately 42% higher for
the three months ended December 31, 1998 compared to the corresponding 1997
period primarily due to the DPUC Decision which required Southern to change
its accounting treatment for accruing property taxes in fiscal 1998.
The stipulations in the Decision ordered Southern to reduce its reserve for
property taxes by approximately $3,722,000, with 50%, or approximately
$1,861,000, flowing through as a one-time reduction to property tax expense
and the remaining 50% refunded to firm customers through the operation of the
PGA in three equal amounts during the second quarter of fiscal 1998. Lower
gross earnings tax due to lower revenues for the three months ended December
31, 1998 compared to the three months ended December 31, 1997 partially
offset the overall increase in municipal, gross earnings and other taxes.
Interest Expense
- ----------------
Total interest expense increased approximately 3% for the three months ended
December 31, 1998 compared to the corresponding 1997 period primarily due to
an increase in long-term debt related to the financing of the construction of
distribution facilities to transport natural gas to an electric generating plant
in Bridgeport. The increase in total interest expense was partially offset by
lower short-term interest expense related to pipeline refunds not yet returned
to firm customers and by lower short-term interest expense related to lower
average short-term borrowings.
Year 2000 Readiness Disclosure
- ------------------------------
General
Like other companies which use business-application software programs and rely
on a computing infrastructure that includes embedded systems, the so-called Year
2000 issue also affects the Company and its subsidiaries. Certain of the
Company's software programs and computing infrastructure that use two-digit
years, rather than four-digit years, to define the applicable year may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in the computer or device shutting down, performing incorrect computations or
performing inconsistently.
In 1996, the Company began a project to address Year 2000 issues. It has been
implementing individual strategies targeted at the specific nature of the Year
2000 issues in each of the following areas: (1) business-application systems,
(2) embedded systems, (3) vendor and supplier relationships, (4) customers and
(5) contingency planning. The Company's Year 2000 project is proceeding on
schedule.
To coordinate its comprehensive Year 2000 program, the Company established a
Year 2000 Task Force, chaired by the Vice President, General Counsel and
Secretary who reports directly to the Chairman and Chief Executive Officer.
The Year 2000 Task Force includes executive management and employees with
expertise from various disciplines including, but not limited to, information
technology, operations, customer service, marketing, engineering, finance,
facilities and communications, internal audit, purchasing and law. In
addition, the Company has utilized the expertise of outside consultants to
assist in the implementation of the Year 2000 program in such areas as
project initiation and planning, business-application system inventory and
analysis, business-application system remediation, business-application
system replacement, and embedded systems inventory and analysis.
The Company's principal subsidiary, Southern, is subject to regulation from the
DPUC, among other governmental agencies. At the DPUC's request, Southern has
previously reported the progress of its Year 2000 program to the DPUC on three
separate occasions. On October 23, 1998, the DPUC announced that it was seeking
to engage the services of a consultant to perform an audit of the computer
systems at all of Connecticut's major utility companies, including Southern,
to assess their readiness to handle the changeover to the year 2000. On
January 28, 1999, the DPUC announced that it has retained the services of the
consultant to perform a due diligence study of the Company's Year 2000
Readiness. The Company is scheduled to meet with the DPUC and its consultant
in February 1999 to begin this review.
Business-Application Systems
In March 1997, the Company completed its inventory and assessment of all of its
business-application systems. This assessment has assisted management in
developing a remediation plan consisting of replacing certain equipment,
modifying certain software to recognize the turn of the century, replacing
certain software systems with new systems that, in addition to providing
additional business management information, recognize four-digit years, and
eliminating certain software and equipment.
By July 31, 1998, the Company had completed modifications to all of its
Financial, Accounting, Purchasing, Inventory Control and Work Management
business applications targeted for version upgrade by use of internal staff
and outside resources. The Company has tested and placed back into the
production environment business applications for the above-mentioned business
functions. The Company has determined that additional testing is required
and this testing is scheduled to be completed by March 31, 1999.
The Company initiated a project to update the Payroll and Human Resources
business-application systems to the Year 2000 Compliant versions of the
software. This project should be completed in the spring of 1999.
In December 1997, the Company began a project to replace its Customer
Information System with a vendor supplied business-application system. The
project uses internal staff, resources from the system vendor and resources
from outside business-application system consultants. The system is installed
on a computer central processing unit and is being tested at the present time.
The project plan includes a scheduled completion in April 1999 when the system
is installed in a production environment.
In September 1998, the Company began a project to upgrade the existing System
Control and Data Acquisition System, which is used to monitor the flow of gas
throughout the Company's distribution system, with a version that is Year 2000
compliant. The project is complete, tested and the system is Year 2000 ready.
In August 1998, the Company began a project to upgrade the existing Field
Service Management system, which is used to assign and dispatch service
technicians, with a version that is Year 2000 compliant. The project should
be completed in April 1999.
In January 1998, the Company completed a project to upgrade all of the Personal
Computer ("PC") software and Network software with versions that are Year 2000
compliant. As part of this project, all of the Company's PCs were upgraded or
replaced and all of the Company's servers were upgraded or replaced. In January
1999, all of the Company's PCs were checked for Year 2000 readiness and some
software modifications were completed as needed. The Company's supplier of
desktop and network operating systems, Microsoft, has recently disclosed that
certain versions of this project's software must be upgraded to the latest
versions. These upgrades will be completed by May 1, 1999 at no additional
cost to the Company.
Embedded Systems
The Company performed a review of its equipment that includes embedded systems.
This review identified a number of components that are potentially date
sensitive. The Company has contacted manufacturers of those components that
it has identified as critical to operations and continues to contact other
manufacturers of embedded components to determine whether their components
are Year 2000 compliant. A test plan has been developed and will be executed
in early 1999 to test the gas distribution network for embedded systems. The
Company tested mission critical functions related to gas control and
distribution and confirmed that the embedded systems related to measuring and
monitoring gas flow are Year 2000 compliant. While additional testing will
continue through the spring of 1999 on embedded systems to confirm readiness,
the Company believes its gas control and distribution systems are now Year
2000 compliant.
The Company also plans to test the equipment associated with its LNG operations
to ensure that it is Year 2000 compliant.
The quality of the responses received from manufacturers of other equipment,
the estimated impact of the individual system on the Company and the ability of
the Company to perform meaningful tests will influence its decision to conduct
independent testing of embedded systems.
Vendors and Suppliers
The Company has contacted, in writing, vendors and suppliers of products and
services that it considers critical to its operations. These contacts have
included suppliers of interstate transportation capacity, natural gas producers,
financial institutions, and electric, telephone and water companies. The
quality of the responses received from vendors and suppliers is not uniform.
As a result, the Company will continue to work with these vendors and suppliers
to determine their level of Year 2000 compliance. The Company will evaluate the
degree of its vendors' and suppliers' readiness and, to the extent the Company
cannot test or verify readiness, it will develop a contingency plan which may
include considering new business relationships with alternate providers of
products and services as necessary and to the extent alternatives are available.
With respect to those vendors and suppliers identified by the Company as
critical to the Company's operations, the Company is preparing to conduct
interviews with each vendor or supplier to review survey responses and
investigate individual vendor or supplier readiness. These interviews are
expected to be completed by March 1999.
Customers
The Company has no single customer, residential, commercial or industrial,
which generates a material portion of the Company's annual revenues. The
Company does not currently have complete information concerning the Year 2000
compliance status of its major customers, but has received indications that
many of its customers are working on Year 2000 compliance. The Company
identified its major firm, interruptible and transportation customers and
communicated with these major customers to attempt to identify their level of
Year 2000 compliance. The Company reminded them about potential vulnerability
of application systems and of embedded systems. The Company informed them that
they should assess the need to include potential remediation and/or replacement
of these systems as part of their Year 2000 programs. This activity was
completed as of December 15, 1998. Because the responses to the Company's
major customer surveys are not complete, the Company now plans to make
personal contacts with each of its major customers to exchange Year 2000
readiness information during the spring of 1999.
Contingency Planning
The Company's Year 2000 strategies include contingency planning, encompassing
business continuity both within the Company and in the external business
environment. The planning effort includes critical Company areas such as
computing, networks, vendors and suppliers, operations, personnel, and
business systems as well as systems and infrastructure external to the
Company. All of the members of the Company's senior management team are
participating in various aspects of the Company's contingency planning
efforts. As part of its normal business practice, the Company maintains
plans to follow during emergency circumstances, some of which could arise
from Year 2000-related problems. Its contingency planning for the Year 2000
will address various alternatives and will include assessing a variety of
scenarios that could emerge which will require the Company to react.
Presently, the Company continues to develop its contingency plans for
potential Year 2000-related problems. The Company plans to complete its
contingency plan in March 1999.
Potential Risks
The Company believes the most significant potential risks to its internal
operations are as follows: (1) the ability to use electronic devices to
control and operate its distribution system; (2) the ability to render timely
bills to its customers; and (3) the ability to maintain continuous operation
of its computer systems. The Company's Year 2000 program addresses each of
these risks and the remediation or replacement of these systems is well
underway. Furthermore, the contingency plan will outline alternatives in the
event that any Year 2000-related situations may occur.
The Company relies on the producers of natural gas and suppliers of interstate
transportation capacity to deliver natural gas to the Company's distribution
system. External infrastructure, such as electric, telephone, and water
service, is necessary for the Company's basic operations as well as the
operations of many of its customers. Should any of these critical vendors
fail, the impact of any such failure could become a significant challenge to
the Company's ability to meet the demands of its customers, to operate its
distribution system and to communicate with its customers. It could also have
a material adverse financial impact, including but not limited to, lost sales
revenues, increased operating costs, and claims from customers related to
business interruptions. The Company's program to address Year 2000 issues
emphasizes continued monitoring and/or testing of the progress of these critical
vendors and suppliers toward meeting the projected completion of their Year
2000 programs.
Financial Implications
The Company currently expects to generate nonrecurring expenses of
approximately $300,000 to $500,000 over the three fiscal-year period ending
September 30, 1999, for business-application systems remediation, embedded
systems replacement, and certain existing business-applications system
replacement. Over the same time period, the Company will capitalize costs of
approximately $9,000,000 to $11,000,000 incurred to replace certain existing
business-application software systems with new systems that will be Year 2000
operational and provide additional business management information.
Each of the components of the Company's Year 2000 program is progressing and
the Company believes it is taking all reasonable steps necessary to be able to
operate successfully through and beyond the turn of the century.
New Legislation
On October 19, 1998, the Year 2000 Information and Readiness Disclosure Act
("Y2K Readiness Act") was signed into federal law to encourage the disclosure
and exchange of information about computer processing problems, solutions,
test practices and test results, and related matters in connection with the
transition to the year 2000. The Company expects to benefit from the Y2K
Readiness Act in that it will significantly reduce the potential liability of
the Company for sharing most types of Year 2000 information. The discussion
contained herein is a Year 2000 Readiness Disclosure pursuant to the Y2K
Readiness Act.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. Risks to completing the
Year 2000 Program include the availability of resources, the Company's ability
to discover and correct the potential Year 2000 sensitive problems which could
have a serious impact on specific facilities, and the ability of suppliers to
bring their systems into Year 2000 compliance.
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 capital
expenditure programs and other corporate purposes, Connecticut Energy and
Southern have credit lines with a number of banks as detailed below:
<TABLE>
<S> <C> <C> <C> <C>
Shared
Connecticut Connecticut
Energy Southern Energy/Southern Total
- ------------------------------------------------------------------------------------------------------
As of December 31, 1998:
Committed lines $5,000,000 $32,000,000 $20,000,000 $57,000,000
Uncommitted lines --- $10,000,000 $10,000,000 $20,000,000
</TABLE>
Effective January 1, 1998, Connecticut Energy and Southern entered into an
agreement with one bank for a shared committed line of credit in the amount
of $20,000,000. The credit line has been extended until December 31, 1999.
This term may be further extended from year to year thereafter dependent upon
the operating cash requirements of the Company and its subsidiary and approval
by the bank. As of December 31, 1998, unused lines of credit totaled
$47,200,000.
Operating cash flows for the three months ended December 31, 1998 compared to
the corresponding 1997 period were higher primarily due to a lower comparative
increase in accounts receivable balances, lower gas inventories, the absence of
additional prepaid pension and postretirement medical contributions and a higher
comparative increase in accrued taxes. The increase in operating cash flows in
the 1998 period was partially offset by a higher comparative increase in
unrecovered purchased gas cost balances and lower comparative increases in
accounts payable balances and pipeline refunds not yet returned to firm
customers.
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.
Investing Activities
- --------------------
Capital expenditures, net of contributions in aid of construction, approximated
$5,715,000 and $6,344,000 for the three months ended December 31, 1998 and 1997,
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.
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."
On September 8, 1997, Southern received a letter from the DEP informing it that
the three sites had been entered on the Connecticut Inventory of Hazardous Waste
Sites. The letter states that the site located on Pine Street in Bridgeport,
Connecticut, may be of particular interest to the state of Connecticut because
of its proximity to the Connecticut Department of Transportation expansion
project of the U.S. Highway Route Number 95 Corridor. Placement of the sites
on the Inventory of Hazardous Waste Sites means that the DEP may pursue
remedial action pursuant to the Connecticut General Statutes.
Each site is located in an area that permits Southern to voluntarily perform
any remedial action. Connecticut law also allows Southern to retain a Licensed
Environmental Professional to conduct further environmental assessments and, if
necessary, to develop remedial action plans in accordance with Connecticut
Remediation Standard Regulations.
Southern has conferred with officials of the DEP, including the DEP liaison for
the Department of Transportation's U.S. Highway Route Number 95 Corridor
expansion project, to establish priorities in connection with the environmental
assessments. As a result of those conferences, Southern and the DEP have
negotiated and executed a Consent Order with respect to the Pine Street site
located in Bridgeport. Pursuant to the Consent Order, Southern has agreed to
undertake an investigation of the Pine Street site and its immediate
surrounding area to determine potential sources of contamination and
remediate contamination which may be found to have emanated or be emanating
from the Pine Street site as a result of Southern's activities on the site.
The schedule and scope of the investigation have been agreed to by Southern
and the DEP. As a result of this Consent Order, Southern has recorded and
deferred $150,000 for costs related to this site investigation. When the
investigation is complete, Southern should be able to propose to the DEP
what, if any, plan for remediation is appropriate for the site. Until such
investigation is complete, management cannot predict the cost, if any, of any
appropriate remediation for the Pine Street site.
Neither can management, at this time, predict the costs for any future site
analysis and remediation for the remaining two sites, 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
most recent rate order and regulatory precedent with other local distribution
companies in Connecticut, 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, results of operations or cash flows.
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 3 -
The Amended and Restated By-Laws of Connecticut Energy Corporation
are filed herewith.
The Amended and Restated By-Laws of The Southern Connecticut Gas
Company are filed herewith.
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 10, 1999 By: /s/ Vincent L. Ammann, Jr.
----------------- --------------------------------
Vincent L. Ammann, Jr.
Vice President and
Chief Accounting Officer
Effective as of 1/26/99
CONNECTICUT ENERGY CORPORATION
AMENDED and RESTATED BY-LAWS
ARTICLE 1.
Meetings of Shareholders.
SECTION 1. Annual Meeting. The annual meeting of the
shareholders of the Corporation for the election of Directors and
the transaction of any other proper business shall be held on the
last Tuesday of January in each year, if not a legal holiday,
and, if a legal holiday, then on the next succeeding business
day. The annual meeting of the shareholders of the Corporation
shall be held within the franchise area of the Company or as
designated by the Board of Directors.
SECTION 2. Special Meeting. Special meetings of the
shareholders may be called at any time by the Chairman of the
Board of Directors, the President or by the Board of Directors
and shall be held within the Cities of Bridgeport or New Haven or
within the franchise area of the Company, as designated in the
call for the meeting.
SECTION 3. Notice of Meeting. A notice in writing of each
meeting of the shareholders, stating the place, day and hour
thereof, and -- when such meeting is a special meeting -- the
general purpose or purposes for which it is called, shall be
given by the Secretary or an Assistant Secretary or the officer
or person calling the meeting to each shareholder, by leaving
such notice with him or at his residence or usual place of abode,
or by mailing a copy thereof addressed to him at his last known
post office address as last shown on the stock records of the
Company, postage prepaid. Such notice shall be given, in the
case of an annual meeting of shareholders, not less than seven
days nor more than fifty days before the date of the meeting and,
in the case of a special meeting, shall be given at least thirty
days before the date of the meeting, unless the Board of
Directors, acting by a majority of the directors then in office,
shall determine otherwise. No business shall be transacted at
any special meeting of shareholders which was not specified in
the notice thereof.
SECTION 4. Prescribing the date on which shareholders of
record shall be entitled to notice and to vote. The Board of
Directors of the Corporation, prior to each annual or special
meeting of the shareholders of the Corporation, may by resolution
fix a date not more than seventy days and not less than ten full
days prior to the date of such meeting as of which shareholders
of record shall be entitled to notice of such meeting and to vote
thereat, and only shareholders of record as of said date shall be
entitled to notice of such meeting and to vote thereat.
SECTION 5. Voting. At each meeting of shareholders, each
shareholder then entitled to vote may vote in person or by proxy,
and shall, unless otherwise provided in the Certificate of
Incorporation, have one vote for each share of stock registered
in such shareholder's name on the record date fixed by the Board
of Directors.
SECTION 6. Rules of Order. At each meeting of
shareholders, the time and manner of discussions shall be as set
forth in the applicable provisions of Roberts Rules of Order.
ARTICLE 2.
Directors.
SECTION 1. Number and Election. The business, property and
affairs of the Corporation shall be managed by, or under the
direction of, its Board of Directors. The number of directors of
the Corporation (exclusive of directors (the "Preference Stock
Directors") who may be elected by a separate vote of the holders
of then outstanding shares of any class or series of Preference
Stock) shall be eight. The Board of Directors (exclusive of
Preference Stock Directors) shall be divided into three classes,
as nearly equal in number as possible. At the annual meeting of
shareholders in 1984, one class shall be elected to hold office
for a term expiring at the 1985 annual meeting, one class shall
be elected to hold office for a term expiring at the 1986 annual
meeting, and one class shall be elected to hold office for a term
expiring at the 1987 annual meeting. At each annual meeting of
shareholders of the Corporation the date of which shall be fixed
by or pursuant to the By-Laws of the Corporation, the successors
of the class of directors whose terms shall expire at that
meeting shall be elected for a term expiring at the annual
meeting of shareholders held in the third year following their
year of election. Each director shall hold office until his
successor shall have been duly elected and qualified. The
election of directors need not be by ballot unless the By-Laws so
provide. No decrease in the number of directors shall shorten
the term of any incumbent director.
SECTION 2. Notification of Nominations. Subject to the
rights of the holders of any class or series of Preference Stock
then outstanding, nominations for the election of directors may
be made by the Board of Directors or by any shareholder entitled
to vote for the election of directors. Any shareholder entitled
to vote for the election of directors at a meeting may nominate
persons for election as directors only if written notice of such
shareholder's intent to make such nomination is given, either by
personal delivery or by United States mail, postage prepaid, to
the Secretary of the Corporation not later than (i) with respect
to an election to be held at an annual meeting of shareholders,
90 days in advance of such meeting, and (ii) with respect to an
election of directors to be held at a special meeting of
shareholders, the close of business on the seventh day following
the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (a) the name
and address of the shareholder who intends to make the nomination
and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination
or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder
as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be
nominated, by the Board of Directors and (e) the consent of each
nominee to serve as a director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the
nomination of any person made without compliance with the
foregoing procedure.
SECTION 3. Vacancies. Subject to the rights of the holders
of any class or series of Preference Stock then outstanding,
newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of
Directors from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled solely by the
Board of Directors, acting by the affirmative vote of not less
than a majority of the directors then in office, even though less
than a quorum of the Board of Directors. Any director so chosen
shall hold office until the next election of the class for which
such director shall have been chosen and until his successor
shall be elected and qualified. The shareholders of the
Corporation shall have no right to fill any vacancies, whether
resulting from an increase in the authorized number of directors
or otherwise.
SECTION 4. Removal. Subject to the rights of the holders
of any class or series of Preference Stock then outstanding, any
director or the entire Board of Directors of the Corporation may
be removed only for cause and only by affirmative vote of (1) the
Board of Directors, acting by not less than a majority of the
Directorships or (2) the holders of 80% of the combined voting
power of the then outstanding shares of Voting Stock, voting
together as a single class. For the purposes of this Section 4,
(1) "cause" shall exist only if a director (i) has been convicted
of a felony in a final adjudication or (ii) has been adjudged in
a final adjudication to have willfully engaged in gross
misconduct materially and demonstrably injurious to the
Corporation, and (2) "final adjudication" shall mean a judgment
by a court of competent jurisdiction which becomes final (x)
after completion or all proceedings for direct review or (y)
after expiration of the time to obtain initial or further direct
review, no such review having been taken.
SECTION 5. Meetings. Regular meetings of the Board of
Directors shall be held on the fourth Tuesday of each calendar
month, except for the months of February, June, August and
December. The meeting for the month of January shall be held on
the last Tuesday immediately after the annual meeting for
shareholders. If any such meeting date occurs on a legal
holiday, then such meeting shall be held on the next succeeding
business day.
Special meetings of the Board of Directors may be called by
the Chairman of the Board, the President, the Secretary of the
Corporation or any three Directors.
SECTION 6. Notice of Meeting. Notice of all regular and
special meetings of the Board of Directors shall be given to each
member of the Board of Directors, at least two days before any
such meeting orally, or by mailing at least seven days before to
each such member at his last known post office address a written
notice thereof, giving the time and place of such meeting.
SECTION 7. Quorum. A majority of the number of
directorships at the time shall constitute a quorum; and a
majority of the Directors in attendance at any meeting of the
Board of Directors shall, in the presence of a quorum, decide its
action. A minority of the number of directorships at the time
present at any regular or special meeting may, in the absence of
a quorum, adjourn to a later date but may not transact any business,
except as provided in Section 3 of this Article.
SECTION 8. Age of Directors. No person shall be elected or
re-elected as a Director after attaining the age of seventy
years.
SECTION 9. Election of Officers. As soon as may be
convenient after the annual meeting of the shareholders of the
Corporation, the Board of Directors shall meet and elect the
officers of the Corporation in accordance with these By-Laws.
SECTION 10. Executive Committee. The Board of Directors of
the Corporation, by the affirmative vote of Directors holding a
majority of the directorships, may elect from its membership an
Executive Committee having such number of members as may be
prescribed from time to time by the Board of Directors.
Members of the Executive Committee may be elected for such
terms as may be prescribed by the Board of Directors provided,
however, that the term of office of any member of the Executive
Committee shall not extend beyond the term for which such member
is elected as a Director of the Corporation.
The Board of Directors may fill any vacancy in the Executive
Committee.
During the intervals between the meetings of the Board of
Directors, the Executive Committee shall possess and may exercise
all of the powers of the Board of Directors in the management and
direction of the affairs of the Corporation in all matters in
which specific direction shall not be given by the Board of
Directors.
All action by the Executive Committee shall be reported to
the Board of Directors at the next meeting succeeding such action
and shall be subject to review and alteration by the Board of
Directors, providing that no rights of third parties shall be
affected by any such review or alteration.
Regular minutes of the proceedings of the Executive
Committee shall be kept in a book provided for that purpose.
The Executive Committee shall determine and fix its rules
with respect to meetings and procedure and the number required
for a quorum and shall conduct business as provided by such
rules.
Meetings of the Executive Committee shall be held on such
dates as may be fixed from time to time by the Board of Directors
and may be called at any time by the Chairman of the Board of
Directors or by the President of the Corporation.
SECTION 11. Audit Committee. There shall be an Audit
Committee having such number of members as prescribed by the
Board of Directors from time to time. Members of the Audit
Committee shall be Directors who are neither officers nor
employees of the Corporation. The Audit Committee shall
recommend the employment of independent accountants to audit the
financial statements of the Corporation, determine the scope of
the audit, confer with the auditors respecting their examination
and accounting practices, review the Corporation's financial and
accounting practices and controls, and report its doings to the
Board of Directors.
SECTION 12. Pension Committee. There shall be a Pension
Committee having such number of members as prescribed by the
Board of Directors from time to time. Members of the Pension
Committee shall be Directors who are neither officers nor
employees of the Corporation. The Pension Committee shall
perform the duties specified in the Company's pension plans and
other employee benefit plans and such further duties respecting
such plans as may be prescribed by law. The Pension Committee
shall report its doings to the Board of Directors.
SECTION 13. Committees. The Board of Directors may, from
time to time, elect or appoint such other committees and
prescribe the duties and authority thereof as the Board of
Directors may deem necessary or convenient.
ARTICLE 3.
Officers.
SECTION 1. Election and Qualifications. The Directors
shall elect annually from their own number a President of the
Corporation and may also elect from their own number a Chairman
of the Board of Directors and shall elect or appoint a Treasurer
and a Secretary and such other officers as the Board of Directors
may, from time to time, deem necessary or advisable. No employee
of the Corporation who has (a) for the last two consecutive
years, held a bona fide executive or high policymaking position
with the Corporation (b) become entitled to nonforfeitable annual
retirement benefits from the Corporation which equal or exceed,
in the aggregate, $44,000 or such other amount as required by
law, exclusive of Social Security benefits and (c) attained the
age of sixty-five years, shall thereafter be elected an officer
of the Corporation.
SECTION 2. Term of Office. The term of office of all
officers of the Corporation shall be one year and until their
respective successors shall have been chosen and qualified; but
any officer may be removed from office at any time by the
affirmative vote of a majority of the members of the Board of
Directors then in office.
SECTION 3. Chairman of the Board of Directors. The
Chairman of the Board of Directors, if one shall be elected,
shall preside at all meetings of the shareholders and of the
Board of Directors at which he is present and shall have such
powers and duties as may, from time to time, be prescribed by the
Board of Directors.
The Chairman of the Board of Directors, when designated by
said Board as the Chief Executive Officer, shall provide general
direction to the activities of the Corporation in conjunction
with and acting through the President and shall have the final
decision in all matters pertaining to the management of the
business of the Corporation, all subject, however, to the control
of the Board of Directors.
The Chairman of the Board of Directors shall possess the
same power as the President to execute on behalf of the
Corporation all deeds, leases, conveyances, certificates of stock
and contracts.
SECTION 4. President. The President shall report to the
Chairman of the Board of Directors when such Chairman has been
designated by the Board of Directors as the Chief Executive
Officer and shall have general supervision of the affairs of the
Corporation and over its several officers, subject, however, to
the control of the Board of Directors. The President shall have
the power to execute all deeds, leases, conveyances, certificates
of stock and contracts on behalf of the Company, shall make
reports to the Board of Directors and shareholders and shall
perform such other duties as are incident to the office of
President or are properly required of the President by the Board
of Directors.
The President, in the absence of the Chairman of the Board,
shall preside at all meetings of the shareholders and Board of
Directors.
The President shall, whenever it may in his opinion be
necessary, prescribe the duties of officers and employees of the
Corporation where duties are not otherwise prescribed by the
Board of Directors.
SECTION 5. Vice President and Assistant Vice President.
The Vice Presidents and Assistant Vice Presidents shall perform
duties as may be prescribed from time to time by the Board of
Directors or required by law.
SECTION 6. Treasurer. The Treasurer shall plan and direct
the collection, receipt, custody and disbursement of funds and
the handling of other financial assets. The Treasurer shall
direct the Corporation's banking and credit functions and perform
such other duties as are commonly incident to the Office of
Treasurer or required by law.
SECTION 7. Secretary. The Secretary shall attend the
meetings of the shareholders, the Board of Directors and
Executive Committee and keep minutes thereof. He shall send out
notices of all meetings required by law or these By-Laws. He
shall have the custody of the papers and books other than books
of account and of the seal of the Corporation, and he shall affix
the seal to all proper documents and shall attest the same; and
he shall perform the usual duties incident to the Office of the
Secretary and such other duties as may be prescribed, from time
to time, by the Board of Directors or required by law.
ARTICLE 4.
Seal.
The Corporation shall have a common seal, which shall
contain the words CONNECTICUT ENERGY CORPORATION in a circle,
within which the words and figures Incorporated 1970 Seal
shall be contained.
ARTICLE 5.
Stock Certificates and Transfers.
SECTION 1. Form. Stock certificates shall be in such form
as the Board of Directors may, from time to time, determine and
shall be signed by the President and by the Secretary or the
Treasurer and sealed with the common seal of the Corporation.
When such stock certificates shall be signed by a transfer
agent or an assistant transfer agent or a registrar, the
respective signatures of such President, Secretary or Treasurer
may be facsimiles of such signatures, and the seal of the
Corporation may be a facsimile of such seal.
SECTION 2. Transfer. Transfer of shares shall be made only
upon the books of the Corporation by the registered holder in
person or by attorney, duly authorized, and upon surrender of the
certificate or certificates for such shares properly assigned for
transfer.
SECTION 3. Lost or Destroyed Certificates. The holder of
any certificate representing shares of stock of the Corporation
may notify the Corporation of any loss, theft or destruction
thereof, and the Board of Directors may thereupon, in its
discretion, cause a new certificate of the same number of shares
to be issued to such holder upon satisfactory proof of such loss,
theft or destruction, and the deposit of indemnity by way of bond
or otherwise, in such form and amount and with such surety or
sureties as the Board of Directors may require, to indemnify the
Corporation against loss or liability by reason of the issuance
of such new certificate.
ARTICLE 6.
Negotiable Instruments.
SECTION 1. Signatures. All bills, notes, checks or other
negotiable instruments shall be made in the name of the
Corporation and shall be signed by such officer or officers of
the Corporation and in such manner as the Board of Directors
shall designate.
SECTION 2. Endorsements. No officer or agent of this
Corporation shall have power to endorse in the name of or on
behalf of the Corporation any note, bill of exchange, draft,
check or other written instrument for the payment of money--save
only for the purpose of collection of said instrument--except
upon the express authority of the Directors.
ARTICLE 7.
Indemnification of Directors, Officer and Employees.
The Corporation shall indemnify the persons described in
Section 33-320a of the Connecticut General Statutes or the
equivalent section of the Connecticut Stock Corporation Act to
the full extent and in the manner required by such law.
ARTICLE 8.
Amendments.
Notwithstanding any other provisions in the Certificate of
Incorporation or these By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be
specified by law or the Certificate of Incorporation of the
Corporation), these By-Laws may be adopted, repealed or amended
only upon the affirmative vote of (i) the holders of 80% of the
combined voting power of the then outstanding shares of Voting
Stock, voting together as a single class, or (ii) the Board of
Directors acting by not less than a majority of the entire Board
of Directors.
Effective as of 1/26/99
THE SOUTHERN CONNECTICUT GAS COMPANY
AMENDED and RESTATED BY-LAWS
ARTICLE 1.
Meeting of Shareholders.
SECTION 1. Annual Meeting. The annual meeting of the
shareholders of the Corporation for the election of Directors and
the transaction of any other proper business shall be held on the
last Tuesday of January in each year, if not a legal holiday,
and, if a legal holiday, then on the next succeeding business
day. The annual meeting of the shareholders of the Corporation
shall be held within the franchise area of the Company or as
designated by the Board of Directors.
SECTION 2. Special Meeting. Special meetings of the
shareholders may be called at any time by the Chairman of the
Board of Directors, the President or by the Board of Directors
and shall be held within the Cities of Bridgeport or New Haven or
within the franchise area of the Company, as designated in the
call for the meeting.
SECTION 3. Notice of Meeting. A notice in writing of each
meeting of the shareholders, stating the place, day and hour
thereof, and -- when such meeting is a special meeting -- the
general purpose or purposes for which it is called, shall be
given by the Secretary or an Assistant Secretary or the officer
or person calling the meeting to each shareholder, by leaving
such notice with him or at his residence or usual place of abode,
or by mailing a copy thereof addressed to him at his last known
post office address as last shown on the stock records of the
Corporation, postage prepaid, not less than seven days nor more
than fifty days before the date of the meeting.
SECTION 4. Prescribing the date on which shareholders of
record shall be entitled to notice and to vote. The Board of
Directors of the Corporation, prior to each annual or special
meeting of the shareholders of the Corporation, may by resolution
fix a date not more than seventy days and not less than ten full
days prior to the date of such meeting as of which shareholders
of record shall be entitled to notice of such meeting and to vote
thereat, and only shareholders of record as of said date shall be
entitled to notice of such meeting and to vote thereat.
SECTION 5. Order of Business. So far as consistent with
the purpose of the meeting, the order of business at all
shareholders' meetings shall be as follows:
1. Roll call of shareholders
2. Reading of Minutes of preceding meeting and action thereon
3. Reports of Directors, Officers and Committees
4. Election of Directors -- if an annual meeting
5. Unfinished business
6. New business.
SECTION 6. Rules of Order. At each meeting of
shareholders, the time and manner of discussion shall be as set
forth in the Roberts Rules of Order.
ARTICLE 2.
Directors.
SECTION 1. Number and Election. The business, property and
affairs of the Corporation shall be under the care, control and
management of not less than eight nor more than twenty-four
Directors who shall be elected annually by the shareholders.
SECTION 2. Vacancies. Vacancies in the Board of Directors
created by an increase in the number of directorships shall be
filled at a meeting of shareholders of the Corporation, and any
other vacancies in the Board of Directors, because of death,
resignation, or for any other reason, may be filled by the
remaining Directors.
SECTION 3. Meetings. Regular meetings of the Board of
Directors shall be held on the fourth Tuesday of each calendar
month, except for the months of February, June, August, October
and December. The meeting for the month of January shall be held
on the last Tuesday immediately after the annual meeting for
shareholders. If any such meeting date occurs on a legal
holiday, then such meeting shall be held on the next succeeding
business day.
Special meetings of the Board of Directors may be called by
the Chairman of the Board, the President, the Secretary of the
Corporation or any three Directors.
SECTION 4. Notice of Meeting. Notice of all regular and
special meetings of the Board of Directors shall be given to each
member of the Board of Directors, at least two days before any
such meeting orally, or by mailing at least seven days before to
each such member at his last known post office address a written
notice thereof, giving the time and place of such meeting.
SECTION 5. Quorum. A majority of the number of
directorships at the time shall constitute a quorum; and a
majority of the Directors in attendance at any meeting of the
Board of Directors shall, in the presence of a quorum, decide its
action. A minority of the number of directorships at the time
present at any regular or special meeting, may, in the absence of
a quorum, adjourn to a later date but may not transact any
business.
SECTION 6. Age of Directors. No person shall be elected or
re-elected as a Director after attaining the age of seventy
years.
SECTION 7. Election of Officers. As soon as may be
convenient after the annual meeting of the shareholders of the
Corporation, the Board of Directors shall meet and elect the
officers of the Corporation in accordance with the By-Laws.
SECTION 8. Executive Committee. The Board of Directors of
the Corporation, by the affirmative vote of Directors holding a
majority of the directorships, may elect from its membership an
Executive Committee having such number of members as may be
prescribed from time to time by the Board of Directors.
Members of the Executive Committee may be elected for such
terms as may be prescribed by the Board of Directors provided,
however, that the term of office of any member of the Executive
Committee shall not extend beyond the term for which such member
is elected as a Director of the Corporation.
The Board of Directors may fill any vacancy in the Executive
Committee.
During the intervals between the meetings of the Board of
Directors, the Executive Committee shall possess and may exercise
all of the powers of the Board of Directors in the management and
direction of the affairs of the Corporation in all matters in
which specific direction shall not be given by the Board of
Directors.
All action by the Executive Committee shall be reported to
the Board of Directors at the next meeting succeeding such action
and shall be subject to review and alteration by the Board of
Directors, providing that no rights of third parties shall be
affected by any such review or alteration.
Regular minutes of the proceedings of the Executive
Committee shall be kept in a book provided for that purpose.
The Executive Committee shall determine and fix its rules
with respect to meetings and procedure and the number required
for a quorum and shall conduct business as provided by such
rules.
Meetings of the Executive Committee shall be held on such
dates as may be fixed from time to time by the Board of Directors
and may be called at any time by the Chairman of the Board of
Directors or by the President of the Corporation.
SECTION 9. Audit Committee. There shall be an Audit
Committee having such number of members as prescribed by the
Board of Directors from time to time. Members of the Audit
Committee shall be Directors who are neither officers nor
employees of the Corporation. The Audit Committee shall
recommend the employment of independent accountants to audit the
financial statements of the Corporation, determine the scope of
the audit, confer with the auditors respecting their examination
and accounting practices, review the Corporation's financial and
accounting practices and controls, and report its doings to the
Board of Directors.
SECTION 10. Pension Committee. There shall be a Pension
Committee having such number of members as prescribed by the
Board of Directors from time to time. Members of the Pension
Committee shall be Directors who are neither officers nor
employees of the Corporation. The Pension Committee shall
perform the duties specified in the Company's pension plans and
other employee benefit plans and such further duties respecting
such plans as may be prescribed by law. The Pension Committee
shall report its doings to the Board of Directors.
SECTION 11. Committees. The Board of Directors may, from
time to time, elect or appoint such committees and prescribe the
duties and authority thereof as the Board of Directors may deem
necessary or convenient.
ARTICLE 3.
Officers.
SECTION 1. Election and Qualifications. The Directors
shall elect annually from their own number a President of the
Corporation and may also elect from their own number a Chairman
of the Board of Directors and shall elect or appoint one or more
Vice Presidents, a Treasurer and a Secretary and such other
officers as the Board of Directors may, from time to time, deem
necessary or advisable. No employee of the Corporation who has
(a) for the last two consecutive years, held a bona fide
executive or high policymaking position with the Corporation, (b)
become entitled to nonforfeitable annual retirement benefits from
the Corporation which equal or exceed, in the aggregate, $44,000
or such other amount as required by law, exclusive of Social
Security benefits and (c) attained the age of sixty-five years,
shall thereafter be elected an officer of the Corporation.
SECTION 2. Term of Office. The term of office of all
officers of the Corporation shall be one year and until their
respective successors shall have been chosen and qualified; but
any officer may be removed from office at any time by the
affirmative vote of a majority of the members of the Board of
Directors then in office.
SECTION 3. Chairman of the Board of Directors. The
Chairman of the Board of Directors, if one shall be elected,
shall preside at all meetings of the shareholders and of the
Board of Directors at which he is present and shall have such
powers and duties as may, from time to time, be prescribed by the
Board of Directors.
The Chairman of the Board of Directors, when designated by
said Board as the Chief Executive Officer, shall provide general
direction to the activities of the Corporation in conjunction
with and acting through the President and shall have the final
decision in all matters pertaining to the management of the
business of the Corporation, all subject, however, to the control
of the Board of Directors.
The Chairman of the Board of Directors shall possess the
same power as the President to executive on behalf of the
Corporation all deeds, leases, conveyances, certificates of stock
and contracts.
SECTION 4. President. The President shall report to the
Chairman of the Board of Directors when such Chairman has been
designated by the Board of Directors as the Chief Executive
Officer and shall have general supervision of the affairs of the
Corporation and over its several officers, subject, however, to
the control of the Board of Directors. He shall have the power
to execute all deeds, leases, conveyances, certificates of stock
and contracts on behalf of the Corporation, shall make reports to
the Board of Directors and shareholders and shall perform such
other duties as are incident to the office of President or are
properly required of him by the Board of Directors.
The President, in the absence of the Chairman of the Board,
shall preside at all meetings of the shareholders and Board of
Directors.
The President shall, whenever it may in his opinion be
necessary, prescribe the duties of officers and employees of the
Corporation where duties are not otherwise prescribed by the
Board of Directors.
SECTION 5. Executive Vice President. The Executive Vice
President shall act as chief assistant to the President of the
Corporation. He shall, in the President's absence and subject to
the President's direction, exercise the authority and perform all
of the duties which the President of the Corporation is
authorized by its By-Laws to exercise, or to perform such other
duties as may, from time to time, be assigned to the Executive
Vice President by the Board, by the Chairman of the Board when
designated the Chief Executive Officer or by the President of the
Corporation. He is also designated as the Vice President to
assume the duties of the President in the absence of the latter,
as specified in Article 3, Section 4 of the By-Laws. In the
absence of or failure to designate an Executive Vice President,
the Senior Vice President shall perform the foregoing duties and
have the foregoing authority.
SECTION 6. Vice President and Assistant Vice President.
The Vice Presidents and Assistant Vice Presidents shall perform
duties as may be prescribed from time to time by the Board of
Directors or required by law.
SECTION 7. Vice President - Finance. The Vice President -
Finance shall direct the Corporation's financial and related
activities, including supervision of the Corporation's treasury
accounts, tax payments and insurance. He shall be responsible
for formulating and appraising financial plans to insure
provision of adequate funds to meet long-term and short-term
requirements and shall perform such other duties as may be
prescribed from time to time by the Board of Directors.
SECTION 8. Treasurer. The Treasurer shall plan and direct
the collection, receipt, custody and disbursement of funds and
the handling of other financial assets. The Treasurer shall
direct the Corporation's banking and credit functions and perform
such other duties as are commonly incident to the Office of the
Treasurer or required by law.
SECTION 9. Secretary. The Secretary shall attend the
meetings of the shareholders, the Board of Directors and
Executive Committee and keep minutes thereof. He shall send out
notices of all meetings required by law or these By-Laws. He
shall have the custody of the papers and books other than books
of account and of the seal of the Corporation, and he shall affix
the seal to all proper documents and shall attest the same; and
he shall perform the usual duties incident to the Office of the
Secretary and such other duties as may be prescribed, from time
to time, by the Board of Directors or required by law.
SECTION 10. Assistant Treasurer. In the absence or
disability of the Treasurer, the duties of the Treasurer shall be
performed by an Assistant Treasurer.
SECTION 11. Assistant Secretary. In the absence or
disability of the Secretary, the duties of the Secretary shall be
performed by an Assistant Secretary.
ARTICLE 4.
Seal.
The Corporation shall have a common seal, which shall
contain the words SOUTHERN CONNECTICUT GAS COMPANY
in a circle, within which the words and figures
Incorporated 1967 Seal shall be contained.
ARTICLE 5.
Stock Certificates and Transfers.
SECTION 1. Form. Stock certificates shall be in such form
as the Board of Directors may, from time to time, determine and
shall be signed by the President or any Vice President and by the
Secretary or Assistant Secretary or by the Treasurer or Assistant
Treasurer and sealed with the common seal of the Corporation.
When such stock certificates shall be signed by a transfer
agent or an assistant transfer agent or a registrar, the
respective signatures of such Chairman of the Board of Directors,
President, Vice President, Secretary, Assistant Secretary,
Treasurer or Assistant Treasurer may be facsimiles of such
signatures, and the seal of the Corporation may be a facsimile of
such seal.
ARTICLE 6.
Negotiable Instruments.
SECTION 1. Signatures All bills, notes, checks or other
negotiable instruments shall be made in the name of the
Corporation and shall be signed by such officer or officers of
the Corporation and in such manner as the Board of Directors
shall designate.
SECTION 2. Endorsements. No officer or agent of this
Corporation shall have power to endorse in the name of or on
behalf of the Corporation any note, bill of exchange, draft,
check or other written instrument for the payment of money--save
only for the purpose of collection of said instrument--except
upon the express authority of the Directors.
ARTICLE 7.
Indemnification of Directors, Officers and Employees.
The Corporation shall indemnify the persons described in
Section 33-320a of the Connecticut General Statutes or the
equivalent section of the Connecticut Stock Corporation Act to
the full extent and in the manner required by such law.
ARTICLE 8.
Amendments.
These By-Laws may be amended or repealed at any regular of
special meeting of the Board of Directors by the vote of a
majority of the Directors, provided that notice of the
consideration of such amendment or repeal shall be included in
the notice of said meeting.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, BALANCE SHEETS AND STATEMENTS OF CASH
FLOWS OF CONNECTICUT ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 273,479
<OTHER-PROPERTY-AND-INVEST> 7,379
<TOTAL-CURRENT-ASSETS> 73,053
<TOTAL-DEFERRED-CHARGES> 122,286
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 476,197
<COMMON> 10,348
<CAPITAL-SURPLUS-PAID-IN> 121,855
<RETAINED-EARNINGS> 50,306
<TOTAL-COMMON-STOCKHOLDERS-EQ> 180,549
0
0
<LONG-TERM-DEBT-NET> 150,007
<SHORT-TERM-NOTES> 29,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,321
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 114,520
<TOT-CAPITALIZATION-AND-LIAB> 476,197
<GROSS-OPERATING-REVENUE> 61,594
<INCOME-TAX-EXPENSE> 3,515
<OTHER-OPERATING-EXPENSES> 48,783
<TOTAL-OPERATING-EXPENSES> 52,298
<OPERATING-INCOME-LOSS> 9,296
<OTHER-INCOME-NET> 168
<INCOME-BEFORE-INTEREST-EXPEN> 9,464
<TOTAL-INTEREST-EXPENSE> 3,369
<NET-INCOME> 6,095
0
<EARNINGS-AVAILABLE-FOR-COMM> 6,095
<COMMON-STOCK-DIVIDENDS> 3,474
<TOTAL-INTEREST-ON-BONDS> 3,213
<CASH-FLOW-OPERATIONS> 716
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