FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1994
OR
[ ] 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 1-10032
PROVIDENCE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 05-0389170
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) (Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 401-272-9191
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, $1.00 Par Value AMERICAN STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by checkmark 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant, as of December 27, 1994: $85,392,563
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $1.00 Par Value: 5,580,709 shares outstanding at
December 27, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the fiscal year ended
September 30, 1994 are incorporated by reference into Part II.
TABLE OF CONTENTS
PART I PAGE
Item 1 - Business
General I-1
Operations of the Gas Companies I-1
Nonutility Operations I-8
Special Factors Affecting the Gas Industry I-8
Item 2 - Properties I-10
Item 3 - Legal Proceedings I-11
Item 4 - Submission of Matters to a Vote of Security Holders I-11
PART II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters II-1
Item 6 - Selected Financial Data II-1
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations II-1
Item 8 - Financial Statements and Supplementary Data II-1
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-1
PART III
Item 10 - Directors and Executive Officers of the Registrant III-1
Item 11 - Executive Compensation III-4
Item 12 - Security Ownership of Certain Beneficial Owners
and Management III-5
Item 13 - Certain Relationships and Related Transactions III-5
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K IV-1
Experts Consent IV-4
Supplemental Schedules IV-6
Signatures IV-12
PART I
ITEM 1. BUSINESS
General
Providence Energy Corporation (the Registrant or the Company) was
organized in 1981 as a Rhode Island business corporation. The
Registrant's outstanding common shares are presently listed on the
American Stock Exchange. The Registrant is the parent of two wholly-owned
gas distribution utilities, The Providence Gas Company (ProvGas) and North
Attleboro Gas Company (North Attleboro Gas), together referred to as the
Gas Companies. The Registrant also conducts its nonutility operations
through a wholly-owned nonutility subsidiary, Newport America Corporation
(Newport America).
ProvGas, Rhode Island's largest natural gas distributor, was founded
in 1847 and serves approximately 159,000 customers in Providence, Newport
and 23 other cities and towns in Rhode Island. North Attleboro Gas serves
over 3,000 customers in North Attleboro and Plainville, Massachusetts,
towns adjacent to the northeastern Rhode Island border. The total natural
gas service territory of the Gas Companies encompasses 410 square miles
and has a population of approximately 846,600.
The Registrant's nonutility operations and investments are conducted
through Newport America - see Nonutility Operations.
The corporate offices of the Registrant are located at 100 Weybosset
Street, Providence, Rhode Island 02903 (Telephone 401-272-9191).
Operations of the Gas Companies
Customers. The Gas Companies had an average monthly number of
customers of approximately 162,000 for the twelve months ended September
30, 1994, of which approximately 90% were residential and 10% were
commercial and industrial.
The net increase in the average monthly number of customers during
fiscal 1994 over fiscal 1993 was approximately 2,100 or 1.3 percent. The
modest increase was the result of new housing construction and conversions
from other energy sources offset by shut-offs for non-payments and housing
vacancies due to a stagnant economy.
Gas Service. The gas services provided by the Gas Companies can be
grouped into three categories -- firm, interruptible and transportation
service. Firm service is provided to those residential, commercial and
industrial customers that use natural gas throughout the year.
Interruptible service is made to those commercial and industrial customers
that do not require assured gas service because they can utilize an
alternative fuel or otherwise operate without gas service. Transportation
service is a service where the Gas Companies transport to certain large
customers gas owned by those customers or by third parties selling gas to
those customers.
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The following table shows the distribution of gas to various customer
classes, and the total gas sold and transported by
year since 1990.
1994 1993 1992 1991 1990
Firm 81.2 83.9% 73.9% 66.2% 74.4%
Interruptible 16.5 14.7 23.1 19.5 7.5
Transportation 2.3 1.4 3.0 14.3 18.1
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Total Gas Sold and Transported
BCF(*) 28.7 27.1 29.1 29.0 27.8
===== ===== ===== ===== =====
(*) Gas sales are denominated in billions of cubic feet of natural gas,
(Bcf). Total gas sales include gas sold and transported by the Gas
Companies.
Firm Service. In recent years, the distribution of the Gas
Companies' firm sales has been approximately 61% to residential and 39% to
commercial and industrial customers. Firm sales represent the highest
percentage of operating margin and represent the core of the Gas
Companies' business.
Interruptible Service. Interruptible customers consist of two types:
seasonal customers that typically use gas only during the nonwinter months
and dual-fuel customers that contract for gas service on a year round
basis, but agree to service interruption during certain peak periods. By
retaining the right to interrupt service to the dual-fuel customers, the
Gas Companies can balance daily demand from firm customers with available
gas supply and pipeline capacity. Interruptible customers may interrupt
their gas service, as well, when it is more economical to utilize an
alternative fuel. Accordingly, the amount of the Gas Companies'
interruptible sales fluctuates depending upon the relative price of
natural gas to alternative fuels.
Interruptible sales produce substantially less margin to the Gas
Companies than firm sales due to the more competitive nature of
interruptible sales. Service rates charged to dual-fuel customers are
based on the price that the customer would otherwise pay for its
alternative fuel. Total margin, however, is generally not impacted by
nonfirm sales due to a margin-sharing mechanism - see Rates and Regulation
and Competition and Marketing.
Transportation Service. Margin from the transportation of gas
purchased by certain large customers from third parties is likely to
represent an increasing percentage of the Gas Companies' future total
margin due to the continuing regulatory developments affecting the natural
gas industry - see Special Factors Affecting the Natural Gas Industry. In
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general, these developments now allow customers to buy gas directly from
the producer-supplier rather than solely from the local gas distribution
company. Customer-owned gas is transported to the customer's premises
through a combination of the interstate pipelines and the Gas Companies'
distribution systems.
For a given quantity of gas, the Gas Companies' margin from
transportation service is considerably less than their margin from firm
sales, but is generally comparable to their margin from interruptible
sales, depending upon the price of alternative fuels. To the extent that
the Gas Companies' existing customers buy gas directly from
producer-suppliers, the Gas Companies' revenue will decrease although
nonfirm margin may not be impacted. Total margin is impacted by nonfirm
sales and transportation sales under a margin-sharing mechanism- see Rates
and Regulation. During fiscal 1994, the Registrant saw an increase in its
transportation sales as compared to last year by 270 MMcf or 70 percent
due to additional capacity available for transportation and competitive
third party pricing.
Gas Supply
During fiscal 1994, the Registrant purchased its gas supplies from
multiple sources. Of these sources, 79 percent was provided by contracts
with direct suppliers (well-head producers) on a firm transportation
basis. The Registrant, during off-peak periods, has also taken advantage
of inexpensive gas supplies offered on the spot market which constitutes
13 percent of the Registrant's gas supply. Lastly, the Registrant uses
liquefied natural gas (LNG) and underground storage (eight percent) to
complete its supply portfolio.
In a deregulated market, effective management of natural gas supply
offers the Registrant a competitive advantage. The Registrant has
responded to deregulation by aggressively broadening supply sources and
transportation options. The Registrant has created a flexible,
responsive, and competitive portfolio of suppliers, transporters, and
storage services. A key component to operating in this new competitive
environment is the flexibility gained by successful storage management for
both supply balancing and meeting cold weather requirements. In 1994, the
Registrant's underground storage capacity increased by 123 percent from
1.3 billion cubic feet (Bcf) to 2.9 Bcf, while our firm daily withdrawal
capability increased by over 200 percent from 9 million cubic feet (MMcf)
to 28 MMcf. Managing supply requires a thorough knowledge of its own
market requirements. Where the Registrant once purchased a bundled
package, including the gas and transportation of the gas to its city gate,
the Registrant now buy and sell both gas supply and pipeline capacity
using the new system of bulletin boards to schedule supply, to locate
purchasers for available gas and capacity, and to track the availability
and price of both gas supply and pipeline capacity. To meet the challenge
of managing supply and improve the Registrant's ability to respond
competitively, the Registrant has expanded its planning capability,
upgraded its ability to electronically monitor its distribution system,
added the capability to telemeter our larger
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customers, and created a supply operations center designed to centralize
all daily supply management functions. The Registrant's goal is to buy
natural gas directly from producers at the lowest possible price and
arrange space on pipelines for specific delivery dates to ensure that it
has adequate supply to meet its constantly changing demand. In addition,
the Registrant's enhanced ability to manage supply improves the
Registrant's ability to respond quickly to new marketing opportunities.
This capability of managing supply is critical to providing its
customers with a reliable and competitively priced product. The
Registrant's diversified portfolio of supply options virtually guarantees
that no single event will unduly affect price and supply. The
Registrant's supply of liquefied natural gas (LNG) and expanding storage
capability provides the flexibility needed to maintain reliability in
severe cold, met rapid shifts in temperature and, in conjunction with
supply management, provide a competitive edge as markets and prices
change.
In the new environment, the Registrant is able to sell capacity that
is not needed through a program called "capacity release". Part of
maintaining a healthy supply of natural gas means that the Registrant has
capacity reserved for future growth and peak season needs - particularly
for severely colder-than-normal weather. The revenues generated from
these sales reduce the cost of gas for firm customers and improve our
competitive position. Upgraded planning, system modeling, and supply
flexibility increase the Registrant's ability to release capacity and
efficiently use our supply resources to reduce costs to customers. In
1994, the Registrant generated $2.1 million in reduced gas costs from its
capacity release program.
Rates and Regulation. ProvGas is subject to the regulatory
jurisdiction of the RIPUC with respect to rates and charges, standards of
service, accounting and other matters. North Attleboro Gas is subject to
similar regulatory jurisdiction by the Massachusetts Department of Public
Utilities (MDPU). The standards set by these regulatory bodies affect all
aspects of the Gas Companies' businesses, including their ability to
market to new customers and to meet competition from other fuel suppliers
- - - - - - - see Competition and Marketing.
On October 14, 1993, the RIPUC approved ProvGas' request to adopt a
new rate design, including a declining block rate structure, seasonal gas
cost accounting and higher customer charges effective November 14, 1993.
The declining block rate structure allows ProvGas to recover more fixed
costs through rates immediately when a customer begins buying natural gas.
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Also, the new block rate structure will help balance customer bills during
the year and will help protect ProvGas and its customers during periods of
extreme weather conditions. This new block rate structure should result
in a stabilization of earnings from year to year. In addition to the
improved stability in earnings, the new rates are designed to increase
annual operating margin by approximately $700,000. Other components of
the rate award include an allowed return on equity of 11.2 percent. In
1994, for accounting and gas cost recovery purposes, ProvGas recorded the
embedded cost of gas using seasonal gas cost factors of $4.26 per thousand
cubic feet (Mcf) during November '93 through April '94 and $2.77 per Mcf
during May '94 through September '94. The ultimate effect of the seasonal
gas cost accounting will be that quarterly operating margins will decrease
in the winter months and increase in the summer months when compared to
the previous method. Assuming normal weather, annual earnings should not
be affected by this change.
Another significant attribute of the new rate design structure as
compared to the previous method is a higher customer charge. The average
monthly customer charge has been increased to recognize that a substantial
portion of ProvGas' costs are relatively fixed and should be recovered
from customers even when gas consumption is less than expected. ProvGas'
volumetric charge has decreased in order to off set the increased customer
charge.
The following table sets forth the results of ProvGas' applications
before the RIPUC for rate increases since 1981.
Annualized Annualized Authorized
Date of Rate Increase Date Rates Rate Increase Return on
Application Requested Effective Granted (*) Common Equity
9/28/81 $12,400,000 07/20/82 $9,600,000 15.5%
2/27/84 10,800,000 12/28/84 5,600,000 15.5
8/04/88 8,300,000 06/01/89 4,860,000 13.0
5/17/90 15,800,000 03/15/91 9,176,000 12.8
1/15/93 9,100,000 ** 11/14/93 694,000 11.2
(*) Although the RIPUC reviews and approves all changes in gas costs
billed to customers under the Cost of Gas Adjustment (CGA) clause, such
changes are not part of the general rate filings described above. See
notes 1 and 9 in notes to Consolidated Financial Statements contained in
the Registrant's 1994 Annual Report to Shareholders filed herewith as
Exhibit 13.
(**) Rate increase requested on January 15, 1993 of $9.1 million was
recalculated to $6,970,000 on September 14, 1993 due to cost of service
adjustments reflecting cost savings.
An agreement was reached between North Attleboro Gas and the
Massachusetts' Attorney General's office, subsequently approved by the
MDPU for a rate increase effective November 1, 1991. Under the terms of
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the agreement, a 32 percent increase will be phased-in over five years.
See note 9 to the Consolidated Financial Statements contained in the
Registrant's Annual Report to Shareholders filed herewith as Exhibit 13.
Under the agreement, the non-firm margin threshold for system
interruptible sales and system transportation will be calculated annually
using the average of total non-firm margins earned from system
interruptible sales and system transportation sales for the preceding
three years. A new non-firm margin threshold will be calculated for each
fiscal year beginning in October. Non-firm margins earned above the
threshold will be shared at a ratio of 66 2/3% to firm ratepayers and 33
1/3% to the Registrant. For the fiscal 1993 year that threshold was $2.1
million as compared to $1.6 million in fiscal 1992. The threshold for
fiscal 1994 has been determined to be $2.5 million. The Registrant
retained the provision to collect the full $2.8 million it received
earlier plus $.2 million as a result of a consolidation with the purchase
of South County Gas Company. If actual non-firm margin were below the $3
million threshold, the Registrant would add an amount to its CGA to bring
collections up to the $3 million non-firm threshold.
Competition and Marketing. Under the current laws of Rhode Island
and Massachusetts, no gas utility may sell gas in a city or town where
another utility is already selling gas, unless the new utility shall have
obtained a certificate from RIPUC or MDPU, as the case may be, certifying
that the public convenience and necessity requires the same. Such an
action requires a public hearing with notice to specific parties including
the gas utility already serving the area. To date, neither ProvGas nor
North Attleboro Gas has experienced any competition from the other natural
gas utilities in its service areas.
The Registrant faces its most intense competition from fuel oil in
certain market segments. During 1994, for commercial and industrial
customers, oil has enjoyed a price advantage over natural gas. Despite
this price advantage, the Registrant continues to add both commercial and
industrial customers. This is mainly the result of price stability
afforded historically by natural gas over oil and is also the result of
value added benefits from reliable customer service provided to the
Registrant's customer sectors.
Advanced gas technologies play a significant role in load growth for
both the commercial and industrial sectors. Such technologies include on
site cogeneration capabilities, cost-effective alternatives to electric
space conditioning, process cooling, motor drives and the utilization of
compressed natural gas vehicles.
ProvGas opened its first public natural gas filling station in June
1992. This market development provides on-site fueling capabilities for
large fleet operators. ProvGas expects natural gas vehicles (NGV) to
produce modest margin growth over the next five years. ProvGas has 15
companies and State agencies using the station. Including ProvGas' own
natural gas vehicles, there are about 125 NGV's operating in Rhode Island.
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ProvGas helped the East Providence School Department and Ryder
Transportation Company win a Federal grant to study the effectiveness of
natural gas school buses compared to standard diesel fuel buses.
Beginning in January 1995, four natural gas buses will be tested for fuel
cost and overall vehicle economy. ProvGas assisted in the construction of
a compressed natural gas filling station in East Providence to service the
buses. This is the first use of natural gas school buses in Rhode Island.
The Registrant plans to work with other companies to build CNG
filling stations. A significant boost to these efforts occurred this year
with legislative approval of a bill allowing nonutility companies to sell
natural gas for vehicular use without being subject to public utility
regulation. This legislation allows private investors to build the
natural gas refueling infrastructure, a critical step in the development
of the natural gas vehicle market.
To further promote the Registrant's objective of maximizing growth,
market research activities have been intensified. This market research
will identify growth opportunities, such as non-users on existing mains,
increase existing user load and main extension to developments not
evaluated previously. This research will also provide the data essential
to design marketing strategies. At present, only approximately 45% of the
residences within the Registrant's service areas are heated by natural
gas. Furthermore, 24% of the Registrant's customers currently do not use
natural gas to heat their homes. As a result, the Registrant believes
that marketing to this segment represents a potential for significant
growth.
The Registrant has completed the contract with the U.S. Navy to
provide gas service to a boiler plant facility in Newport, R.I.. This
arrangement allows for conversion of the Navy facility from oil firing to
a combination of oil and natural gas firing. In addition, based upon a
technology that was developed for various NASA space programs, the fuel
cell will be fully operational by February 1995. Fuel cells use natural
gas as a raw material in a chemical reaction that results in the creation
of both electricity and hot water. The Navy's fuel cell will provide
electricity and hot water at a significant discount versus the current
conventional sources. ProvGas estimates the annual natural gas usage to
be about 15 MMcf annually - this is equivalent to the gas usage of about
120 residential heating customers.
Employees
At September 30, 1994, the Gas Companies had 568 full-time employees
Approximately 276 of those employees were covered by a collective
bargaining agreement with the United Steelworkers of America. These same
union employees and ProvGas ratified a three year extension to the
contract which ended in January 1993. The agreement calls for general
wage increases of 3.5 percent in 1993, 3.75 percent in 1994 and 4 percent
in 1995. Also incorporated into the contract were work practice changes
and other action steps designed to allow ProvGas to achieve greater
operating efficiencies.
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Gas Distribution Systems. The Gas Companies' distribution systems
consist of approximately 2,360 miles of gas mains ranging in size from 2
to 36 inches in diameter, approximately 137,400 services, (a service is a
pipe connecting a gas main with piping on a customer's premises), and
approximately 167,500 active gas meters together with related facilities
and equipment. The Gas Companies have regulating and metering facilities
at seven points of delivery from Algonquin, which the Gas Companies
presently believe to be adequate for receiving gas into their distribution
systems.
Storage Facilities
Under an agreement with Texas Eastern, the Registrant is entitled to
the underground storage of up to 1,200 MMcf of natural gas at a facility
located in Leidy, Pennsylvania. Withdrawals from storage are on a firm
basis at the time of proposed withdrawal. The Registrant has additional
storage capacity of 3,081 MMcf in various underground storage fields for
the 1994/95 winter, which may be withdrawn on a best efforts basis at time
of the proposed withdrawal. The only limitation to the timely withdrawal
is a potential temporary bottleneck in the pipeline caused by heavy
seasonal demand.
The Registrant has an agreement with Algonquin for the storage of up
to the equivalent of 1,170 MMcf of vaporized LNG in a tank owned by
Algonquin and located on land leased to Algonquin by the Registrant. The
agreement expires in 2003, but the Registrant has an option to extend the
agreement for an additional thirty years. The Registrant owns and
operates an LNG storage and vaporization facility which has the capacity
to store the equivalent 185 MMcf of vaporized LNG.
Nonutility Operations. As described earlier, the Registrant conducts
its nonutility operations through a wholly-owned subsidiary, Newport
America. These operations total less than two percent of the Registrant's
consolidated assets and consolidated revenues.
During fiscal 1994, Newport America had three wholly-owned
subsidiaries engaged in various nonutility businesses. Prudence
Corporation owns real estate for investment and rental purposes. S & M
Appliance Service Company, whose nonutility assets were sold in August
1992, was a wholesale distributor of gas heating and air conditioning
equipment with installation and service capabilities. Patience Realty
Corporation was involved in constructing a timeshare and condominium
complex along the waterfront in Newport, Rhode Island (the Wellington
Project).
Special Factors Affecting the Natural Gas Industry
General. The natural gas industry is subject to numerous legislative
and regulatory requirements, standards and restrictions that are subject
to change and that affect the Gas Companies to varying degrees.
Significant industry factors that have affected or may affect the Gas
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Companies from time to time include: lack of assurance that rate
increases can be obtained from regulatory authorities in adequate amounts
on a timely basis; changes in the regulations governing the Gas Companies'
operations; reductions in the prices of oil and propane, which can make
those fuels less costly than natural gas in some markets; increases in the
price of natural gas; and competition with other gas sources for
industrial customers, including potential attempts to bypass the Gas
Companies' facilities.
FERC Regulations. In recent years FERC has been attempting to
increase competition with regard to the transportation and sale of natural
gas in interstate commerce. Beginning in late 1985, FERC began
promulgating orders that allow all industry participants access to
pipeline transportation on an open, nondiscriminatory basis to the extent
of available capacity.
Recent FERC orders are in furtherance of its policy to make gas
transportation and alternate supply sources more accessible to all
parties, including local distribution companies and their customers. Such
"open access" allows the Gas Companies to obtain its supply through a more
competitive national gas pipeline system, where and when capacity is
available.
FERC Order 636 and other related order (the Orders) have significantly
changed the structure and types of services offered by pipeline
transportation companies. The most significant components of the
restructuring occurred in November 1993. In response to these changes,
the Registrant has successfully negotiated new pipeline transportation and
gas storage contracts.
At the same time, a number of contracts with gas suppliers have been
negotiated to complement the transportation and storage contracts. The
portfolio of supply contracts is designed to be market responsive and is
diversified with respect to contract lengths, source location, and other
contract terms. On a periodic basis, the Registrant reviews all of its
contracts to ensure a diverse, secure, flexible and economical supply
portfolio is maintained.
To meet the requirements of the Orders, the pipelines have incurred
significant costs, collectively known as transition costs. The majority
of these costs will be reimbursed by the pipelines' customers including
the Registrant. Based upon current information, the Registrant anticipates
its share of transition costs to total between $16 million and $19 million
of which $8.3 million has been included in the CGA and is currently being
collected from customers. The remaining minimum obligation of $7.7 million
has been recorded in the accompanying consolidated balance sheet along
with a regulatory asset anticipating future recovery through the CGA.
The Registrant's ultimate liability may differ from the above
estimates based on FERC settlements with the Registrant's pipeline
transportation suppliers. FERC has approved settlements with two of its
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pipelines, which account for the bulk of its transition costs.
Negotiations are continuing on the two additional pipelines, but recent
favorable developments have considerably reduced the uncertainty
previously disclosed. As a result, the Registrant has decreased the range
for potential transition costs accordingly.
Environmental Regulations
Federal, state and local laws and regulations establishing standards and
requirements for protection of the environment have increased in number
and in scope within recent years. The Registrant cannot predict the
future impact of such standards and requirements which are subject to
change and can take effect retroactively. The Registrant continues to
monitor the status of these laws and regulations. Such monitoring
involves the review of past and current operations and properties. To the
best of its knowledge, subject to the following paragraph, the Registrant
believes it is in substantial compliance with such laws and regulations.
However, should future costs be incurred, relating to the items mentioned
below, the Registrant anticipates recovery from third parties or through
rates.
The Registrant is aware of four sites at which it may incur future costs
for environmental investigation and clean-up. Based on current available
information, however, the amount of costs, if any, related to these sites
will not be material to the operations of the Registrant or its financial
position.
Management anticipates requesting rate relief for all costs related to
the environmental matters and believes that the ultimate resolution of
these matters will not have a materially adverse effect on the
Registrant's results of operations and financial condition.
With regard to the clean air quality standards, the Registrant believes
that the use of natural gas in industrial and electric generation boilers
and turbines is one way to reduce pollutants discharged into the
atmosphere. To the extent that the use of clean burning fuels is mandated
by federal or state policy, management believes that demand for the
Registrant's natural gas would increase.
Other Standards. The Gas Companies are also subject to standards
prescribed by the Secretary of Transportation under the Natural Gas
Pipeline Safety Act of 1968 with respect to the design, installation,
testing, construction and maintenance of pipeline facilities. The
enforcement of these standards has been delegated to the RIPUC and MDPU
and management believes that the Gas Companies are in substantial
compliance with all present requirements imposed by these agencies.
ITEM 2. PROPERTIES
In addition to the Registrant's gas distribution system and storage
facilities, which constitute the principal properties of the Registrant,
the Registrant owns several buildings and other facilities in Newport,
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Providence and Westerly which house its offices and provide floor space
for its distribution and maintenance facilities.
Substantially all the foregoing properties are mortgaged as collateral
for outstanding bonds of ProvGas.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is involved in legal and administrative proceedings in
the normal course of business, including certain proceedings involving
material amounts in which claims have been or may be made. However,
management believes, after review of insurance coverage and consultation
with legal counsel, that the ultimate resolution of the legal proceedings
to which it is or can at the present time be reasonably expected to be a
party, will not have a materially adverse effect on the Registrant's
results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCK
HOLDERS' MATTERS
The Registrant's common stock is listed on the American Stock
Exchange and trades under the symbol "PVY". As of December 27,
1994, there were approximately 6,636 holders of record of the
Registrant's outstanding common stock. For the balance of the
information called for by this item, reference is made to the
materials under 'Dividends' and 'Common stock information' on
the Registrant's Annual Report to shareholders for the fiscal
year ended September 30, 1994, which is filed herewith under
Part IV as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
For the information called for by this item, reference is made
to page 18 of the Registrant's Annual Report to shareholders for
the fiscal year ended September 30, 1994, which is filed
herewith under Part IV as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Regarding the information that relates to this item, reference
is made to the materials within the following: Management's
Discussion and Analysis of Financial Condition and Results of
Operations on pages 14 through 17, of the Registrant's Annual
Report to Shareholders for the fiscal year ended September 30,
1994, which if filed herewith under Part IV as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the information called for by this item, reference is made
to pages 25 through 31 of the Registrant's Annual Report to
shareholders for the fiscal year ended September 30, 1994, which
is filed herewith under Part IV as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is furnished with respect to the executive
officers of the Registrant:
Year
office in
Registrant
Name and Age Office First Held
James H. Dodge (54) Chairman, President and Chief
Executive Officer 1992
James DeMetro (46) Vice President, Energy Services 1992
Gary S. Gillheeney (39) Vice President, Financial
and Information Services,
Treasurer and Assistant
Secretary 1994
Alycia L. Goody (42) General Counsel and
Corporate Secretary 1991
William D. Mullin (46) Vice President, Corporate Relations1994
Robert W. Owens (46) Vice President, Operations
1994
Bruce G. Wilde (48) Vice President, Human Resources
and Assistant Secretary 1994
Mr. Dodge was elected President and Chief Executive Officer of
Providence Energy Corporation and ProvGas in August 1990 after the
retirement of Louis R. Hampton. Mr. Dodge subsequently became
Chairman of the Board in January 1992. Prior to his employment with
the Registrant, he was President and Chief Executive Officer of
Vermont
Gas Systems, Inc. Vermont Gas Systems, Inc. is a regulated public
utility which sells natural gas to a portion of the population of the
State of Vermont.
Mr. DeMetro was elected Vice President, Energy Services of
Providence Energy Corporation and ProvGas in March 1992. For more
than five years, prior thereto, Mr. DeMetro served the Brooklyn Union
Gas Company, a regulated natural gas utility, in various management
positions, most recently as Manager, Rates and Regulations.
Mr. Gillheeney was elected Vice President, Financial and Information
Services, Treasurer and Assistant Secretary in May 1994. For more
than five years prior thereto, Mr. Gillheeney served ProvGas in
various management positions, most recently as Assistant Treasurer and
Controller.
III-1
Ms. Goody was elected General Counsel and Corporate Secretary of
Providence Energy Corporation and ProvGas in January 1991. For two
years, prior thereto, Ms. Goody served ProvGas as Corporate Counsel.
For three more years prior to that, Ms. Goody served as an Assistant
Attorney General for the Commonwealth of Massachusetts.
Mr. Mullin was elected Vice President, Corporate Relations of
Providence Energy Corporation and ProvGas in January 1994. For five
years prior to his current position with Providence Energy Corporation
and ProvGas, he served ProvGas in various management positions, most
recently as Vice President, Operations.
Mr. Owens was elected Vice President, Operations Providence Energy
Corporation and the ProvGas in January 1994. For more than five years
prior thereto, Mr. Owens served the Providence Energy Corporation and
ProvGas in various management positions, most recently as Vice
President, Treasurer and Chief Financial Officer.
Mr. Wilde was elected Vice President, Human Resources and Assistant
Secretary of Providence Energy Corporation in May 1994. For more than
five years prior thereto, Mr. Wilde served ProvGas in various
management positions, most recently as Assistant Vice President for
Personnel.
PAGE III-2
<PAGE>
DIRECTORS OF THE REGISTRANT
The following information is furnished with respect to the Directors
of the Registrant.
Name Director Since Expiration of Term
William W. Bennett * 1992 1997
Gilbert R. Bodell, Jr. 1980 1995
James H. Dodge 1991 1997
Diane M. Disney * 1994 1997
Robert P. Freeman * 1983 1995
Louis R. Hampton 1971 1995
John H. Howland 1993 1996
Douglas H. Johnson 1993 1996
Dorothy G. Kramer 1976 1995
Romolo A. Marsella 1993 1996
Kenneth W. Washburn 1975 1997
* Will be leaving as a Director in January 1995.
William W. Bennett is Director of Operations, Rocky Hill School in
Warwick, RI.
Gilbert R. Bodell, Jr. is President, Frontier Manufacturing Company
(textile); former Vice President, Valley Lace Co. and Esten Dyeing and
Finishing Co.
James H. Dodge has been Chairman since January, 1992 and President
and Chief Executive Officer of the Registrant since August, 1990; from
1984 through August, 1990: President and Chief Executive Officer of
Vermont Gas Systems, Inc. (a regulated natural gas utility) and
affiliated companies.
Diane M. Disney is the Deputy Assistant to the Secretary of Defense
(Civilian Personnel Policy).
III-3
Robert P. Freeman since July, 1992: President of Lazard Freres Real
Estate Fund; since July, 1992, Chairman, and from February, 1991 to
July, 1992: President and Chief Executive Officer, Pacific Gateway
Properties, Inc. (formerly Perini Investment Properties, Inc.)
previously President, the Marathon Group of Companies, Inc. (holding
company of investment counselling and real estate development firms).
Louis R. Hampton is the retired Chairman of the Board of Directors.
Mr. Hampton served as President and Chief Executive Officer of the
Registrant for more than 16 years; retiring from those positions in
1990.
John H. Howland is President and Chief Operating Officer, Original
Bradford Soap Works, Inc. (textiles).
Douglas H. Johnson since October, 1991: Vice President and Managing
Partner, M. Van Leesten Associates, Inc. (business and urban planning
consultants); from 1980 to October, 1991: President and Chief
Executive Officer, Peerless Precision, Inc. (aerospace manufacturing
company).
Dorothy G. Kramer is retired Senior Vice President, Treasurer and
Corporate Secretary, Taco, Inc. (manufacturers of pumping, heat
transfer and hydronic control equipment).
Romolo A. Marsella is President, Marsella Development Corporation
(real estate development).
Kenneth W. Washburn is Chairman and President, Union Wadding company
(manufacturers of non-woven textiles).
ITEM 11. EXECUTIVE COMPENSATION
For the information called for by this item, reference is made to
pages 7 to 13 of the Providence Energy Corporation's proxy statement
filed December 16, 1994 with the Securities and Exchange Commission
for the annual meeting of shareholders to be held January 19, 1995.
III-4
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
For the information called for by this item reference is
made to page 14 of the Providence Energy Corporation's proxy
statement filed December 16, 1994 with the Securities and
Exchange Commission for the annual meeting of shareholders to
be held January 19, 1995.
Section 16 Compliance
For the information called for by this item reference is
made to page 15 of the Providence Energy Corporation's proxy
statement filed December 16, 1994 with the Securities and
Exchange Commission for the annual meeting of shareholders to
be held January 19, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information called for by this item reference is
made to page 6 of the Providence Energy Corporation's proxy
statement filed December 16, 1994 with the Securities and
Exchange Commission for the annual meeting of shareholders to
be held January 19, 1995.
III-5
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PROVIDENCE ENERGY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(a) Financial Statements and Schedules
Consolidated Balance Sheets--September 30, 1994 and 1993
Consolidated Statements of Income for the years ended September 30,
1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended September 30,
1994, 1993 and 1992
Consolidated Statements of Capitalization--September 30, 1994
and 1993
Consolidated Statements of Changes in Common Stockholders Investment for
the years ended September 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
The financial statements and related notes listed above are incorporated
by reference to Providence Energy Corporation's Annual Report to Shareholders
(see pages 18 through 29) for the year ended September 30, 1994, filed
herewith as Exhibit 13.
Supplemental Notes to Consolidated Financial Statements
Report of Independent Public Accountants on Schedules
Consent of Independent Public Accountants.
V. Property, Plant and Equipment for the years ended September 30, 1994,
1993 and 1992.
VI. Accumulated Depreciation and Amortization of Property, Plant and
Equipment for the years ended September 30, 1994, 1993 and 1992.
VIII. Reserves for the years ended September 30, 1994, 1993 and 1992.
IX. Short-term borrowings for the years ended September 30, 1994, 1993 and
1992.
The information required to be submitted in Schedule X has been included
in the financial statements and related notes.
Schedules I to XIII not listed above are omitted as not applicable or not
required under Regulation S-X.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the latest quarter of the
Registrant's fiscal year ended September 30, 1994.
IV-1
(c) Exhibits
The following exhibits are filed as part of this report:
3.1 Articles of Incorporation, as amended (incorporated by reference
to Exhibit 4(e) to the Registration Statement of the Registrant on
Form S-2 (Registration No. 33-24125)).
3.2 Bylaws (incorporated by reference to Exhibit C to the Proxy
Statement/Prospectus forming a part of the Registrant's
Registration Statement on Form S-14 (Registration No. 2-69473), as
amended at the annual meetings of the shareholders held January
14, 1985 and January 14, 1991, the text of such amendments being
set forth in each case as Exhibit A to the proxy statement for
such annual meeting, heretofore filed with the Securities and
Exchange Commission and being incorporated herein by this
reference).
4.1 Indenture dated as of August 1, 1981 from The Providence Gas
Company to St. Louis Union Trust Company, Trustee, filed as
Exhibit 4.1 to Registration Statement of The Providence Gas
Company on Form S-1 (Registration No. 2-72726), incorporated
herein by this reference.
4.2 First Supplemental Indenture dated as of May 1, 1986 from The
Providence Gas Company to Centerre Trust Company of St. Louis,
Trustee (filed as Exhibit 4 (b) to the Registration Statement of
The Providence Gas Company on Form S-3 (Registration File No.
33-5023), incorporated herein by this reference).
4.3 First Mortgage Indenture of The Providence Gas Company dated as of
January 1, 1922,as supplemented by First through Twelfth
Supplemental Indentures (incorporated by reference to Exhibit
10.10 to registration statement of The Providence Gas Company on
Form S-1 (Registration No. 2-72726)).
4.4 Fourteenth, Fifteenth and Sixteenth Supplemental Indentures of The
Providence Gas Company dated as of August 1, 1988, June 1, 1990
and November 1, 1992, respectively (incorporated by reference to
Exhibit 4 to the report of the Registrant to the Securities and
Exchange Commission on Form 10-Q for the quarter ended March 31,
1993).
4.5 Seventeenth Supplemental Indenture of The Providence Gas Company
dated as of November 1, 1993.
10.1 Material contracts filed as Exhibit 10 (a) through 10 (ff) to
Registrant Statement of the Registrant on Form S-2 (Registration
No. 33-24125), incorporated herein by this reference.
IV-2
10.2 Employment agreement dated August 20, 1990 between James H. Dodge,
President of The Providence Gas Company, and the said Company.
(Filed as Exhibit 10.2 to the report of the Registrant in Form
10-K for the year ended September 30, 1992, incorporated herein by
this reference.)
10.3 1989 Non-Employee Director Stock Option Plan (incorporated by
reference to Exhibit A to the Registrant's proxy statement for the
annual meeting of shareholders held January 9, 1989, heretofore
filed with the Securities and Exchange Commission).
10.4 1989 Stock Option Plan (incorporated by reference to Exhibit B to
the Registrant's proxy statement for the annual meeting of
shareholders held January 9, 1989, heretofore filed with the
Securities and Exchange Commission).
10.5 Non-firm Margin Sharing Agreement. (Filed as Exhibit 10.3 to the
report of the Registrant in Form 10-K for the year ended September
30, 1992, incorporated herein by this reference.)
10.6 Employment agreement date April 1, 1992 between James DeMetro,
Vice President, Energy Services of The Providence Gas Company, and
the said Company. (Filed as Exhibit 10.4 to the report of the
Registrant in Form 10-K for the year ended September 30, 1992,
incorporated herein by this reference.)
10.7 Employment agreement date August 15, 1991 between Robert W. Owens,
Vice President, Treasurer and Chief Financial Officer of The
Providence Gas Company, and the said Company. (Filed as Exhibit
10.5 to the report of the Registrant in Form 10-K for the year
ended September 30, 1992, incorporated herein by this reference.)
10.8 Employment agreement dated June 27, 1991 between Raymond F. Allen,
Vice President, Customer Relations of The Providence Gas Company,
and the said Company. (Filed as Exhibit 10.6 to the report of the
Registrant in Form 10-K for the year ended September 30, 1992,
incorporated herein by this reference.)
10.9 Employment agreement dated July 1, 1991 between William D. Mullin,
Vice President, Operations of The Providence Gas Company, and the
said Company. (Filed as Exhibit 10.7 to the report of the
Registrant in Form 10-K for the year ended September 30, 1992,
incorporated herein by this reference.)
13 Portions of the Annual Report to shareholders for the fiscal year
ended September 30, 1994.
22 Subsidiaries of the Registrant.
IV-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
Providence Energy Corporation:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Providence Energy
Corporation's annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated November 3, 1994.
Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedules listed in the accompanying
index to financial statements are the responsibility of the Company's
management and are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state, in all material respects, the financial data required to be
set forth therein, in relation to the basic financial statements taken as
a whole.
Arthur Andersen LLP
Boston, Massachusetts
November 3, 1994
IV-4
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
Providence Energy Corporation:
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated November 3, 1994, included in this Form
10-K, into the Company's previously filed registration statements on Forms
S-3, Registration No. 33-62318; S-3 Registration No. 33-70086; S-3,
Registration No. 33-31768; S-8, Registration No. 33-31770; and S-8
Registration No. 33-43031. It should be noted that we have not audited any
financial statements of the Company subsequent to September 30, 1994, or
performed any audit procedures subsequent to the date of our report.
Arthur Andersen LLP
Boston, Massachusetts
December 27, 1994
IV-5
<PAGE>
PROVIDENCE ENERGY CORPORATION Schedule V
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED
SEPTEMBER 30, 1994, SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1992
(Thousands of Dollars)
Balance Additions Sales and Balance
Classification Sept 30, 1993 at Cost Retirements Other Sept 30,
1994
Gas Plant
Land and
rights-of-way $ 816 $ -- $ -- $ -- $ 816
Structures 19,751 623 -- -- 20,374
Distribution equip.170,880 17,804 638 -- 188,046
Transportation equip.1,788 1 118 -- 1,671
Other equip. 24,618 1,155 75 (275) 25,423
Construction work 3,916 (412) -- (4) 3,500
Total gas plant $221,769 $19,171 $ 831 $ (279) $239,830
======== ======= ======= ======= ========
Nonutility property $ 2,654 $ -- $ -- $ -- $ 2,654
======== ======= ======= ======= ========
Balance Additions Sales and Balance
Classification Sept 30, 1992 at Cost Retirements Other Sept 30,
1993 Gas Plant
Land and
rights-of-way $ 803 $ 6 $ -- $ 7 $ 816
Structures 19,144 516 40 131 19,751
Distribution equip. 160,719 11,640 939 (540) 170,880
Transportation equip. 1,898 3 185 72 1,788
Other equip. 23,901 971 306 52 24,618
Construction work
in progress 3,622 325 -- (31) 3,916
Total gas plant $210,087 $13,461 $ 1,470 $ (309) $221,769
======== ======= ======= ======= ========
Nonutility property $ 2,654 $ -- $ -- $ -- $ 2,654
======== ======= ======= ======= ========
Additions Sales and Balance
Classification Sept 30, 1991 at Cost Retirements Other Sept 30,
1992 Gas Plant
Land and
rights-of-way $ 795 $ 8 $ -- $ -- $ 803
Structures 20,500 176 1,544 12 19,144
Distribution equip. 149,338 11,963 582 -- 160,719
Transportation equip. 2,339 2 443 -- 1,898
Other equip. 24,194 290 334 249 23,901
Construction work
in progress 2,050 952 -- 620 3,622
Total gas plant $199,216 $13,391 $ 2,903 $ 383 $210,087
======== ======= ======= ======= ========
Nonutility property $ 3,266 $ -- $ 606(A)$ (6) $ 2,654
======== ======= ======= ======= ========
IV-6
(A) Principally relates to sale of S&M Appliance Service Company.
PROVIDENCE ENERGY CORPORATION Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT FOR THE YEARS ENDED SEPTEMBER 30, 1994, SEPTEMBER 30, 1993 AND
SEPTEMBER 30, 1992
(Thousands of Dollars)
Additions Deductions
Cost of
Balance Charged to Removal Balance
Classification 9/30/93 Operations Other Retirements Less Salvage 9/30/94
Gas Plant:
Gas equipment $70,796 $ 9,555 $ 47 $ 721 $520 $79,157
Transportation
equipment 1,701 42 -- 82 -- 1,661
Total gas plant $72,497 $ 9,597 $ 47 $ 803 $520 $80,818
======= ========= ====== ====== ==== =======
Nonutility
property $ 536 $ 85 $ -- $ -- $ -- $ 621
======= ========= ====== ====== ==== =======
Cost of
Balance Charged to Removal Balance
Classification 9/30/92 Operations Other Retirements Less Salvage 9/30/93
Gas Plant:
Gas equipment $63,516 $ 8,969 $ 52 $1,288 $453 $70,796
Transportation
equipment 1,804 65 (2) 166 -- 1,701
Total gas plant $65,320 $ 9,034 $ 50 $1,454 $453 $72,497
======= ========= ====== ====== ==== =======
Nonutility
property $ 451 $ 85 $ -- $ -- $ -- $ 536
======= ========= ====== ====== ==== =======
Cost of
Balance Charged to Removal Balance
Classification 9/30/91 Operations Other Retirements Less Salvage 9/30/92
Gas Plant:
Gas equipment $57,370 $ 8,582 $ 91 $2,449 $ 78 $63,516
Transportation
equipment 2,105 93 -- 394 -- 1,804
Total gas plant $59,475 $ 8,675 $ 91 $2,843 $ 78 $65,320
======= ========= ====== ====== ==== =======
Nonutility
property $ 611 $ 116 $ -- $ 276 (A) $ -- $ 451
======= ========= ====== ====== ==== =======
(A) Represents accumulated depreciation from sale of S&M Appliance Service
Company.
IV-7
PROVIDENCE ENERGY CORPORATION Schedule VIII
RESERVES FOR THE YEARS ENDED
SEPTEMBER 30, 1994, SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1992
(Thousands of Dollars)
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/93 to Operations Add (Deduct) Created 9/30/94
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 2,026 $4,991 $ -- $4,346 $ 2,671
Allowance for lease
receivables -
current 282 9 -- 34 257
other 96 -- -- 16 80
$ 2,404 $5,000 $ -- $ 4,396 $ 3,008
======= ====== ======= ======= =======
Allowance for lease
receivables -
long-term $ 778 $ 316 $ -- $ 143 $ 951
======= ====== ======= ======= =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $14,018 $7,033 $ -- $5,545 $15,506
Unamortized investment
tax credit 3,010 -- -- 159 2,851
Other-
Liability and
damage reserve 296 145 -- 20 421
Other 5,188 1,358 2,659(C) 2,540 6,665
Total other 5,484 1,503 2,659 2,560 7,086
Total deferred
credits and
reserves $22,512 $8,536 $ 2,659 $8,264 $25,443
======= ====== ======= ====== =======
IV-8
Schedule VIII (cont'd)
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/92 to Operations Add (Deduct) Created 9/30/93
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 2,275 $3,980 $ -- $4,229 $ 2,026
Allowance for lease
receivables -
current 326 -- -- 44 282
other -- 96 -- -- 96
$ 2,601 $4,076 $ -- $ 4,273 $ 2,404
======= ====== ======= ======= =======
Allowance for lease
receivables -
long-term $ 760 $ 190 $ -- $ 172 $ 778
======= ====== ======= ======= =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $13,474 $ 544 $ -- $ -- $14,018
Unamortized investment
tax credit 3,167 -- -- 157 3,010
Other-
Liability and
damage reserve 146 150 -- -- 296
Other 4,822 1,129 1,636(A) 2,399 5,188
Total other 4,968 1,279 1,636 2,399 5,484
Total deferred
credits and
reserves $21,609 $1,823 $ 1,636 $ 2,556 $22,512
======= ====== ======= ======= =======
IV-8(b)
<PAGE>
SCHEDULE VIII (cont')
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/91 to Operations Add (Deduct) Created 9/30/92
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 2,603 $4,176 $ -- $4,504 $ 2,275
Allowance for lease
receivables -
current 1,372 68 -- 1,114 326
$ 3,975 $4,244 $ -- $ 5,618 $ 2,601
======= ====== ======= ======= =======
Allowance for lease
receivables -
long-term $ 84 $1,317 $ -- $ 641 $ 760
======= ====== ======= ======= =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $13,127 $ 347 $ -- $ -- $13,474
Unamortized investment
tax credit 3,345 -- -- 178 3,167
Other-
Liability and
damage reserve 21 125 -- -- 146
Other 1,970 1,936 4,371 (B) 3,455 4,822
Total other 1,991 2,061 4,371 3,455 4,968
Total deferred
credits and
reserves $18,463 $2,408 $ 4,371 $ 3,633 $21,609
======= ====== ======= ======= =======
(A) Includes advance payments on customers' service agreements.
(B) Principally an additional reserve for pension costs which was
offset by a deferred regulatory asset in addition to advance payments
on customer service agreements.
(C) Principally a reserve for restructuring charges which was offset
by a deferred regulatory asset in addition to advance payments
on customer service agreements.
IV-8c
Schedule IX
PROVIDENCE ENERGY CORPORATION
SHORT-TERM BORROWINGS
For The Years Ended September 30, 1994, 1993 and 1992
(Thousands of dollars)
September 30,
1994 1993* 1992
Balance at end of period $27,700 $23,800 $23,410
Weighted average interest rate on borrowings
outstanding at end of period 5.29% 3.47% 3.58%
Maximum borrowings outstanding during the
period based on month-end balances $49,400 $53,010 $48,410
Average daily borrowings outstanding for the
period $27,020 $28,931 $38,877
Weighted daily average annual interest rate 3.96% 3.61% 4.69%
The Company meets seasonal cash requirements and finances its construction
program on an interim basis through short-term bank borrowings. Such
borrowings may be under open lines of credit (total available $63,000,000;
total committed $48,500,000) or by special arrangements.
* Assumes issuance of First Mortgage Bonds of $16 million on
September 30, 1993.
IV-9
<PAGE>
Exhibit 22. SUBSIDIARIES OF THE REGISTRANT
The Providence Gas Company - Incorporated under the laws of Rhode Island.
Newport America Corporation - Incorporated under the laws of Rhode Island.
North Attleboro Gas Company - Incorporated under the laws of Massachusetts.
IV-10
<PAGE>
INCORPORATION BY REFERENCE INTO REGISTRATION STATEMENTS ON FORM S-8
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13,1990) under the Securities Act of
1933, the Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into Part II of Registrant's Registration
Statements on Form S-8 Nos. 33-31769, 33-31770 and 33-43031:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the Securities being
registered, the Registrant will, unless in the opinion of its counsel that
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
IV-11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PROVIDENCE ENERGY CORPORATION
By JAMES H. DODGE
James H. Dodge, Chairman,
President and CEO
Date December 15, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
JAMES H. DODGE Chairman, President and CEO 12-15-94
James H. Dodge (Principal Executive Officer)
GARY S. GILLHEENEY Vice President, Financial 12-15-94
Gary S. Gillheeney and Information Services,
Treasurer and Assistant
Secretary
WILLIAM W. BENNETT Director 12-15-94
William W. Bennett
GILBERT R. BODELL, JR. Director 12-15-94
Gilbert R. Bodell, Jr.
Director
Diane M. Disney
ROBERT P. FREEMAN Director 12-15-94
Robert P. Freeman
LOUIS R. HAMPTON Director 12-15-94
Louis R. Hampton
JOHN H. HOWLAND Director 12-15-94
John H. Howland
DOUGLAS H. JOHNSON Director 12-15-94
Douglas H. Johnson
IV-12
DOROTHY G. KRAMER Director 12-15-94
Dorothy G. Kramer
ROMOLO A. MARSELLA Director 12-15-94
Romolo A. Marsella
KENNETH W. WASHBURN Director 12-15-94
Kenneth W. Washburn
IV-12(a)
<PAGE>
EXHIBIT 13. PORTIONS OF ANNUAL REPORT OF REGISTRANT
SELECTED FINANCIAL DATA - SUMMARY OF OPERATIONS
For the Years Ended September 30
(thousands, except per share amounts)
1994 1993 1992
Operating revenues $222,778 $209,315 $190,341
Cost of gas sold 135,104 126,314 111,568
Operating margin 87,674 83,001 78,773
Other operating expenses,
excluding taxes 55,838 52,921 52,122
Taxes, other than income 12,540 12,597 11,497
Federal income taxes 4,460 3,554 2,774
Total other operating
expenses 72,838 69,072 66,393
Operating income 14,836 13,929 12,380
Nonutility operations and other:
Revenues - - 554
Operating costs - - 573
Other income (loss) 196 37 306
196 37 287
Income from continuing
operations before
interest expense 15,032 13,966 12,667
Interest expense 6,247 6,653 6,837
Income from continuing
operations after
interest expense 8,785 7,313 5,830
Preferred dividends of
subsidiary (696) (696) (696)
Income from continuing
operations 8,089 6,617 5,134
Loss from discontinued
operations, net
of tax -- -- --
Net income (loss) 8,089 6,617 5,134
Common dividends 5,856 4,889 4,908
Earnings reinvested in
the corporation $ 2,233 $ 1,728 $ 226
======== ======== ========
Weighted average common
shares outstanding 5,534.1 4,761.8 4,478.4
======== ======== ========
Amounts per common share:
Continuing operations $ 1.46 $ 1.39 $ 1.15
Discontinued operation -- -- --
Net income (loss) $ 1.46 $ 1.39 $ 1.15
======== ======== ========
Common dividends $ 1.06 $ 1.02 $ 1.10
======== ======== ========
PAGE - 1
OTHER FINANCIAL DATA
SEPTEMBER 30
1994 1993 1992
Total assets $233,311 $224,550 $197,459
Gas plant--at
original cost 239,830 221,769 210,087
Gas plant--net of
depreciation 159,012 149,272 144,767
Capitalization:
Common stockholders'
equity 77,156 73,368 54,491
Redeemable cumulative
preferred stock 8,000 8,000 8,000
Long-term debt 60,079 62,163 60,958
Shares of common stock
at year end 5,581 5,486 4,534
Book value per share $ 13.82 $ 13.37 $ 12.02
======== ======== ========
FINANCIAL AND OPERATING STATISTICS
For the Years Ended September 30
1994 1993 1992
Operating Revenues (thousands of dollars):
Residential $130,888 $120,997 $104,658
Commercial/
Industrial 76,174 72,974 63,405
Total Firm 207,062 193,971 168,063
Interruptible 14,471 14,336 21,394
Transportation 287 54 74
Other 958 954 810
Total operating
revenues $222,778 $209,315 $190,341
======== ======== ========
Gas Sold and Transported (MMcf):
Residential 14,122 13,783 13,166
Commercial/
Industrial 9,168 8,926 8,363
Total Firm 23,290 22,709 21,529
Interruptible 4,739 3,985 6,717
Transportation 656 386 869
Total gas sold
and transported 28,685 27,080 29,115
Company use and
losses 1,182 1,187 1,264
Total sendout 29,867 28,267 30,379
======== ======== ========
PAGE - 2
Gas Purchased, Produced and
Transported (MMcf):
Pipeline natural
gas-contract 22,880 18,044 20,150
Pipeline natural
gas-spot purchases 3,533 7,936 7,374
Pipeline natural
gas-transportation 656 386 869
Underground storage 1,697 879 594
Liquefied natural gas 1,101 1,022 1,329
Liquid propane and
synthetic natural
gas - - 63
Total 29,867 28,267 30,379
======== ======== ========
Average Annual Number Of Customers:
Residential 145,793 143,771 143,114
Commercial/
Industrial 16,337 16,264 15,889
Total Firm 162,130 160,035 159,003
Interruptible &
transportation 141 123 115
Total 162,271 160,158 159,118
======== ======== ========
Total number of customers
at year-end 159,375 159,135 157,087
======== ======== ========
Residential Heating:
Average consumption per
customer (Mcf) 117 116 112
Average revenue per
customer $ 1,068 $ 1,008 $ 870
Average rate per
Mcf $ 9.10 $ 8.68 $ 7.80
Average annual number
of customers 114,461 112,497 111,176
Maximum daily sendout
(MMcf) 206 185 174
Calendar degree days 5,977 5,718 5,502
1 Mcf is one thousand cubic feet; 1 MMcf is one million cubic feet.
Normal calendar degree days for fiscal year 1994 are 5,709; 1993,
1992 and 1991 are 5,811; 1990 and 1989 are 5,938.
PAGE - 3<PAGE>
SELECTED FINANCIAL DATA - SUMMARY OF OPERATIONS
For the Years Ended September 30
(thousands, except per share amounts)
1991 1990 1989
Operating revenues $169,086 $156,906 $143,640
Cost of gas sold 101,707 91,306 83,947
Operating margin 67,379 65,600 59,693
Other operating expenses,
excluding taxes 47,015 41,545 39,701
Taxes, other than
income 11,031 10,281 9,426
Federal income taxes 440 1,709 968
Total other operating
expenses 58,486 53,535 50,095
Operating income 8,893 12,065 9,598
Nonutility operations and other:
Revenues 4,877 7,496 7,400
Operating costs 4,891 7,207 7,132
Other income (loss) 1,576 332 (1,419)
1,562 621 (1,151)
Income from continuing
operations before
interest expense 10,455 12,686 8,447
Interest expense 7,764 7,721 6,686
Income from continuing
operations after
interest expense 2,691 4,965 1,761
Preferred dividends of
subsidiary (280) -- --
Income from continuing
operations 2,411 4,965 1,761
Loss from discontinued
operations, net
of tax -- -- (5,075)
Net income (loss) 2,411 4,965 (3,314)
Common dividends 6,057 5,916 5,761
Earnings reinvested in
the corporation $ (3,646) $ (951) $(9,075)
======== ======== =======
Weighted average common
shares outstanding 4,337.9 4,235.8 4,127.1
======== ======= ========
Amounts per common share:
Continuing operations $ .56 $ 1.17 $ .43
Discontinued operation -- -- (1.23)
Net income (loss) $ .56 $ 1.17 $ (.80)
======== ======= ========
Common dividends $ 1.40 $ 1.40 $ 1.40
======== ======== ========
PAGE - 4
OTHER FINANCIAL DATA
SEPTEMBER 30
1991 1990 1989
Total assets $189,422 $182,258 $170,782
Gas plant--at
original cost 199,216 189,952 172,302
Gas plant--net of
depreciation 139,741 135,331 124,644
Capitalization:
Common stockholders'
equity 52,302 53,975 53,333
Redeemable cumulative
preferred stock 8,000 -- --
Long-term debt 42,885 49,148 42,730
Shares of common stock
at year end 4,408 4,278 4,186
Book value per share $11.87 $ 12.62 $12.74
====== ======== =======
FINANCIAL AND OPERATING STATISTICS
For the Years Ended September 30
1991 1990 1989
Operating Revenues (thousands of dollars):
Residential $ 92,660 $105,418 $ 96,899
Commercial/
Industrial 57,153 43,120 39,246
Total Firm 149,813 148,538 136,145
Interruptible 17,681 6,569 5,566
Transportation 735 833 1,182
Other 857 966 747
Total operating
revenues $169,086 $156,906 $143,640
======== ======== ========
Gas Sold and Transported (MMcf):
Residential
11,534 14,452 13,948
Commercial/
Industrial 7,637 6,188 5,818
Total Firm 19,171 20,640 19,766
Interruptible 5,659 2,084 1,641
Transportation 4,127 5,026 3,287
Total gas sold
and transported 28,957 27,750 24,694
Company use and
losses 1,445 985 977
Total sendout 30,402 28,735 25,671
======== ======== ========
PAGE - 5
Gas Purchased, Produced and
Transported (MMcf):
Pipeline natural
gas-contract 21,051 15,060 16,451
Pipeline natural
gas-spot purchases 3,210 5,848 3,879
Pipeline natural
gas-transportation 4,127 5,026 3,287
Underground storage 1,038 1,305 853
Liquefied natural
gas 975 1,488 841
Liquid propane and
synthetic natural
gas 1 8 360
Total 30,402 28,735 25,671
======== ======== ========
Average Annual Number Of Customers:
Residential 143,207 139,718 135,274
Commercial/
Industrial 15,114 13,179 12,454
Total Firm 158,321 152,897 147,728
Interruptible &
transportation 79 65 65
Total 158,400 152,962 147,793
======== ======== ========
Total number of customers
at year-end 159,234 155,028 147,281
======== ======== ========
Residential Heating:
Average consumption per
customer (Mcf) 97 128 128
Average revenue per
customer $ 766 $ 920 $ 880
Average rate per
Mcf $ 7.91 $ 7.21 $ 6.86
Average annual number
of customers 110,997 106,984 102,178
Maximum daily sendout
(MMcf) 172 163 165
Calendar degree days 4,893 5,750 5,725
1 Mcf is one thousand cubic feet; 1 MMcf is one million cubic feet.
Normal calendar degree days for fiscal year 1994 are 5,709; 1993,
1992 and 1991 are 5,811; 1990 and 1989 are 5,938.
PAGE - 6
<PAGE>
CONSOLIDATED BALANCE SHEETS
September 30
(thousands of dollars) 1994 1993
ASSETS
Gas plant, at original cost (notes 1,3 and 6) $239,830 $221,769
Less--Accumulated depreciation and
utility plant acquisition adjustments 80,733 72,436
159,097 149,333
Nonutility property, net 2,033 2,118
Current assets:
Cash and temporary cash
investments (notes 1 and 7) 1,145 1,455
Accounts receivable, less allowance of
$3,008 in 1994 and $2,404 in 1993 17,892 17,238
Unbilled revenues (note 1)2,8952,854
Deferred gas costs (notes 1 and 6) 15,819 16,453
Inventories, at average cost-
Liquefied natural gas, propane and under-
ground storage 11,255 11,390
Materials and supplies 1,679 1,854
Prepaid and refundable taxes (note 2) 4,030 7,170
Prepayments 1,499 910
56,214 59,324
Deferred charges and other assets (notes 1 and 5) 15,967 13,775
Total assets $233,311 $224,550
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization (see accompanying statement) $145,235 $143,531
Current liabilities:
Notes payable (notes 4 and 7) 27,700 23,800
Current portion of long-term debt (note 3) 2,085 466
Accounts payable (note 6) 18,324 18,618
Accrued taxes (note 2) 6,224 7,560
Accrued vacation 1,584 1,703
Customer deposits 3,580 2,952
Other (note 8) 3,136 3,408
62,633 58,507
Deferred credits and reserves:
Accumulated deferred Federal income taxes (note 2) 15,506 14,018
Unamortized investment tax credits (note 2) 2,851 3,010
Other (note 5) 7,086 5,484
25,443 22,512
Commitments and contingencies (notes 6 and 8)
Total capitalization and liabilities $233,311 $224,550
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE - 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30
(thousands of dollars) 1994 1993 1992
Cash provided by -
Operations:
Income after interest expense $ 8,785 $ 7,313 $ 5,830
Items not requiring cash:
Depreciation and amortization 9,759 9,301 8,833
Deferred Federal income taxes 1,235 544 347
Amortization of investment tax credits (159) (157) (178)
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable (654) (2,491) (3,427)
Unbilled revenues (41) 510 145
Deferred gas costs 1,734 (9,853) 1,973
Inventories 310 (4,032) 1,255
Deferred capacity charges -- 1,343 (846)
Prepaid and refundable taxes 2,407 337 2,121
Prepayments (589) 305 (165)
Accounts payable (934) 1,592 2,993
Accrued taxes (71) 151 162
Refundable gas costs -- (1,795) 1,795
Accrued vacation, customer deposits
and other 237 632 (533)
Net cash provided by operations 22,019 3,700 20,305
Investment Activities:
Expenditures for property, plant
and equipment (19,171) (13,461) (13,391)
Proceeds from sale of assets
(note 6) -- -- 704
Deferred charges and other (1,596) (1,660) (1,963)
Total (20,767) (15,121) (14,650)
Financing Activities:
Issuance of common stock 1,555 17,149 1,963
Issuance of mortgage bonds 16,000 25,000 --
Payments on long-term debt (465) (259) (36,876)
Increase (decrease) in notes payable (12,100) (24,610) 35,196
Cash dividends on preferred shares (note 3) (696) (696) (696)
Cash dividends on common shares (5,856) (4,889) (4,908)
Total (1,562) 11,695 (5,321)
Increase (decrease) in cash and cash equivalents (310) 274 334
Cash and cash equivalents at beginning of year 1,455 1,181 847
Cash and cash equivalents at end of year $ 1,145 $ 1,455 $ 1,181
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during year for-
Interest (net of amount capitalized) $ 6,091 $ 6,999 $ 6,788
Income taxes (net of refunds) $ 856 $ 2,307 $ (275)
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE - 8<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30
(thousands, except per share amounts) 1994 1993 1992
Operating revenues $222,778 $209,315 $190,341
Cost of gas sold 135,104 126,314 111,568
Operating margin 87,674 83,001 78,773
Operating expenses:
Other operation 42,395 40,247 40,335
Maintenance 3,828 3,601 3,119
Depreciation and amortization 9,615 9,073 8,668
Taxes--
State gross receipts 6,326 5,752 4,888
Local property and other 6,214 6,845 6,609
Federal income (note 2) 4,460 3,554 2,774
Total operating expenses 72,838 69,072 66,393
Operating income 14,836 13,929 12,380
Nonutility operations and other (note 1):
Revenues - 554
Operating costs - 573
Other income, net 196 37 306
196 37 287
Income before interest expense 15,032 13,966 12,667
Interest expense:
Long-term debt 4,987 5,172 4,380
Other 1,412 1,614 2,650
Interest capitalized (152) (133) (193)
6,247 6,653 6,837
Income after interest expense 8,785 7,313 5,830
Preferred dividends of subsidiary (note 3) (696) (696) (696)
Net income $ 8,089 $ 6,617 $ 5,134
======== ======== ========
Earnings per common share (note 10) $ 1.46 $ 1.39 $ 1.15
======== ======== ========
Weighted average common shares
outstanding (note 10) 5,534.1 4,761.8 4,478.4
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE - 9<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
September 30
(thousands) 1994 1993
Common stockholders' investment (notes 3 and 10):
Common stock, $1 Par, Authorized--20,000
shares, Outstanding--5,581 shares in 1994 and
5,486 shares in 1993 $ 5,581 $ 5,486
Amount paid in excess of par 53,042 51,582
Retained earnings 18,533 16,300
77,156 73,368
Cumulative preferred stock of subsidiary (notes 3 and 7):
Redeemable 8.7% Series, $100 par
Authorized - 80 shares
Outstanding - 80 shares as of 1994 and 1993 8,000 8,000
Long-term debt (notes 3, 6, and 7):
First Mortgage Bonds, secured by utility
property--
Series M, 10.25%, due July 31, 2008 10,000 10,000
Series N, 9.63%, due May 30, 2020 10,000 10,000
Series O, 8.46%, due September 30, 2022 12,500 12,500
Series P, 8.09%, due September 30, 2022 12,500 12,500
Series Q, 5.62%, due November 30, 2003 16,000 16,000
Capital Leases 1,164 1,629
62,164 62,629
Less-current portion 2,085 466
60,079 62,163
Total capitalization $145,235 $143,531
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE - 10<PAGE>
CONSOLIDATED STATEMENTS OF
CHANGES IN COMMON STOCKHOLDERS' INVESTMENT
For the Three Years Ended September 30
Amount
Shares Paid In
Issued and Outstanding Excess Retained
(thousands) Number Amount of Par Earnings
Balance, September 30, 1991 4,408 $ 4,408 $ 33,548 $ 14,346
Add (deduct):
Net income - - - 5,134
Cash dividends ($1.10 per share) - - - (4,908)
Dividend reinvestment & cash
stock purchase plan 100 100 1,437 -
Employee benefit plans 26 26 402 -
Preferred stock expenses - - (2) -
Balance, September 30, 1992 4,534 4,534 35,385 14,572
Add (deduct):
Net income - - - 6,617
Cash dividends ($1.02 per share) - - - (4,889)
Common stock offering 850 850 14,493 -
Dividend reinvestment and cash
stock purchase plan 83 83 1,417 -
Employee benefit plans 13 13 202 -
Stock options 6 6 101 -
Preferred stock expenses (16)
Balance, September 30, 1993 5,486 5,486 51,582 16,300
Add (deduct):
Net income - - - 8,089
Cash dividends ($1.06 per share) - - - (5,856)
Dividend reinvestment & cash
stock purchase plan 87 87 1,399 -
Employee benefit plans 8 8 132 -
Accrual for key employee stock
compensation plan - - (71) -
Balance, September 30, 1994 5,581 $ 5,581 $ 53,042 $ 18,533
======== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE - 11<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the accounts
of Providence Energy Corporation and its wholly-owned subsidiaries (the
Company). Revenues from the natural gas distribution business are reflected
in the accompanying consolidated statements of income to arrive at operating
income. Revenues and expenses of nonutility operations include sales of
appliances as well as appliance rental and are presented after operating
income in the accompanying consolidated statements of income. All
significant intercompany transactions have been eliminated in consolidation.
Regulation. The Providence Gas Company (ProvGas) is subject to regulation
by the Rhode Island Public Utilities Commission (RIPUC). The accounting
policies of ProvGas conform to generally accepted accounting principles as
applied in
the case of regulated public utilities and are in accordance with the
regulators' accounting requirements and rate-making practices. North
Attleboro Gas Company (North Attleboro) is subject to regulation by the
Massachusetts Department of Public Utilities (MDPU).
Operating Revenues. Operating revenues consist principally of gas sales.
The gas companies record accrued utility revenues based on estimates of gas
volumes consumed and not billed at the end of an accounting period in order
to match revenues with related costs.
Lease Accounting. The Company leases water heaters and other appliances
to customers under finance leases. The Company recognizes the profits
associated with these leases when the sale is made, after providing reserves
for unearned income, doubtful accounts and warranty repairs.
Gas Plant. Gas Plant is stated at the original cost of construction. In
accordance with the uniform system of accounts prescribed by the RIPUC, the
difference between the original cost of gas plant acquired and the cost to
ProvGas is recorded as a Utility Plant Acquisition Adjustment and is
amortized over periods ranging from 1-22 years.
Depreciation. Depreciation is provided on the straight-line basis at
rates designed to amortize the cost of depreciable plant over its estimated
useful life. The composite depreciation rate expressed as a percentage of
the average depreciable gas plant in service was approximately 3.75 percent
for all years presented.
The Company retires property units by charging original cost, cost of
removal and salvage value to accumulated depreciation.
Cost of Gas Adjustment. The Company has Cost of Gas Adjustment clauses
(CGA) which allow for the adjustment of rates charged to customers in order
to recover actual gas costs incurred, including demand and commodity
charges. The CGA provides for reconciliation of total gas costs billed with
PAGE - 12
the actual cost of gas recorded. Any excess or deficiency in amounts billed
as compared to costs is deferred and either refunded to, or recovered from,
the customers over a subsequent period.
Allowance for funds used during construction. The Company capitalizes
interest and an allowance for equity funds in accordance with established
policies of the RIPUC and MDPU. The rates used are based on the actual cost
of debt and the allowed equity return. Interest capitalized is shown as a
reduction of interest expense and the equity allowance is included in other
income.
Deferred charges and other assets. The Company defers and amortizes certain
costs in a manner consistent with authorized or probable rate making
treatment.
Deferred financing costs are amortized over the life of the security while
the remaining deferred charges and other assets are amortized over a
recovery period specified by the respective Commissions.
Deferred charges include:
1994 1993
Cost of fuel assistance program $ 1,832 $ 1,812
Restructuring program 1,600 -
Pension costs 5,890 5,153
Deferred costs related to
phase-in plan 649 573
Unamortized debt expense 2,422 2,451
Post-retirement benefits 708 -
Pipeline interconnection costs 921 1,140
Other deferred charges 1,945 2,646
TOTAL $ 15,967 $ 13,775
======== ========
Temporary Cash Investments. Temporary cash investments are short-term,
highly liquid investments with a maturity to the Company of not more than 90
days.
Reclassifications. Certain prior year consolidated income statement and
cash flow amounts have been reclassified for consistent presentation with
the current year.
2.FEDERAL INCOME TAXES
In 1994, the Company adopted Statement of Financial Accounting Standards No.
109, (SFAS No. 109), Accounting for Income Taxes, which requires an asset
and a liability approach to accounting for income taxes. Under the
provisions of SFAS No. 109, deferred taxes are provided for all temporary
differences. The prior year financial statements have not been restated.
When implementing SFAS No. 109, the Company reduced deferred taxes that were
previously provided at rates higher than the current tax rate. Additional
PAGE - 13
deferred taxes and prepaid taxes were also provided for certain temporary
differences previously not provided. These adjustments to deferred taxes
will be returned to or collected from customers in the future. Accordingly,
the Company has recorded a net regulatory liability corresponding to the tax
adjustments. The implementation of SFAS No. 109 has had no impact on the
Company's results of operations or cash flows.
The following is a summary of the provision for federal income taxes for the
three years in the period ended September 30:
(thousands of dollars) 1994 1993 1992
Current $ 3,211 $ 2,487 $ 2,374
Deferred 1,235 1,113 347
Total Federal income tax
provision $ 4,446 $ 3,600 $ 2,721
======= ======= ======
Income tax is charged (credited)
to the following for each of the three years ended September 30:
Charged to operating
expenses $ 4,460 $ 3,554 $ 2,774
Included in nonutility
operating expenses - - 50
Included in other income
(loss), net (14) 46 (103)
Total Federal income tax
provision $ 4,446 $ 3,600 $ 2,721
======= ======= =======
The effective Federal income tax rates and the reasons for their differences
from the statutory Federal income tax rates are as follows:
1994 1993 1992
Statutory Federal income tax
rates 34.0% 34.0% 34.0%
Effect of change of
Statutory Rate to
35% for 1994 .3 - -
Reversing timing differences (.3) (.7) (.9)
Impact of equity allowance-
AFUDC - (.2) (.5)
Amortization of investment
tax credits (.4) (.5) (.7)
Other .1 .3 (.1)
33.6% 32.9% 31.8%
==== ==== ====
PAGE - 14
The Company's deferred tax assets and liabilities as of September 30,
1994 are the result of the following temporary differences:
Long-term deferred taxes (thousands of
dollars)
Tax assets
Unamortized ITC $ 961
Regulatory liability 326
Other 1,250
Tax liabilities
Property related (15,676)
Pension costs (648)
Deferred charges (1,688)
Other (31)
Net deferred tax liability included in
accompanying consolidated balance sheet $(15,506)
==========
Pre-paid taxes
Tax assets
Accounts receivable reserves $ 913
Property tax reserves 985
Alternative minimum tax 138
Tax liabilities
Employee severance (409)
Other (86)
Net prepaid taxes 2,816
Prepaid gross receipts tax and other 1,214
Net prepaid and refundable taxes included in
accompanying $ 4,030
========
During 1994, the Company received permission from the Internal Revenue
Service to change its tax year to a fiscal year ended September 30.
Previously, the Company was a calendar year tax payer.
Investment tax credits are amortized through credits to other income
over the estimated lives of related property.
3. CAPITALIZATION
A. Long-term Debt
In November 1993, the Company issued $16 million, of First Mortgage Bonds.
These First Mortgage Bonds, Series Q, will mature in 2003. The net proceeds
provided by this indebtedness were used to pay down the Company's short-term
debt. The accompanying consolidated financial statements and related
disclosures have been prepared as if this debt was issued and the notes
payable retired as of September 30, 1993.
PAGE - 15
The Company's ability to pay dividends is largely dependent on receipt of
dividends from its principal subsidiary, ProvGas. Approximately $12,713,000
of ProvGas' retained earnings were available for dividends under the terms
of the most restrictive ProvGas First Mortgage Bond indenture.
The Company's First Mortgage Bonds are secured by a lien on both tangible
and real property.
As of September 30, 1994, the annual sinking fund requirements and current
maturities of long-term debt and capital leases for the next five fiscal
years are $2,085,500 in 1995, $1,969,300 in 1996, $1,875,200 in 1997,
$2,542,600 in 1998, and $2,509,000 in 1999.
B. Preferred Stock
ProvGas' preferred stock, which consists of 80,000 shares of $100 par value,
has an 8.7% cumulative annual dividend rate payable on a quarterly basis,
and has no voting power or privileges. The stock is subject to a cumulative
annual sinking fund requirement of 16,000 shares per year at par
($1,600,000) plus accrued or unpaid dividends commencing at the end of 1997.
4.NOTES PAYABLE
The Company meets seasonal cash requirements and finances its construction
program on an interim basis through short-term bank borrowings. As of
September 30, 1994, the Company had lines of credit totaling $63,000,000
($48,500,000 committed) with borrowings outstanding of $27,700,000.
The Company pays a fee for its committed lines of credit rather than
maintaining compensating balances.
5.EMPLOYEE BENEFITS
A. Retirement Plans
The Company has two pension plans providing retirement benefits for
substantially all of its employees. The benefits under the plans are based
on years of service and the employee's final average compensation during a
short period prior to retirement. It is the Company's policy to fund the
plan as required by the Employee Retirement Income Security Act.
The following table sets forth the funded status of the pension plans and
amounts recognized in the Company's consolidated balance sheets at September
30, 1994 and 1993 (in thousands):
1994 1993
Accumulated benefit obligation, including
vested benefits of $35,850 as of September
30, 1994 and $35,019 as of September 30,
1993 $(37,233) $(36,230)
======== ========
PAGE - 16
Projected benefit obligation for service
rendered to date $(49,867) $(47,962)
Plan assets at fair value (primarily listed
stocks, corporate bonds and U.S. bonds) 50,897 54,991
Projected benefit obligation less than
plan assets 1,030 7,029
Unrecognized net (gain) (5,413) (11,087)
Prior service cost not yet recognized in
net periodic pension cost 1,304 1,178
Unrecognized net assets at October 1, 1985
being recognized over 15 years (817) (953)
Net accrued pension cost included in other
deferred credits at September 30, 1994
and 1993 $ (3,896) $ (3,833)
======== ========
Net pension cost for fiscal years 1994, 1993 and 1992 included the following
components:
1994 1993 1992
Service cost-benefits earned during the
period $ 1,589 $ 1,502 $ 1,243
Interest cost on projected benefit
obligation 3,814 3,673 3,342
Return on plan assets 995 (8,890) (5,246)
Net amortization and deferral (6,229) 4,453 997
Retirement incentive plan, net - - 4,762
Net periodic pension cost 169 738 5,098
Adjustments due to regulatory
action (131) (655) (4,998)
Net periodic pension cost recognized $ 38 $ 83 $ 100
======= ======= =======
The discount rate and rate of increase in future compensation levels used
for all years presented in determining the projected benefit obligation were
8 percent and 6 percent, respectively. The expected long-term rate of
return on assets was 9 percent.
ProvGas recovers pension costs in rates when such costs are funded.
Therefore, the amount by which funding differs from pension expense,
determined in accordance with generally accepted accounting principles, is
deferred and recorded as a regulatory asset or liability.
B. Post-retirement Benefits Other Than Pensions
The Company currently offers retirees who have attained age 55 and worked 5
years for the Company healthcare and life insurance benefits during
retirement ("the Plan"). These benefits are similar to the benefits offered
to active employees. Although retirees are not required to make
contributions to the plan currently, future contributions may be required if
the cost of the plan exceeds certain limits.
PAGE - 17
On October 1, 1993, the Company adopted the provisions of the Statement of
Financial Accounting Standards No. 106, Employers' Accounting for Post-
retirement Benefits Other Than Pensions (SFAS No. 106). SFAS No. 106
requires that these benefits be accrued over the service life of covered
employees. Prior to the adoption of SFAS No. 106, the Company accounted for
these costs when paid. These costs were $604,000 in 1993 and $519,000 in
1992.
Upon adoption of SFAS No. 106, the Company calculated an unrecognized
transition obligation of $10,526,000, which the Company plans to recognize
over a 20-year amortization period.
In 1994, the Company funded its total 1994 SFAS No. 106 expense of
approximately $1,566,000 to a Voluntary Employee Benefit Association (VEBA)
Trust. The assets in the VEBA Trust, available to pay future plan benefits,
are invested in cash equivalents at September 30, 1994.
The Company recovers its SFAS No. 106 costs in rates to the extent allowed
by the RIPUC. The RIPUC generally allows such costs to be recovered if
amounts are funded into tax favored investment funds, such as the VEBA
Trust. Accordingly, the Company will fully recover its 1994 SFAS No. 106
expense of $1,566,000 because such amounts were funded into the VEBA Trust.
Of the total SFAS No. 106 costs, $855,000 were recovered in rates during
1994, while the remaining $711,000 has been deferred and will be recovered
in future years.
The Plan's costs and accumulated post-retirement benefit obligation for 1994
are calculated by the Company's actuaries using assumptions and estimates
which include:
Percent
Healthcare cost annual growth
rate 12.6
Healthcare cost annual growth
rate - long-term 6.0
Expected long-term rate of return (union) 5.5
Expected long-term rate of return (non-union) 8.5
Discount rate 8.0
The healthcare cost annual growth rate significantly impacts the estimated
Plan obligation and annual expense. For example, a 1% change in the above
rates would change the obligation by $853,000 and would change the annual
expense by $90,000.
The obligations and assets of the Plan at September 30, 1994 are:
PAGE - 18
Accumulated post-retirement
benefit obligation:
Current retirees $ (6,518,300)
Active employees-eligible for
benefits (795,100)
Active employees (3,618,700)
Total post-retirement benefit
obligation (10,932,100)
Plan assets at fair value 856,400
Unfunded post-retirement benefit
obligation (10,075,700)
Unrecognized transition obligation 9,999,900
Unrecognized net (gain) or loss 75,800
Accrued post-retirement
benefit obligation included
in the Company's consolidated balance sheet $ --
============
The Company's actuarial determined Plan costs for 1994 include:
Service cost $ 238,400
Interest cost 834,500
Actual return on plan assets (36,600)
Amortization and deferral 529,700
Total annual plan costs $1,566,000
==========
C. Supplemental Retirement Plans
The Company provides certain supplemental retirement plans for key
employees. The projected benefit obligation is approximately $2 million
which is being accrued over the service period of these key employees. The
supplemental retirement plans are unfunded. The Company expensed $44,000
and $39,000 related to these benefits in 1994 and 1993, respectively.
During 1992, the Company implemented a Retirement Incentive Plan (the Plan)
along with other personnel reductions designed to reduce the Company's total
annual payroll and related costs by approximately $3.5 million. Each of the
employees that elected the Plan received an early retirement incentive
payment and an increased pension plan benefit in addition to their normal
retirement benefits. The early retirement incentive payment of $900,000 was
expensed during 1992. Consistent with regulatory treatment, pension costs
are reflected in the consolidated financial statements based upon pension
contributions. The impact of the increased pension plan benefits of
approximately $4.8 million will be expensed in future years to the extent
additional pension contributions may be required.
PAGE - 19
D. Stock Plan
During 1993, the Board of Directors, with subsequent approval of the
Company's common shareholders, adopted the Providence Energy Corporation
Performance and Equity Incentive Plan (the Plan). The Plan provides that up
to 225,000 shares of common stock may be granted to key employees, including
employees of ProvGas, at no cost to the employees. Key employees, who
received common shares, are entitled to receive dividends, but assumption of
full beneficial ownership is contingent upon future service of the employee.
The Plan also provides for cash bonuses to key employees.
The executive compensation incentive awards totaled approximately $240,000
and $260,000 for 1994 and 1993, respectively. Amounts paid in cash are
charged to expense when earned, however, amounts paid in restricted stock
are deferred and amortized to expense over a five-year period.
Of the $260,000 1993 award, $177,000 was paid in cash during 1994. The
Company estimates $150,000 of the 1994 award will be paid in cash during
1995 and that amount has been expensed in 1994. Shares, totaling 4,902,
were purchased by the Company and issued to key employees during 1994.
6.COMMITMENTS AND CONTINGENCIES
A. Legal Proceedings
The Company is involved in legal and administrative proceedings in the
normal course of business, including certain proceedings involving material
amounts in which claims have been or may be made. However, management
believes, after review of insurance coverage and consultation with legal
counsel, that the ultimate resolution of the legal proceedings to which it
is or can at the present time be reasonably expected to be a party, will not
have a materially adverse effect on the Company's results of operations or
financial conditions.
B. Leases
ProvGas has a capital lease with Algonquin Gas Transmission Company
(Algonquin) for storage space in a liquefied natural gas (LNG) tank. The
capital lease arrangement also provides that Algonquin lease from ProvGas,
for a corresponding term at an annual amount of $150,000, the land on which
the tank is situated.
The gross amounts related to this capital lease are summarized below:
(thousands of dollars) 1994 1993
Gas plant $6,116 $ 6,116
Accumulated depreciation 5,256 4,981
$ 860 $1,135
====== ======
PAGE - 20
The Company also has lease agreements for various facilities and computer
equipment. The total annual rental costs, including the LNG storage costs
described above, were approximately $2,319,000 in 1994, $2,168,000 in 1993,
and $2,075,000 in 1992. The aggregate commitments for existing leases are
as follows:
LNG Computer
(thousands of dollars) Storage & Other Total
1995 $ 320 $1,134 $1,454
1996 155 770 925
1997 134 352 486
1998 136 122 258
1999 136 50 186
2000-2004 565 4 569
$1,446 $2,432 $3,878
====== ====== ======
C.Gas Supply Restructuring
Federal Energy Regulatory Commission (FERC) Order 636 and other related
orders (the Orders) have significantly changed the structure and types of
services covered by pipeline transportation companies. The most significant
components of the restructuring occurred in November 1993. In response to
these changes, the Company has successfully negotiated new transportation
pipeline and gas storage contracts.
At the same time, a number of contracts with gas suppliers have been
negotiated to complement the transportation and storage contracts. The
portfolio of supply contracts is designed to be market responsive, is
diversified with respect to contract lengths, source location and other
contract terms. On a periodic basis, the Company reviews all of its
contracts to ensure a diverse, secure, flexible and economical supply
portfolio is maintained.
To meet the requirements of the Orders, the pipelines have incurred
significant costs, collectively known as transition costs. The majority of
these costs will be reimbursed by the pipeline's customers including the
Company. Based upon current information, the Company anticipates its
transition costs to total between $16 million and $19 million of which $8.3
million has been included in the CGA and is currently being collected from
customers. The remaining minimum obligation of the $7.7 million has been
recorded in the accompanying consolidated balance sheet along with a
regulatory asset anticipating future recovery through the CGA.
The Company's ultimate liability may differ from the above estimates based
on FERC settlements with the Company's pipeline transportation suppliers.
FERC has approved settlements with two of its pipelines, which account for
the bulk of its transition costs. Negotiations are continuing on the two
additional pipelines, but recent developments have considerably reduced the
uncertainty previously disclosed. As a result, the Company has decreased
the range for potential transition costs accordingly.
PAGE - 21
D.Environmental
Federal, state and local laws and regulations establishing standards and
requirements for protection of the environment have increased in number and
in scope within recent years. The Company cannot predict the future impact
of such standards and requirements which are subject to change and can take
effect retroactively. The Company continues to monitor the status of these
laws and regulations. Such monitoring involves the review of past and
current operations and properties. To the best of its knowledge, subject to
the following paragraph, the Company believes it is in substantial
compliance with such laws and regulations. However, should future costs be
incurred, relating to the items mentioned below, the Company anticipates
recovery from third parties or through rates.
The Company is aware of four sites at which it may incur future costs
for environmental investigation and clean-up. Based on current available
information, however, the amount of costs, if any, related to these sites
will not be material to the operations of the Company or its financial
position.
Management anticipates requesting rate relief for all costs related to
the environmental matters and believes that the ultimate resolution of these
matters will not have a materially adverse effect on the Company's results
of operations and financial condition.
E.Fuel Assistance Program
The Company participates in the State of Rhode Island's Fuel Assistance
Program, the Percentage of Income Payment Plan (PIPP). As a result, ProvGas
has agreed to accept partial payment on certain customer accounts from
various state agencies. As of September 30, 1994, $2.3 million was due from
the State of Rhode Island related to gas consumed by customers over the last
three years.
F. Lease Receivables
In prior years, the Company sold to a financial institution lease
receivables of hot water heaters and conversion burners installed at
customer's homes or businesses. These receivables were sold with recourse
limited to default by the lessee. In the event of default, the Company
would recognize as a loss the excess of the receivable balance, net of
established reserves for such default over the value of the equipment. The
balance of these receivables as of September 30, 1994 is approximately
$1,418,000.
The Company is also liable to the extent of default for mortgage
receivables totaling $560,000 million relating to a time-share project which
was discontinued in 1989.
PAGE - 22
7.Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value
disclosures for the following financial instruments:
Cash, cash equivalents and short-term debt
The carrying amount approximates fair value due to the short-term maturity
of these instruments.
Long-term debt and preferred stock
The fair value of long-term debt and preferred stock is estimated based on
currently quoted market prices for similar types of issues.
The carrying amounts and estimated fair values of the Company's financial
instruments at September 30 are as follows:
1994
Carrying Fair
Amount Value
Cash and cash equivalents $ 1,145 $ 1,145
Short-term debt 27,700 27,700
Long-term debt 62,164 63,401
Preferred stock 8,000 8,000
1993
Carrying Fair
Amount Value
Cash and cash equivalents $ 1,455 $ 1,455
Short-term debt* 23,800 23,800
Long-term debt* 62,629 53,179
Preferred stock 8,000 7,143
*Adjusted for the issuance of $16,000,000 in First Mortgage Bonds, Series Q.
Anticipated regulatory treatment for the difference between the carrying
amount and the fair value of the Company's preferred stock and long-term
debt, if they were settled at amounts reflected above, would be recovered in
the Company's rates over a prescribed amortization period. Accordingly, any
settlement would not result in a material impact on the Company's financial
position or results of operations.
PAGE - 23
8.Restructuring
In June 1994, the Company, following a six-month study of its major
processes, realigned its personnel to meet the existing and future
challenges associated with an increasingly competitive energy market place.
The intent of the restructuring was to significantly improve the Company's
customer services, lower operating costs and increase operating
efficiencies. Approximately 30 people were separated from the Company,
while approximately 18 new employees will be hired throughout the upcoming
year to fill newly defined positions. The employees eventually hired for
these new positions will bring skill, expertise and experiences to the
Company not previously available within its workforce.
The direct cost of this realignment is estimated to be about $1 million, net
of tax. A significant portion of this $1 million is severance pay and
related benefits for personnel who were separated during 1994. The Company
anticipates paying all amounts accrued within the next six months. The
Company has discussed the reorganization with the RIPUC and based on prior
RIPUC allowance of similar costs, the Company has deferred these costs in
anticipation of recovery in its next rate case.
9.Rate Changes
A.ProvGas rate increase
In October 1993, ProvGas received approval from the RIPUC to implement a new
rate design, effective November 14, 1993, that will help promote economic
development and reduce the Company's earnings sensitivity to weather. In
addition to the improved stability in earnings, the new rates are designed
to increase annual operating margin by approximately $700,000. The RIPUC
also allowed ProvGas an 11.2% return on equity.
B.North Attleboro Gas Rate Increase
In October 1991, the MDPU released its settlement order in regards to a rate
request which included a qualified phase-in plan. Due to the magnitude of
the rate request, the MDPU ordered North Attleboro Gas Company to phase-in
a 32% increase over five years as follows:
Estimated
Estimated Percentage
Additional Increase in
Annual Rate Base
Date Effective Revenues Revenues
November 1, 1991 $188,096 8.13
November 1, 1992 203,042 8.12
November 1, 1993 200,967 7.43
November 1, 1994 141,137 4.86
November 1, 1995 94,445 3.10
PAGE - 24
The rate settlement further required North Attleboro to classify $545,000 of
gas plant as plant held for future use for rate case purposes. This plant
will be included in future rates if North Attleboro meets certain growth
requirements by the year 2000. North Attleboro capitalized AFUDC and other
costs of approximately $198,000 in 1994, $239,000 in 1993 and $330,000 in
1992 related to the gas plant not yet phased into North Attleboro's rates
under the plan. North Attleboro amortized $114,000 in 1994 and $4,000 in
1993 of amounts previously deferred.
10.Stock Rates and Options
Currently, one common stock purchase Right is attached to each outstanding
share of common stock. Each Right entitles the holder to purchase one share
of common stock at a price of $110.00 per share, subject to adjustment. In
the event that certain transactions as defined in the Rights Agreement
occur, each Right will become exercisable for that number of shares of
common stock of the acquiring company (or of the Company in certain
circumstances) which at the time of the transaction has a market value of
two times the exercise price. These Rights expire on August 17, 1998 and
may be redeemed by a two-thirds vote of the Directors at a redemption price
of $.01 per Right. Due to the anti-dilutive characteristics of these
Rights, there is no assumed impact on earnings per share.
The Company offers two stock option plans for officers, directors and key
employees covering 250,000 shares of the Company's common stock. Options
under the plans are granted at 100% of fair market value at the date of
grant. The options expire ten years from the date of grant and in the case
of options granted to the directors, the options become exercisable after
the first anniversary of the date of such grant.
Under the stock option plans, stock appreciation rights may be granted in
conjunction with all or part of any stock option grants to employees. Such
rights offer optionees the alternative of electing not to exercise the
related stock option, but to receive instead an amount in cash, stock or a
combination of cash and stock equivalents to the difference between the
option price and the fair market value of the share.
Stock option data are summarized as follows for the years ended September
30, 1994, 1993 and 1992:
Number of Shares
Outstanding, September 30, 1991 35,690
Granted at $17.125 per share 7,193
Granted at $16.875 14,000
Granted at $13.875 3,000
Exercised --
Terminated --
Surrendered --
Outstanding, September 30, 1992 59,883
PAGE - 25
Granted at $16.375 per share 8,017
Exercised (6,803)
Terminated (3,658)
Surrendered --
Outstanding, September 30, 1993 57,439
Granted at $19.000 per share 7,117
Exercised --
Terminated (8,495)
Surrendered --
Outstanding, September 30, 1994 56,061
======
11.Unaudited Quarterly Financial Information
The following is unaudited quarterly financial information for the two
years ended September 30, 1994 and 1993. Quarterly variations between
periods are caused primarily by the seasonal nature of gas sales and the
availability of gas. It is important to note that the new rate structure
and a new method to account for gas costs means that quarterly earnings in
1994 are not comparable to prior years.
(thousands, except
per share amounts)
Quarter Ended
Dec. 31 Mar. 31 June 30 Sept. 30
Fiscal 1994
Operating revenues $62,957 $83,570 $42,492 $33,759
Operating income 5,106 8,075 516 1,139
Net income (loss) 3,714 6,509 (1,182) (952)
Net income (loss)
per share* .68 1.18 (.21) (.17)
Fiscal 1993
Operating revenues $61,435 $76,410 $38,277 $33,193
Operating income (loss) 5,938 10,821 (621) (2,209)
Net income (loss) 4,119 8,828 (2,394) (3,936)
Net income (loss)
per share* .91 1.93 (.52) (.74)
* Calculated on the basis of weighted average shares outstanding during
the quarter.
PAGE - 26<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Summary
The Company's current operating revenues, operating margin and net
income have increased over the comparable periods presented, as shown in the
table below:
(000's)
1994 1993 Change %Change
Operating revenues $222,778 $209,315 $13,463 6.4
Operating margin 87,674 83,001 4,673 5.6
Net income 8,089 6,617 1,472 22.2
RESULTS OF OPERATIONS - 1994 VS 1993
On October 14, 1993, the Rhode Island Public Utilities Commission
(RIPUC) approved ProvGas' request to adopt a new rate design, including a
declining block rate structure, seasonal gas costs accounting and higher
customer charges, effective November 14, 1993. The declining block rate
structure allows ProvGas to recover more fixed costs through rates
immediately when a customer begins using natural gas. Also, the new block
rate structure will help balance customer bills during the year and will
help protect ProvGas and its customers during periods of extreme weather
conditions. This new block structure should result in a stabilization of
earnings from year to year. In addition to the improved stability in
earnings, the new rates are designed to increase annual operating margin by
approximately $700,000. Other components of the rate award included an
allowed return on equity of 11.2%. In 1994, for accounting and gas cost
recovery purposes, ProvGas recorded the embedded cost of gas using seasonal
gas cost factors of $4.26 per thousand cubic feet (Mcf) during November '93
through April '94 and $2.77 per Mcf during May '94 through September '94.
The ultimate effect of the seasonal gas cost accounting will be that
quarterly operating margin will decrease in the winter months and increase
in the summer months when compared to the previous method. Assuming normal
weather, annual earnings should not be affected by this change.
Another significant attribute of the new rate design structure as
compared to the previous method is a higher customer charge. The average
monthly customer charge has been increased to recognize that a substantial
portion of ProvGas' costs are relatively fixed and should be recovered from
customers even when gas consumption is less than expected. ProvGas'
volumetric charge has decreased in order to off-set the increased customer
charge.
PAGE - 27
For the first time in twelve years, the Company experienced a colder-
than-normal heating season as it relates to normal temperatures utilized in
the last rate case. During 1994, temperatures averaged 4.7 percent colder-
than-normal. In addition, 1994 weather was also 4.5 percent colder than
1993, thereby increasing operating margin by approximately $700,000.
The net increase in the average annual number of customers during 1994
over 1993 was approximately 2,100 or 1.3 percent. The modest increase was
the result of new housing construction and conversions from other energy
sources offset by shut-offs for non-payments and housing vacancies due to
the stagnant economy.
As a result of the colder temperatures experienced during 1994,
residential sales, which provide the Registrant with its greatest source of
sales, increased 339 million cubic feet (MMcf) or 2.5 percent over 1993.
Also affecting the increase was the modest increase in number of customers.
Non-firm sales volumes increased approximately 1,000 MMcf or 28 percent
reflecting an increase in sales to other natural gas utilities. Offsetting
the above was a small decrease in off-system cogeneration sales (approx. 300
MMcf) due to the expiration of a short-term contract with a cogeneration
customer located outside the Company's service territory. Both of these
items, however, did not have a material impact on the Company's operating
margin or results of operations because the RIPUC limits the amount of
margin ProvGas can retain. Any margin earned, which is greater than or less
than the RIPUC limits, is returned to or collected from customers through
the Cost of Gas Adjustment Clause (CGA).
Overall, other operation and maintenance expenses have increased
approximately $2.4 million or 5.4 percent during 1994 as compared to 1993.
The increase was the result of a higher uncollectible revenues provision,
normal wage increases granted due to negotiated union contract terms,
employee merit raises and expected "one-time" legal and related expenses
associated with compliance with Order 636. Additionally, the Company
implemented a new accounting standard for accounting for post-retirement
healthcare benefits which increased the annual expense by $167,000. This
increase was fully recovered in rates. See Footnote 5 of the accompanying
consolidated financial statements for more information. Furthermore,
maintenance expenses increased, reflecting a higher level of service and
system repair work, caused primarily by the colder-than-normal weather
experienced during the peak heating season.
Offsetting the increases was a restructuring initiative that occurred
at ProvGas in June 1994. The intent of the restructuring was to
significantly improve the Company's customer services, lower operating
expenses and increase operating efficiencies. The Company, during 1994,
realized approximately $200,000 in savings as a result of the restructuring.
For more information on the restructuring, see Footnote 8 to the
accompanying consolidated financial statements.
PAGE - 28
Taxes have increased approximately $850,000 or 5.3 percent during the
latest year. The increase in taxes, mainly Federal income and state gross
receipts, were the result of higher pretax income and higher operating
revenues, respectively. Offsetting the above increase was a decrease in
property taxes resulting from an aggressive program over the past several
years to work with the local cities and towns to reduce the assessment on
which ProvGas pays taxes.
During 1994, the Company adopted the Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes, which requires an
asset and liability approach to account for income taxes. There were
significant adjustments incorporated into the consolidated balance sheet.
However, there was no income statement impact as a result of the adoption of
SFAS No. 109. For a more detailed explanation, see Footnote 2 to the
accompanying consolidated financial statements.
Interest expenses for 1994 decreased approximately $400,000 or 6.1
percent as compared to 1993. A small increase in short-term interest rates
offset by a decline in weighted average borrowings caused a decrease in
short-term interest expense. Long-term interest expense decreased as a
result of the refinancing of higher cost debt and sinking fund payments.
RESULTS OF OPERATIONS - 1993 VS 1992
During 1993, the Company experienced a 1.6 percent warmer-than-normal
heating season. However, 1993 weather averaged four percent colder than
1992, thereby increasing operating margin by $1.1 million or 23 cents per
common share, net of tax.
The net increase in the average annual number of customers during 1993
over 1992 was approximately 1,000 or .7 percent. Although the actual
increase for new customers exceeded one percent, this was offset by a
greater than normal number of shut-offs for non-payment and housing
vacancies.
As a result of colder temperatures during 1993, residential sales
volumes increased approximately 700 MMcf or 4.7 percent over 1992. Non-firm
sales volumes decreased approximately 2,700 MMcf or 40.7 percent as a result
of the expiration of a short-term contract in November 1992 with a
cogeneration customer located outside the Company's service territory. This
decrease in non-firm sales had no material impact of the Company's financial
position or results of operations due to ProvGas' 1992 non-firm margin
sharing agreement.
Other operation and maintenance expenses have increased approximately
$400,000 or less than one percent during 1993. The modest increase was due
to normal wage increases and maintenance expenses due to more emphasis on
service and system repair work. Offsetting the increase in the above
expenses was the implementation of a work force reduction initiative in
1992. This initiative decreased the Company's total payroll and related
costs by approximately $1 million during 1993 as compared to 1992.
PAGE - 29
Taxes increased by approximately $1.9 million or 13.2 percent during
1993 as compared to 1992. The increase in taxes was mainly the result of
higher pretax income and higher operating revenues.
Interest expense for 1993 decreased by approximately $200,000 or 2.7
percent over 1992. The decline in short-term interest rates, coupled with
a decrease in weighted average short-term borrowings, led to the decrease in
short-term interest expense. Offsetting the decrease in short-term interest
was an increase in long-term interest expense due to the issuance of First
Mortgage Bonds, Series O & P totaling $25 million. This issuance was used
to call higher cost debt and led to interest savings in 1994.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Company experienced a sharp increase in its net cash
provided by operations. Increases in income after interest expense and
increases in non-cash expenses, including deferred taxes and depreciation,
collection of gas costs from the undercollection that existed in 1993
provided the major reason for the increase in net cash provided by
operations.
On October 3, 1991, the Massachusetts Department of Public Utilities
(MDPU) approved a settlement order reached between the Massachusetts
Attorney General's Office and North Attleboro Gas Company regarding a rate
request filed by North Attleboro Gas. Due to the magnitude of the rate
award (32 percent), the MDPU ordered North Attleboro Gas to phase-in the
rate award over a five-year period effective November 1, 1991. As a result,
North Attleboro Gas phased-in an annual revenue increase of $201,000 on
November 1, 1993. Future increases will phase-in each November 1 through
the year 1995.
In November 1993, ProvGas received proceeds of $16 million related to
an issuance of First Mortgage Bonds, Series Q (5.62%). The net proceeds
received from the issuance were used to pay down short-term debt. Short-
term debt was used earlier to call long-term debt bearing a high interest
rate. The previous issuances called were First Mortgage Bonds, Series L
(8.85%) and the Series II Senior Debentures (8.50%). This issuance will
generate annual savings of approximately $300,000, net of tax.
In late June 1993, the Company priced its public offering of 850,000
shares of common stock at $19 per common share. The net proceeds of $15.3
million, along with an additional $1.1 million, totaling $16.4 million, were
contributed as capital to ProvGas. ProvGas used the equity for repayment of
short-term debt incurred to finance ProvGas' capital expenditures.
In November 1992, ProvGas issued $25 million of First Mortgage Bonds.
These bonds, which consisted of $12.5 million (8.46%) designated as Series
O and $12.5 million (8.09%) designated as Series P, will mature in September
2022. The Series P issuance is subject to an annual mandatory redemption
provision in the amount of $625,000 beginning in fiscal year 2003. The net
proceeds provided by this issuance were used to paydown short-term debt.
PAGE - 30
The Company meets seasonal cash requirements and finances its capital
expenditures program on an interim basis through short-term borrowings. As
of September 30, 1994, the Company had lines of credit totaling $63,000,000
($48,500,000 committed) with borrowings outstanding of $27,700,000.
In April 1994, the Company increased its quarterly dividend rate from
26 cents per share of common stock to 27 cents per share of common stock.
This action was taken due to the continued financial improvement of the
Company and to provide current shareholders a fair and reasonable return.
The Company has continued to pay dividends for 145 consecutive years, an
American Stock Exchange record and the longest among all natural gas
distribution companies.
The Company's ability to pay dividends is largely dependent upon
receipt of dividends from ProvGas. Approximately $12.7 million of ProvGas'
retained earnings were available for dividends at the end of 1994 under the
terms of the most restrictive ProvGas First Mortgage Bond indenture.
The Company continued to offer a dividend reinvestment plan for its
current shareholders. During 1994, 40 percent of the Company's shareholders
participated in the plan, with $1.3 million or 22 percent of declared
dividends reinvested in new shares rather than paid in cash.
Capital expenditures for the latest year were $19.2 million as compared
to $13.5 million in 1993. The increase in capital expenditures was for new
and replacement mains, services, meters and electronic meter reading
equipment. Anticipated capital expenditures for the next three years are
expected to total between approximately $45 million to $55 million. These
expenditures will be for construction and upgrading of gas systems and
improved technology systems.
COMMON STOCK INFORMATION
Dividend
Quarter Ended High Low Per Share
September 30, 1994 $17 1/2 $15 1/8 $.27
June 30, 1994 17 14 5/8 .27
March 31, 1994 19 1/8 16 3/8 .26
December 31, 1993 20 1/2 17 7/8 .26
September 30, 1993 21 1/4 18 3/4 .26
June 30, 1993 19 1/4 17 1/2 .26
March 31, 1993 19 1/2 16 .25
December 31, 1992 16 5/8 15 1/8 .25
PAGE - 31
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<PERIOD-END> SEP-30-1994
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<INCOME-TAX> 4,460
<INCOME-CONTINUING> 8,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 696
<NET-INCOME> 8,089
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
