FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 incorporation (I.R.S. Employer
or organization) Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
(Address of principal executive offices)
(Zip Code)
401-272-9191
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common stock, $1.00 par value, 5,708,443 shares outstanding at
May 14, 1996
PROVIDENCE ENERGY CORPORATION
FORM 10-Q
MARCH 31, 1996
PART I: FINANCIAL INFORMATION PAGE
Item 1 Financial Statements
Consolidated Statements of Income for the
three, six and twelve months ended
March 31, 1996 and 1995 I-1
Consolidated Balance Sheets as of
March 31, 1996, March 31, 1995 and
September 30, 1995 I-2
Consolidated Statements of Cash Flows for the
six months ended March 31, 1996 and 1995 I-3
Consolidated Statements of Capitalization as of
March 31, 1996, March 31, 1995 and
September 30, 1995 I-4
Notes to Consolidated Financial Statements I-5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations I-9
PART II: OTHER INFORMATION
Item 4 Submission of Matters to a Vote of
Security Holders II-1
Item 6 Exhibits and Reports on Form 8-K II-1
Signature II-2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
THREE MONTHS SIX MONTHS
1996 1995 1996 1995
(thousands, except per share amounts)
Operating revenues $ 81,107 $ 66,162 $139,513 $115,464
Cost of gas sold 47,018 36,845 78,539 62,971
Operating margin 34,089 29,317 60,974 52,493
Operating expenses:
Operating and
maintenance 13,310 12,101 25,042 23,002
Depreciation and
amortization 2,883 2,580 5,766 5,180
Taxes -
State gross receipts 2,295 1,812 3,906 3,105
Local property and other 1,763 1,755 3,431 3,390
Federal income 4,059 3,235 6,484 4,960
Total operating expenses 24,310 21,483 44,629 39,637
Operating income 9,779 7,834 16,345 12,856
Other income, net 148 183 787 342
Income before
interest expense 9,927 8,017 17,132 13,198
Interest expense:
Long-term debt 1,524 1,268 2,837 2,551
Other, net 470 763 1,078 1,214
Interest capitalized (29) (36) (42) (70)
1,965 1,995 3,873 3,695
Income before preferred
stock dividends of
subsidiary 7,962 6,022 13,259 9,503
Preferred dividends of
subsidiary (174) (174) (348) (348)
Net income $ 7,788 $ 5,848 $ 12,911 $ 9,155
======== ======== ======== ========
Net income per common share$ 1.37 $ 1.04 $ 2.27 $ 1.63
======== ======== ======== ========
Dividends paid per common
share $ .27 $ .27 $ .54 $ .54
======== ======== ======== ========
Weighted average common
shares outstanding 5,700.1 5,613.2 5,690.1 5,602.3
======== ======== ======== ========
PAGE I-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
TWELVE MONTHS
1996 1995
(thousands, except per share amounts)
Operating revenues $208,041 $191,715
Cost of gas sold 116,512 108,133
Operating margin 91,529 83,582
Operating expenses:
Operation and
maintenance 46,409 43,365
Depreciation and amortization 11,055 10,024
Taxes -
State gross receipts 5,806 5,238
Local property and other 6,805 6,206
Federal income 4,628 4,238
Total operating expenses 74,703 69,071
Operating income 16,826 14,511
Other income, net 1,310 96
Income before
interest expense 18,136 14,607
Interest expense:
Long-term debt 5,372 5,127
Other, net 2,301 1,910
Interest capitalized (116) (147)
7,557 6,890
Income before preferred
stock dividends of
subsidiary 10,579 7,717
Preferred dividends of
subsidiary (696) (696)
Net income $ 9,883 $ 7,021
======== ========
Net income per common share $ 1.74 $ 1.26
======== ========
Dividends paid per common
share $ 1.08 $ 1.08
======== ========
Weighted average common
shares outstanding 5,668.1 5,580.3
======== ========
PAGE I-1(a)
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(thousands)
(Unaudited)
March 31, March 31, September 30,
1996 1995 1995
ASSETS
Gas plant, at original cost $269,955 $247,826 $257,264
Less - Accumulated depreciation and
utility plant acquisition
adjustments 97,541 85,413 87,363
172,414 162,413 169,901
Nonutility property, net 1,917 1,991 1,958
Current assets:
Cash and temporary cash investments 1,446 1,987 1,278
Accounts receivable, less allowance of
$4,621 at 3/31/96, $3,643 at 3/31/95
and $2,412 at 9/30/95 44,087 40,559 14,031
Unbilled revenues 9,638 8,599 2,655
Deferred gas costs - - 1,193
Inventories, at average cost -
Liquefied natural gas, propane and
under-ground storage 2,227 6,563 10,116
Materials and supplies 1,521 1,511 1,540
Prepaid and refundable taxes 3,054 3,465 5,933
Prepayments 873 595 1,366
62,846 63,279 38,112
Deferred charges and other assets 14,065 15,933 17,156
Total assets $251,242 $243,616 $227,127
======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization $169,500 $150,131 $161,006
(See accompanying statement)
Current liabilities:
Notes payable 9,325 17,000 7,337
Current portion of long-term debt 2,034 2,077 1,950
Accounts payable 18,757 21,851 14,102
Accrued taxes 7,182 9,702 6,059
Accrued vacation 1,917 1,842 1,679
Customer deposits 3,986 3,765 3,981
Refundable gas costs 6,088 9,433 -
Other 4,392 2,998 3,947
53,681 68,668 39,055
Deferred credits and reserves:
Accumulated deferred Federal income
taxes 19,411 16,111 18,734
Unamortized investment tax credits 2,612 2,772 2,691
Other 6,038 5,934 5,641
28,061 24,817 27,066
Total capitalization and liabilities$251,242 $243,616 $227,127
======== ======== ========
PAGE I-2
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31
(Unaudited)
1996 1995
(thousands)
Cash provided by (used for)
Operating Activities:
Income after interest expense $ 13,259 $ 9,503
Items not requiring cash -
Depreciation and amortization -
plant and nonutility 5,801 5,327
Changes as a result of regulatory actions (1,453) -
Amortization of deferred changes and other 782 732
Deferred Federal income taxes 680 605
Amortization of investment tax credit (79) (79)
Changes in assets and liabilities which
provided (used) cash:
Accounts receivable (30,073) (22,667)
Unbilled revenues (6,983) (5,704)
Inventories 7,908 4,860
Prepaid and refundable taxes 2,876 565
Prepayments 493 904
Accounts payable 4,655 3,527
Accrued taxes 5,181 3,478
Refundable gas costs 7,281 25,252
Accrued vacation, customer deposits
and other 697 (359)
Deferred charges and other 383 (1,352)
Net cash provided by operations 11,408 24,592
Investment Activities:
Expenditures for property, plant
and equipment, net (8,755) (8,516)
Financing Activities:
Issuance of mortgage bonds 15,000 --
Issuance of common stock 682 674
Payments on long-term debt (1,740) (1,840)
(Decrease) in notes payable, net (13,012) (10,700)
Cash dividends on common stock (3,067) (3,020)
Cash dividends on preferred stock (348) (348)
Total (2,485) (15,234)
Increase in cash and temporary
cash investments 168 842
Cash and cash equivalents at beginning
of period 1,278 1,145
Cash and cash equivalents at end of period $ 1,446 $ 1,987
========= ========
Supplemental disclosure of cash-flow information:
Cash paid year to-date for-
Interest (net of amount capitalized) $ 2,413 $ 3,590
Income taxes (net of refunds) $ 2,202 $ 1,344
PAGE I-3
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS)
(Unaudited)
March 31, March 31, September 30,
1996 1995 1995
Common stock equity:
Common stock, $1 par
Authorized - 20,000 shares
Outstanding - 5,708 at 3/31/96
5,624 at 3/31/95
5,668 at 9/30/95 $ 5,708$ 5,624 $ 5,668
Amount paid in excess of par 54,692 53,592 54,258
Retained earnings 28,442 24,668 18,598
Total common stock equity 88,842 83,884 78,524
Cumulative preferred stock of subsidiary:
Providence Gas Company -
Redeemable 8.7% Series, $100 par
Authorized - 80 shares
Outstanding - 80 shares as of
3/31/96, 3/31/95 and 9/30/95 8,000 8,000 8,000
Long-term debt:
First mortgage bonds 72,800 59,400 74,400
Capital leases 1,892 924 2,032
Total long-term debt 74,692 60,324 76,432
Less current portion 2,034 2,077 1,950
Long-term debt, net 72,658 58,247 74,482
Total capitalization $ 169,500 $ 150,131 $161,006
========= ========= ========
PAGE I-4
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accounting Policies
It is the Registrant's opinion that the financial information
contained in this report reflects all normal, recurring adjustments
necessary to provide a fair statement of the results for the periods
reported; however, such results are not necessarily indicative of results
to be expected for the year, due to the seasonal nature of the
Registrant's operations. Certain information and footnote disclosures
normally included in the consolidated financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted in this Form 10- Q pursuant to the rules and
regulations of the Securities and Exchange Commission. However, the
disclosures herein when read with the annual report for 1995 filed on Form
10-K are adequate to make the information presented not misleading.
Reclassifications
Certain prior period amounts have been reclassified for consistent
presentation with the current period.
Environmental Matters
Federal, state and local laws and regulations establishing standards
and requirements for the 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 activities and current operations, and may include
expending funds to investigate or clean-up certain sites. To the best of
its knowledge, subject to the following, the Registrant believes it is in
substantial compliance with such laws and regulations.
At March 31, 1996, the Registrant was aware of four sites at which
future costs may be incurred.
The Registrant has been designated as a potentially responsible party
(PRP) under the Comprehensive Environmental Response Compensation and
Liability Act of 1980 at two sites at Plympton, Massachusetts on which
waste material is alleged to have been deposited by disposal contractors
employed in the past either directly or indirectly by the Registrant and
other PRPs. With respect to one of the Plympton sites, the Registrant has
joined with other PRPs in entering into an Administrative Consent Order
with the Massachusetts Department of
PAGE I-5
Environmental Protection. The costs to be borne by the Registrant, in
connection with both Plympton sites, are not anticipated to be material to
the financial condition of the Registrant.
During 1995, the Registrant voluntarily began a study at its primary
gas distribution facility located in Providence, Rhode Island. As of March
31, 1996, approximately $909,000 had been spent on studies at this site.
In accordance with state laws, such a voluntary study is monitored by the
Rhode Island Department of Environmental Management (DEM). The purpose of
this study was to determine the extent of environmental contamination at
the site. The Registrant has completed the initial phase of the study
which indicates that some clean-up will be required. The Registrant is
currently exploring remediation options for the site and it will be several
months before the range of options is identified. Once the options are
identified, costs will be estimated for each option and the Registrant will
then consult with the DEM before choosing the most appropriate option. At
March 31, 1996, the Registrant does not have a range of options and amounts
have not been specifically accrued for remediation at this site.
Tests conducted following the recent discovery of an abandoned
underground oil storage tank at the Registrants Westerly, Rhode Island
operations center confirm the existence of contaminants at this site. The
Registrant is currently conducting tests at this site, the costs of which
are being shared equally with the prior owner, to determine the nature and
extent of the contamination. Due to the early stages of investigation,
management cannot offer any conclusions as to whether any remediation will
be required at this site.
In its rate case filed in February 1995, the Registrant requested that
environmental investigation and remediation costs be recovered by inclusion
in its depreciation factors consistent with the rate recovery treatment for
all types of cost of removal. Accordingly, environmental investigation
costs of approximately $1.2 million have been charged to the accumulated
depreciation reserve at March 31, 1996. Management believes that this rate
recovery mechanism is appropriate for recovery of future costs. Should
future developments warrant additional rate recovery mechanisms, management
will seek such recovery.
In addition to rate recovery, management has a program to ascertain
the possibility of recovery under prior insurance coverage. Also,
management has begun discussions with other parties who may assist the
Registrant in paying future costs at the above sites. Management believes
that its program for managing environmental issues combined with rate
recovery, probable insurance recovery and financial contributions from
others, will likely avoid any material adverse effect on its results of
operations or its financial condition as a result of the ultimate
resolution of the above sites.
PAGE I-6
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 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
transition costs to net between $18 million and $20 million of which $15.2
million has been included in the Cost of Gas Adjustment Clause(CGA) and is
currently being collected from customers. The remaining minimum obligation
of $2.8 million has been recorded in the accompanying consolidated balance
sheet along with a regulatory asset anticipating future recovery through
the CGA.
The Registrants ultimate liability may differ from the above
estimates based on FERC settlements with the Registrants pipeline
transportation suppliers. FERC has approved settlements with three of its
pipelines, which account for the bulk of the Registrants transition costs.
Negotiations are continuing on one additional pipeline, and based on the
information available, the Registrant believes that its current range for
transition costs is reasonable.
Rate Case
In February 1995, the Registrant filed for rate relief requesting an
approximate 8 percent general rate increase. The major factors
contributing to the rate request were an increase in depreciation due to
capital spending, an
PAGE I-7
increase in working capital needs, and an increase in capital expenditures.
On November 17, 1995, the Rhode Island Public Utilities Commission (RIPUC)
issued its decision on the rate request made by the Registrant. In its
decision, the RIPUC authorized the Registrant to increase its rates to
recover additional annual revenues in the amount of $3,990,000. Subsequent
to the issuance of the rate decision, the RIPUC approved the Registrants
motion to reconsider a revenue adjustment of $171,572. That approval
increases the overall rate increase to $4,161,572. Additionally, as a
result of the Order, the Registrant recorded several adjustments to its
first quarter 1996 financial statements. Specifically:
a) The Registrant began calculating property tax expense for rate purposes
based on the current years expense plus an estimate of one years increase
in expense. Previously, the Registrant was required to estimate two years
increase in expense. As a result, the Registrant reduced its regulatory
liability for one years property tax expense resulting in a one time gain
of approximately $4.1 million before tax.
b) The Registrant wrote-off and will not recover approximately $1.6
million, before tax, of restructuring costs previously deferred. The RIPUC
had previously allowed the Registrant recovery of similar costs, but
determined that the costs of the 1994 reorganization should not be
recovered in rates.
c) The Registrant wrote-off approximately $440,000, before tax, of
previously deferred rate case expenses.
d) The Registrant wrote-off approximately $470,000, before tax, of
construction expenditures previously capitalized. These costs were
capitalized in accordance with generally accepted accounting principles
and were based on Federal Energy Regulatory Commission guidance on
accounting for such costs. The RIPUC agreed that such costs could be
capitalized beginning in 1996, but did not allow recovery of previously
capitalized costs.
New Accounting Pronouncements
Management continues to analyze the new accounting statement,
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. Based on the current regulatory environment,
management does not believe adoption of SFAS No. 121 will have a material
impact on the financial position or results of operations of the regulated
business. Management continues to analyze the effect of the adoption of
SFAS No. 121 on its non-regulated business and has not yet concluded on the
effect the adoption of SFAS No. 121 will have. Adoption of SFAS No. 121 is
required in fiscal 1997 although the Registrant may adopt at an earlier
date.
PAGE I-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Registrant's current operating revenues, operating margin and
net income for the current quarter, six month period and twelve month
period have increased over the comparable periods presented, as shown
in the table below.
THREE MONTHS SIX MONTHS TWELVE MONTHS
ENDED MARCH ENDED MARCH ENDED MARCH
1996 1995 1996 1995 1996 1995
(000's)
Operating revenues $81,107 $66,162 $139,513 $115,464 $208,041 $191,715
================ ================== ==================
Operating margin $34,089 $29,317 $ 60,974 $ 52,493 $ 91,529 $ 83,582
================ ================== ==================
Net income $ 7,788 $ 5,848 $ 12,911 $ 9,155 $ 9,883 $ 7,021
================ ================== ==================
Operating Revenues and Operating Margin
During the latest quarter, the Registrant experienced colder than
normal weather resulting in temperatures averaging 17.0 percent colder
than last year. The increase in heating load due to the colder
temperatures represents approximately $2.6 million in increased
operating margin.
The colder temperatures during the current fiscal year-to-date
period have also averaged 20.3 percent colder than last year. As a
result, operating margin has increased approximately $5.5 million.
Additionally, the Rhode Island Public Utilities Commission (RIPUC)
approved a rate increase of approximately $4.2 million effective December
17, 1995. Operating margin for the current quarter and six month period
versus last year increased approximately $1.7 million and $2.3 million,
respectively, as a result of the rate increase.
PAGE I-9
Operating and Maintenance Expenses
Overall, other operating and maintenance expenses increased, during
the current quarter versus last year, approximately $1.2 million or 10.0
percent. The increase is attributable primarily to a higher
uncollectible revenue provision due to the increased operating revenues
resulting from the colder temperatures, and higher labor costs due to
colder weather, as well as normal increases under negotiated union
contracts and employee merit raises. Other operation and maintenance
expenses increased $2.0 million or 8.9 percent and $3.0 million or 7.0
percent for the six and twelve month periods, respectively, for the
rasons described above.
Taxes
Taxes for the current quarter, six and twelve month periods versus
last year increased approximately $1.3 million or 19.3 percent, $2.4
million or 20.7 percent and $1.6 million or 9.9 percent, respectively.
The increase in taxes, mainly Federal income and state gross receipts
tax, resulted from higher pretax income and higher operating revenues,
respectively.
Other Income
Other income for the six month period versus last year increased
approximately $445,000. The increase is due to regulatory adjustments
including a one-time gain for the regulatory change in accounting for
property taxes which was offset by the write-offs of previously deferred
reorganization and other costs for which recovery was not allowed as part
of the rate award received from the RIPUC on November 17, 1995. (See notes
to consolidated financial statements.)
Interest Expense
Interest expense decreased approximately $30,000 or 1.5 percent for
the current quarter and increased $178,000 or 4.8 percent and $667,000
or 9.7 percent for the six and twelve month periods, respectively. A
decrease in weighted average short-term borrowings caused short-term
interest expense to decrease during the current quarter versus last
year. The Registrant's long-term interest expense for the current
quarter, six and twelve month periods has increased slightly as a result
of the Series R First Mortgage Bond issuance in December 1995.
PAGE I-10
Future Outlook
The Registrant currently owns and operates North Attleboro Gas Company
(North Attleboro Gas), a small gas distribution company with over 3,000
customers located in Massachusetts. The Registrant continues to assess the
long-term strategic fit of North Attleboro Gas. The Registrants assessment
of this operation is part of its periodic evaluation of the strategic fit
and financial performance of all major assets. The Registrant is
considering various options for North Attleboro Gas, including a
restructuring of operations, a request for a rate increase or the possible
sale of North Attleboro Gas to another party. No decision has been made
with respect to this matter and any decision will not likely result in a
material change in the results of operations or the financial position of
the Registrant.
The Financial Accounting Standards Board (FASB) recently released
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, which will be effective for the Registrant in
fiscal 1997. Based on the current regulatory environment, management does
not believe adoption of SFAS No. 121 will have a material impact on the
financial position or results of operations of the regulated business.
Management continues to analyze the effect of the adoption of SFAS No. 121
on its non-regulated business and has not yet concluded on the effect the
adoption of SFAS No. 121 will have. The FASB has also released Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for
Stock-Based Compensation. Although this Statement will increase footnote
disclosures regarding the Registrants stock plans, management does not
believe SFAS No. 123 will have an impact on the Registrants results of
operations or financial position.
There are virtually unlimited opportunities to unbundle services, form
alliances, custom-tailor services for customers, and greatly step-up the
competition with other energy suppliers. To facilitate the transition to a
diversified energy marketer, the Registrant is planning to form business
alliances outside of its traditional utility business. The Registrant is
also seeking investment opportunities in non-regulated energy ventures.
These energy marketing ventures will increasingly be separate from the
distribution utility. There are strategic long-term planning costs
associated with building the new energy business. The Registrant estimates
these costs to be in the range of $400,000 to $900,000 for fiscal year
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant meets seasonal cash requirements and finances its
capital expenditures program on an interim basis through short-term
borrowings. For example, during the latest six months quarter, the
Registrant's accounts receivable and unbilled revenue have increased $37
million. These fluctuations are the result of higher monthly sales during
the latest quarter and a
PAGE I-11
moratorium on residential shut-offs during the heating season. Because of
these increases, which negatively impact cashflow, the Registrant must
borrow to maintain an appropriate level of liquidity. Management believes
its available financings are sufficient to meet these seasonal needs.
The Registrant experienced a sharp decrease in its net cash provided
by operations during the latest quarter as compared to last year, primarily
as the result of gas cost collections. Last year, the net cash provided by
operations increased as a result of the collection of gas costs from a
substantial underrecovery which previously existed.
In December 1995, the Registrant received proceeds of $15 million
related to an issuance of First Mortgage Bonds, Series R (7.5%), which will
mature in December 2025. The net proceeds received from the issuance were
used to pay down short-term debt.
Capital expenditures for the latest fiscal year-to-date period of $8.8
million were stable when compared to $8.5 million last year. Capital
expenditures for the remainder of the fiscal year are expected to be
approximately $11.2 million. Anticipated capital expenditures for the next
three years are expected to total between $55 million to $65 million.
In February 1995, the Registrant filed for rate relief requesting an
approximate eight percent general rate increase. In November 1995, the
RIPUC authorized the Registrant to increase its rates to recover additional
annual revenues in the amount of $3,990,000. Subsequent to the issuance of
the rate decision, the RIPUC approved the Registrants motion to reconsider
a revenue adjustment of $171,572. That approval increases the overall rate
increase to $4,161,572. As part of this award, the Registrant is allowed
to earn a 10.9% return on common equity.
On October 3, 1991, the Massachusetts Department of Public Utilities
(MDPU) approved a settlement order reached between the Massachusetts
Attorney Generals Office and North Attleboro Gas Company. Due to the
magnitude of the award (32 percent), the MDPU ordered North Attleboro Gas
to phase-in the award over a five year period effective November 1, 1991.
As a result of this award, the final revenue increase of $94,445 was phased-
in on November 1, 1995.
In February 1996, the Registrant received approval of a three-year
Settlement Agreement between itself and the Division of Public Utilities
and Carriers (Division) regarding the Integrated Resource Plan (IRP), which
was filed with the RIPUC in July 1994. The purpose of the IRP is to
optimize the utilization of production transmission and distribution
resources so that customers receive high quality services at the lowest
possible costs.
PAGE I-12
The Settlement Agreement provides for: (1) funding associated with
Demand Side Management programs of $500,000, which are designed to provide
equipment rebates for specific load building programs; (2) funding
associated with a low income weatherization program of $200,000, which is
designed to assist low income customers through the installation of
conservation measures; and (3) a performance-based ratemaking mechanism.
The Settlement Agreement also contains a general agreement that the
Registrants strategy and steps included in its supply plan are reasonable.
The Settlement Agreement also provides for a one-time funding of up to
$800,000 for a Low Income Assistance Program (LIAP) through a portion of
the Registrants share of the performance-based ratemaking mechanism. The
LIAP was developed in response to the Registrants anticipated loss of
approximately $1.5 million in Federal funding for the low income heat
assistance program administered by the State of Rhode Island for fiscal
1996.
The funding of these programs is generated through annual gas cost
savings beginning in July 1995. The Registrant has performed a preliminary
analysis of gas cost savings since July 1995 and believes that sufficient
savings have been achieved as of March 31, 1996 to provide funding for
these programs without incurring a charge to income. Although the
Settlement Agreement contains a methodology used to calculate the actual
gas cost savings, the ultimate analysis of savings is subject to RIPUC
review and approval which will occur in the fourth quarter of the fiscal
year.
PAGE I-13
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders was held on January 18, 1996 and
the following nominees to the Registrant's Board of Directors were elected
as Directors for terms expiring at the time of the 1998 annual meeting by
the following vote:
Mr. John H. Howland . 4,060,870 FOR 87,334 WITHHELD
Mr. Douglas H. Johnson 4,063,935 FOR 84,269 WITHHELD
Mr. Romolo A. Marsella 4,077,557 FOR 70,647 WITHHELD
Mr. William Kreykes 4,067,299 FOR 80,905 WITHHELD
Item 6 (a). Exhibits
10.1 Employment agreement dated February 29, 1996 between Patricia O.
Keene, Vice President, Customer Activities of The Providence Gas Company,
and the said Company.
Item 6 (b). Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
PAGE II-1
PROVIDENCE ENERGY CORPORATION
It is the opinion of management that the financial information contained in
this report reflects all adjustments necessary for a fair statement of
results for the period reported, but such results are not necessarily
indicative of results to be expected for the year due to the seasonal
nature of the Registrant's gas operations. All accounting policies and
practices have been applied in a manner consistent with prior periods.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Providence Energy Corporation
(Registrant)
BY:/s/ Gary S. Gillheeney
Gary S. Gillheeney
Senior Vice President,
Treasurer and CFO
Dated: May 14, 1996
PAGE II-2
PROVIDENCE ENERGY CORPORATION
It is the opinion of management that the financial information contained
in this report reflects all adjustments necessary for a fair statement of
results for the period reported, but such results are not necessarily
indicative of results to be expected for the year due to the seasonal
nature of the Registrant's gas operations. All accounting policies and
practices have been applied in a manner consistent with prior periods.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Providence Energy Corporation
(Registrant)
BY:
Gary S. Gillheeney
Senior Vice President,
Treasurer and CFO
Dated: May 14, 1996
PAGE II-2
EMPLOYMENT AGREEMENT
This Employment Agreement is made this 29th day of February,
1996, by and between PROVIDENCE GAS COMPANY, a Rhode Island
corporation with principal offices at 100 Weybosset Street,
Providence, Rhode Island 02903 (the Company), and Patricia O. Keene,
of Harvard, Massachusetts (the Employee), with respect to the
following facts:
1. The Employee is currently employed by the Company as Vice
President; the Company has confidence in the managerial and other
skills of the Employee and desires to continue the employment of the
Employee on the terms and conditions hereinafter contained; and in
order to encourage the full attention by the Employee to her duties in
her capacity aforesaid the Company wishes to make provision for
certain protections for the Employee in the event of the termination
of her employment under specified conditions.
2. The Employee is willing to continue to be employed by the
Company on such terms and conditions and with the benefit of such
protections.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter contained, the parties hereto mutually agree as follows:
1. Term of Agreement
The Company hereby employs the Employee, and the Employee hereby
accepts employment by the Company, for a term commencing with the date
hereof and continuing indefinitely hereafter, subject to termination
in accordance with the provisions of paragraphs 6, 7, and 8, below.
2. Capacity and Responsibilities
The Employee shall be employed by the Company in the capacity of
Vice President of the Company, or in such other executive capacities
or positions as the board of directors of the Company may determine
from time to time, with such duties and authority as customarily
appertain to such office or other capacities or positions, and with
such additional duties and authority as may be agreed upon by the
Employee and the Company from time to time. While in the employ of
the Company, the Employee agrees to serve the Company faithfully and
diligently and to use her best efforts to promote the interests of the
Company.
3. Compensation
The Company agrees to compensate the Employee for her services
rendered hereunder at a rate per annum which shall be commensurate
with the Employees office with the Company and shall be determined
from time to time by the board of directors of the Company, which rate
shall, however, in no case be less than the rate of compensation being
paid to the Employee at the time of execution of this Agreement or
such higher rate as may be in effect for the Employee from time to
time during her employment by the Company. Such compensation shall be
payable in substantially equal monthly installments, in arrears, or in
such other installments, not less often than monthly, as the board of
directors of the Company may approve from time to time, subject to
such withholdings and deductions as may be required by law. For the
purposes of this paragraph, the term compensation shall mean the
Employees base annual compensation as established by the board of
directors and shall exclude (i) any incentive pay, bonuses, or similar
compensation, (ii) the value of any fringe benefits, and (iii)
contributions by the Company to or for the account of the Employee
under the Voluntary Investment Plan of Providence Energy Corporation
or any other contributory plan of Providence Energy Corporation or of
the Company in effect from time to time.
4. Reimbursement of Expenses
The Employee shall be reimbursed for such expenses as may be
reasonably incurred in connection with the carrying out of the
Employees duties hereunder, subject to the presentation of vouchers
in such detail as the board of directors may require from time to
time.
5. Vacation; Fringe Benefits
The Employee shall be entitled to the same vacation privileges
and other fringe benefits as those enjoyed by other salaried employees
of the Company generally, but subject to such variations as may be
determined by the board of directors of the Company from time to time
to reflect differences between the compensation levels and terms of
employment of the Employee and other salaried employees of the
Company. In any case, such vacation privileges and other fringe
benefits shall at no time be less favorable to the Employee than those
currently enjoyed by the Employee.
6. Termination (Absent Change in Control)
If there shall have been no Change in Control (as defined
hereinafter), this Agreement and the employment of the Employee
hereunder may be terminated as follows:
(a) by the Employee, on not less than thirty (30) days notice
to the Company; or
(b) by the Company, on not less than thirty (30) days notice to
the Employee; provided, that if the termination of the Employees
employment by the Company shall be without cause (as defined
hereinafter), the Employee shall be entitled to the payment of an
amount equal to the Employees annual compensation (as defined in
paragraph 3, above), as reportable to the Internal Revenue Service for
federal income tax purposes, at the rate in effect immediately prior
to such termination, such amount to be paid to the Employee in twelve
(12) consecutive equal monthly installments on the last day of each
month beginning with the month next following the month in which the
termination is effective. If and for as long as the Employee is
entitled to payments under this paragraph, the Company will continue
to provide to the Employee, at the Companys expense, the health and
medical insurance benefits being provided to the Employee at the time
of termination of her employment.
7. Termination (After Change in Control)
(a) If a Change in Control shall have occurred, this Agreement
and the employment of the Employee hereunder may be terminated as
follows:
(i) by the Employee, on not less than thirty (30) days
notice to the Company; or
(ii) by the Company at any time on not less than thirty (30)
days notice to the Employee, provided that (A) if there shall have
been a Change in Employment Conditions, as defined hereinafter, prior
to the exercise by the Employee of her termination rights referred to
above, or (B) if the termination of the Employees employment by the
Company shall be without cause (as defined hereinafter), then in
either case the Employee shall be entitled to the payment of an amount
equal to the sum of (i) the aggregate of her compensation (as defined
in paragraph 3, above) paid or payable with respect to the thirty-six
(36) months of employment next preceding the date of termination, as
reportable to the Internal Revenue Service for federal income tax
purposes, plus (ii) the aggregate of the amounts paid or payable under
the Providence Energy Corporation Performance and Equity Incentive
Plan (or under such other incentive plan of the Company or of
Providence Energy Corporation as may be in effect from time to time)
for the (3) full fiscal years next preceding the date of termination.
Such amount shall be paid to the Employee in twenty-four (24)
consecutive equal monthly installments on the last day of each month
beginning with the month next following the month in which the
termination is effective. If and for as long as the Employee is
entitled to payments under this paragraph, the Company will continue
to provide to the Employee, at the Companys expense, the health and
medical insurance benefits being provided to the Employee at the time
of termination of her employment.
(b) Any payment provided for in paragraph 6(b) or in
subparagraph (a), above, shall be made without reduction whether or
not any portion thereof shall be deemed an excess parachute payment
under the provisions of Section 280G of the Internal Revenue Code of
1986, as the same may be amended from time to time.
(c) For the purposes of this Agreement, the Employees
employment shall be deemed to have been terminated for cause only if
there shall have been an act of fraud, misappropriation, or
embezzlement on the part of the Employee. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated
for cause unless and until there shall have been delivered to the
Employee a copy of a resolution duly adopted by the unanimous vote of
the entire membership of the Companys board of directors at a
meeting of such board duly called and held for that purpose (after
reasonable notice to the Employee and an opportunity for the Employee,
together with the Employees counsel, to be heard by the board)
finding that in the good faith opinion of the Board the Employee was
guilty of conduct set forth in the first sentence of this subparagraph
(c) and specifying the particulars thereof in detail.
8. Other Termination
(a) Notwithstanding the provisions of paragraphs 6 and 7, above,
this Agreement and the employment of the Employee hereunder shall
terminate without further action by either party upon the earlier of
(i) the attainment by the Employee of her normal retirement
age under the Companys pension plan for salaried employees;
(ii) the permanent disability of the Employee; or
(iii) the death of the Employee; provided, that if at
the time of her death the Employee is entitled to payments under
paragraph 6(b) or paragraph 7(a), above, such payments shall be made
following her death to her estate.
(b) For the purposes of this Agreement, the Employee shall be
deemed to be permanently disabled if (i) on the basis of medical
evidence reasonably satisfactory to the board of directors of the
Company, the board of directors finds that the Employee is unable to
carry out substantially her duties hereunder as a result of bodily
injury or disease, or mental condition, either occupational or non-
occupational in cause, and (ii) such disability shall have continued
for a period of six (6) consecutive months.
(c) If the Employee and the Company shall not be in agreement as
to whether she is permanently disabled for the purposes of this
Agreement, the matter shall be referred to a panel of three medical
doctors, one of which shall be selected by the Employee, one of which
shall be selected by the Company, and one of which shall be selected
by the two doctors as so selected, and the decision of a majority of
the panel with respect to the question of whether the Employee is or
is not permanently disabled shall be binding upon the Employee and the
Company. The expenses of any such referral shall be borne by the
party against whom the decision of the panel is rendered. The
Employee may be required by the Company to submit to medical
examination at any time during the period of her employment hereunder,
but not more often than quarter-annually, to determine whether a
permanent disability exists for the purposes of this Agreement.
9. Definition of Change in Control
For the purposes of this Agreement, a Change in Control shall be
deemed to have occurred if
(a) there shall be consummated (i) any consolidation or merger
of Providence Energy Corporation, a Rhode Island corporation
and the holder of all of the outstanding capital stock of
the Company (Providence Energy), in which Providence
Energy is not the continuing or surviving corporation, or
pursuant to which shares of Providence Energys common stock
are converted into cash, securities, or other property,
other than a merger of Providence Energy in which the
holders of Providence Energys common stock immediately
prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after
the merger, or (ii) any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all of substantially all of the assets of
the Company; or
(b) the shareholders of the Company or of Providence Energy
approve any plan or proposal for the liquidation or
dissolution of the Company or of Providence Energy; or
(c) any person (as such term is used in Sections 13(d) and 14
(b)(2) of the Securities Exchange Act of 1934, as amended
[the Exchange Act]), other than Providence Energy or a
successor corporation resulting from a merger excluded under
clause (i) of subparagraph (a), above, shall become directly
or indirectly the owner or the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of thirty
percent (30%) or more of the outstanding common stock of the
Company, or any person (as such term is so used) shall
become directly or indirectly the owner or the beneficial
owner (within the meaning of Rule 13d-3 under the Exchange
Act) of thirty percent (30%) or more of the outstanding
common stock of the Company, or any person (as such term is
so used) shall become directly or indirectly the owner or
the beneficial owner (within the meaning of said Rule 13d-3)
of thirty percent (30%) or more of the outstanding common
stock of Providence Energy.
10. Definition of Change in Employment Conditions
For the purposes of this agreement, a Change in Employment
Conditions shall mean any of the following:
(a) the assignment to the Employee by the Company of duties
inconsistent with the Employees position, duties,
responsibilities and status with the Company as Vice President,
or a change in the Employees titles or offices as in effect
immediately prior to a Change in Control, or any removal of the
Employee from any of such positions, except in connection with
the termination of her employment for cause or as a result of the
Employees retirement, permanent disability, or death;
(b) a reduction by the Company in the Employees compensation
(as defined in paragraph 3, above) as in effect on the date
hereof or as the same may be increased from time to time during
the term of this Agreement, or the Companys failure to increase
(within twelve (12) months of the Employees last increase in
compensation) the Employees compensation after a Change in
Control in an amount which at least equals, on a percentage
basis, the weighted average percentage increase in compensation
for all officers of the Company effected in the preceding twelve
(12) months;
(c) any failure by the Company or Providence Energy to continue
in effect any benefit plan or arrangement in which the Employee
is participating at the time of a Change in Control (or any other
plans providing the Employee with substantially similar benefits)
(hereinafter referred to as Benefit Plans), or the taking of
any action by the Company or by Providence Energy which would
adversely affect the Employees participation in or materially
reduce the Employees benefits under any such Benefit Plan or
deprive the Employee of any material fringe benefit enjoyed by
the Employee at the time of a Change in Control;
(d) a relocation of the Companys principal executive offices to
a location outside of the greater Providence, Rhode Island, area,
or the Employees relocation to any place other than the location
at which the Employee performed her duties prior to a Change in
Control, except for required travel by the Employee on the
Companys business to an extent substantially consistent with the
Employees business travel obligations at the time of a Change in
Control;
(e) any failure by the Company to provide the Employee with the
number of paid vacation days to which the Employee is entitled at
the time of a Change in Control; or
(f) any breach by the Company of any material provision of this
Agreement.
11. Confidentiality and Noncompetition.
(a) Confidentiality. During the term of this Agreement and
thereafter in perpetuity, the Employee will not directly or indirectly
divulge or appropriate to her own use, or to the use of any third
party, any Trade Secrets, other secret or Confidential Information,
knowledge or financial information of the Company or any of the
Companys subsidiaries or affiliates (hereinafter, the Company and its
subsidiaries and affiliates shall be collectively referred to as the
Company Group), except as may be in the public domain other than by
violation of this Agreement.
(b) Noncompetition. From the date hereof until two (2) years
after the termination of her employment hereunder, the Employee will
not (i) directly or indirectly own any equity or proprietary interest
in (except for ownership of shares in a publicly-traded company not
exceeding 5% of any class of outstanding securities), or be an
employee, agent, director, advisor, or consultant to or for any
corporation (other than the Company Group), business enterprise, or
any person engaged anywhere in the State of Rhode Island or the
Commonwealth of Massachusetts, whether on her own behalf or on behalf
of any person other than the Company Group, in the manufacture,
procuring, sale, marketing, promotion, or distribution of any product
or product lines functioning competitively with any product or product
lines of the Company Group during the term of this Agreement, and the
Employee will not assist in, manage, or supervise any of the foregoing
activities; (ii) undertake any action to induce or cause any customer
or client of the Company Group to discontinue any part of its business
with the Company Group; (iii) cause, induce or in any way facilitate
the employment by any other person or organization of any employee of
or consultant to the Company Group, provided, that this covenant shall
become operative only upon the termination of the Employees
employment; or (iv) take or assist directly or indirectly in the
taking, by acting as consultant to a third party or otherwise, of any
position on any matter involving the Company and pending before any
state or other public agency, when such position is adverse to the
position being promoted before such agency at the time by the Company.
(c) Definitions. Trade Secrets as used herein means all
secret discoveries, inventions, formulae, designs, methods, processes,
techniques of production and know-how relating to the Company Groups
business. Confidential Information as used herein means the Company
Groups internal policies and procedures, suppliers, customers,
financial information, and marketing practices, as well as secret
discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Groups
business not rising to the level of a trade secret under applicable
law.
(d) The breach by the Employee of any of the covenants contained
in this paragraph 11 shall relieve the Company of all further payment
obligations under paragraph 6 or paragraph 7.
12. Successor to the Company
The Company will require any successor to or assignee of (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
all or substantially all of the business and/or assets of the Company,
by agreement, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession or assignment had taken place. Any failure of the Company
to obtain such agreement prior to the effectiveness of any such
succession or assignment shall be deemed a breach of a material
provision of this Agreement. As used in this Agreement, Company
shall include any successor to or assignee of the Companys business
and/or assets as aforesaid which executes and delivers the agreement
provided for in this Paragraph 12 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
13. Performance and Equity Incentive Plan
Nothing in this agreement shall be deemed to alter or modify in
any way such rights as the Employee may now or in the future have
under the 1992 Performance and Equity Incentive Plan (the Plan) of
Providence Energy Corporation, as the same may be amended from time to
time, including without limitation rights of the Employee with respect
to the accelerated vesting of Grant Shares (as defined in the Plan)
under certain circumstances as provided in the Plan.
14. Notices
Any notice given or required to be furnished to the Employee
under this Agreement shall be mailed to her by registered mail,
postage prepaid, at her last-known mailing address as the same appears
on the records of the Company, or at such other address as she may
furnish to the Company in writing for the purpose. Any notice given
or required to be furnished to the Company hereunder shall be mailed
to it by registered mail, postage prepaid, at 100 Weybosset Street,
Providence, Rhode Island 02903, attention: Secretary, or at such
other address as the Company may furnish to the Employee in writing
for this purpose. Any such notice shall be deemed to have been given
when mailed in accordance with the foregoing.
15. Termination of Prior Employment Agreements
This Agreement is intended to supersede all prior employment
agreements, oral or written, between the Employee and the Company, all
of which are hereby terminated and cancelled. Neither the Company nor
the Employee shall have any further rights against or obligations to
the other under any of such prior agreements.
16. Binding Effect, etc.
This Agreement shall be binding upon and inure to the benefit of
the Employee and her heirs and the representatives of her estate. The
interests of the Employee hereunder shall not be assignable. This
Agreement shall also be binding upon and shall inure to the benefit of
the Company and its successors and assigns.
17. Applicable Law
This Agreement fshall be governed in all respects by the laws of
the State of Rhode Island.
IN WITNESS WHEREOF, the parties have executed this employment
Agreement as of the day and year first above written.
PROVIDENCE GAS COMPANY
BY:_____________________________ _________________________
James H. Dodge Patricia O. Keene
Chairman, President, and CEO
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88,842
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